The full annual report features the investment case, key performance indicators (KPIs), and alignment with the UN Sustainable Development Goals for the top holdings in each theme of the Global Impact and the Global Impact Bond Funds. Here we share our Affordable housing investment spotlights.
Affordable housing Clean water & sanitation
Health Sustainable agriculture & nutrition
Digital divide
Education & job training Financial inclusion Safety & security
Alternative energy Resource efficiency
Resource stewardship
Sample investment spotlights >
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LIVING CONDITIONS: An estimated 1.6 billion people will lack adequate housing by 2025.1
POVERTY REDUCTION: Access to affordable housing is one of the most cost-effective strategies for reducing childhood poverty.2
The demand for affordable housing remained high in 2021 as economies grappled with the continuing impacts of COVID-19 and ensuing economic slowdowns. Government support for the newly unemployed has been patchy in many countries, exacerbating the near-term challenges. As a secular theme, we see affordable housing as an ongoing essential need that can accrue health and wellness benefits to families and communities and create and sustain economic value.
We believe access to safe, affordable housing allows people to focus more on overall well-being and upward mobility and less on basic survival. With less day-to-day stress, families can concentrate on education and career building, potentially leading to better educational outcomes, higher earning potential, and lower health care costs.
We see affordable housing as an ongoing essential need that can accrue wellness benefits to families and communities, creating and sustaining economic value.
In 2021, our Global Impact and Global Impact Bond Funds invested in companies and organizations combating homelessness and addressing the need for safe, affordable shelter.
In the Global Impact Fund, we owned shares of a manufactured-home community operator with sites across the US and Canada. The company provides single-family homes for sale or rent at approximately one-half to one-third the cost of local two-bedroom apartment rents, while looking to increase the energy efficiency of its units.
In Japan, we invested in a company that rehabilitates dilapidated or abandoned homes (which would otherwise be torn down) and resells them to first-time and low-income home buyers at affordable prices. The portfolio continued to own a French company that provides high-quality affordable housing to low- to middle-income renters and home buyers. The company operates primarily in the Paris region, where it builds multifamily properties.
Within the Global Impact Bond Fund, we invested in debt issued by US government agencies that provide financing for low-income multifamily housing. We invested in loans underwritten by a California organization that serves as an intermediary between builders and financial institutions, providing access to capital for Low Income Housing Tax Credit developments throughout California that target low-income families, seniors, and residents with special needs. We believe these issuers are positively impacting society by supplying financing or directly providing underserved populations with a basic necessity: secure, affordable housing.
1 King, R. et al., “Confronting the Urban Housing Crisis in the Global South: Adequate, Secure, and Affordable Housing,” World Resources Institute, 2017. 2 Multiple studies cited in “A Place to Call Home: The Case for Increased Federal Investments in Affordable Housing,” Campaign for Housing and Community Development Funding (CHCDF).
QUALITATIVE ASSESSMENT (How has company delivered relative to our expectations?)
Vonovia continues to provide high-quality affordable housing units, evidenced by high levels of customer satisfaction that increased over the pandemic. We are encouraged by its tenant outreach and consultation process as well as the discounted rates offered to social organizations.
Meets expectations
ENGAGEMENT PRIORITIES (Issues on which we are looking to engage/ have engaged in the prior 12 months)
As Vonovia’s balance-sheet leverage has increased, we have engaged on the company’s strategic direction and potential modifications under new company leadership.
Portfolio spotlight examples are based on non-performance-based criteria. For information on how we selected the portfolio spotlight examples, please see the Important disclosures section. Portfolio spotlight examples are for illustrative purposes only, are not representative of all investments made by the portfolio, and should not be interpreted as specific security recommendations or advice. It should not be assumed that an investment in the examples has been or will be profitable. Actual holdings vary for each client, and there is no guarantee that a particular client's account will hold the examples presented. Key Performance Indicator data is based on issuer or company reporting, press releases and websites, proxy data, and Wellington analysis. While data is believed to be reliable, no assurance is being provided as to its accuracy or completeness. Wellington determines the UN SDG goals and targets that, in our view, each portfolio company or issuer is aligned with. Language for the goals and targets has been abbreviated, but not otherwise altered, from UN.org.
PORTFOLIO INVESTMENT SPOTLIGHT EQUITY
IMPACT THEORY OF CHANGE (How will investment in company’s/issuer's products and services help solve this specific impact challenge? Why does our investment lead to progress?)
Investments in Vonovia provide affordable housing at a lower price point relative to standard local comparative rents in Germany, Austria, and Sweden. Vonovia reduces costs per residential unit through economies of scale. Affordable housing facilitates greater social and financial stability for its tenant base.
FIVE DIMENSIONS OF IMPACT (Based on the framework formulated by the Impact Management Project)
WHAT
Lives and communities improved by access to affordable housing
Aspirational
WHO
Number of tenants housed
> 1 million
HOW MUCH
Affordable housing units under management
636,507
CONTRIBUTION
Reduction in monthly rent per square meter compared to market average (Germany)
12%
RISK
Execution: Potential deterioration in housing quality over time
Moderate significance/ low probability
UN SDG ALIGNMENT Sustainable Cities and Communities
TARGET 11.1 By 2030, ensure access for all to adequate, safe and affordable housing and basic services and upgrade slums
NEGATIVE IMPACTS Environmental impact of operations and supply chain
SCALE Narrow
MITIGATION EFFORTS Sufficient WILLINGNESS TO ENGAGE High
PORTFOLIO INVESTMENT SPOTLIGHT FIXED INCOME
IMPACT THEORY OF CHANGE
The Philadelphia Redevelopment Authority is a public body. These social bonds form part of the financing of the Neighborhood Preservation Initiative, intended to preserve access to critical affordable housing as well as promote economic activity and the welfare of the residents of Philadelphia. It includes rental assistance, loans, and grants to facilitate housing repairs and grants/loans for first-time home buyers.
FIVE DIMENSIONS OF IMPACT
Enable the provision and maintenance of quality affordable housing to residents of Philadelphia in need
Share of renters paying at least 35% of their income toward housing Share of homeowners paying at least 35% of their income toward housing
49% 28%
Size of grants or forgivable loans to first-time and eligible homebuyers
Up to US$10,000
2021 funding allocated to preserve and develop affordable housing
US$44.4 million
Execution: Program may fall short in providing sufficient affordable housing
Moderate significance/ moderate probability
NEGATIVE IMPACTS Potential difficulties in getting access to loans, grants, and information about eligibility
SCALE Moderate
MITIGATION EFFORTS Sufficient
QUALITATIVE ASSESSMENT
Over the life of the program, the Neighborhood Preservation Initiative will provide up to US$400 million for citywide investments in affordable housing and other social initiatives. We are encouraged by the planned levels of disclosure and reporting, which include details on the socioeconomic characteristics of the beneficiaries. Meets expectations
ENGAGEMENT PRIORITIES As the bond has only recently been issued, we have not yet seen a social bond impact report. We look forward to discussing with the issuer future disclosure on the ultimate social benefit of the bonds and the Neighborhood Preservation Initiative.
Portfolio spotlight examples are based on non-performance-based criteria. For information on how we selected the portfolio spotlight examples, please see the important disclosures section. Portfolio spotlight examples are for illustrative purposes only, are not representative of all investments made by the portfolio, and should not be interpreted as specific security recommendations or advice. It should not be assumed that an investment in the examples have been or will be profitable. Actual holdings vary for each client, and there is no guarantee that a particular client's account will hold the examples presented. Key Performance Indicator data is based on issuer or company reporting, press releases and websites, proxy data, and Wellington analysis. While data is believed to be reliable, no assurance is being provided as to its accuracy or completeness. Wellington determines the UN SDG goals and targets that, in our view, each portfolio company or issuer is aligned with. Language for the goals and targets has been abbreviated, but not otherwise altered, from UN.org.
