Divercity Urban Property Fund: Jewel City Precinct

Describe how you identify positive and negative sustainability outcomes related to your investments.

Divercity delivers market-beating returns for investors while making an outsized positive social and environmental contribution by investing private institutional capital at scale in centrally-located affordable rental housing precincts in South Africa. Jewel City, the project being submitted for this award, is one such ongoing mixed-use precinct development located in central Johannesburg. The Jewel City precinct investment comprises over 2,000 affordable rental housing units, complemented with top-tier primary to secondary education facilities, financial institutions, retail units, sporting and recreational facilities, healthcare, and commercial office facilities. It demonstrates a scalable, institutional, capital-led private investment approach to delivering affordable housing in a developing context.

Divercity’s affordable housing investment approach is benchmarked against the UN Sustainable Development Goals (SDGs) to identify opportunities for positive impact (arising from Divercity’s impact aspirations and commitments) and mitigating risks of negative impacts (areas with assessed risk potential that require mitigation). In practice, the positive and negative impact areas are never cleanly divided, but the structuring of the identification of risks and impacts using this framework allows for a more rigorous, methodological investment approach.

Divercity’s investment approach is benchmarked against two primary SDGs:

SDG 11 – Sustainable cities and communities

Positive outcomes:

• Investment portfolio of about 6,700 well-located, urban, affordable housing units and about 90,000m² of commercial office and retail gross lettable area.
• Precincts offer low- and middle-income households the opportunity to live in wholesome urban environments.
• Curation of safe living, working, recreational and educational facilities for families and women, free from physical or sexual harassment.
• Access to amenities within the urban core.

Negative outcomes:

• The development of affordable housing in the urban core increases pressure on municipal services and infrastructure.
• The population density increase may lead to a rise in urban solid waste volumes.
• There may be an adverse per capita environmental impact on urban air quality if precinct tenants opt to use private transport over the multi-modal public transport options located next to the affordable housing precincts.

SDG 13 – Climate action

Positive outcomes:

• The ongoing Jewel City precinct development is a well-located, non-sprawling, affordable housing project that goes against the established pattern of developing affordable housing at the urban edge.
• Divercity undertook a quantitative study, in partnership with Green Building Council South Africa and the engineering consultancy firm ARUP, which highlighted a growing gap between the lower embodied and lifestyle carbon emissions generated by building denser housing in the well-connected urban core versus higher emissions from building in the disconnected urban periphery. The study identified if all new housing in Johannesburg is built on the urban periphery by 2050, it could reach 224 MtCO₂ e – a startling 10 times the total annual carbon emissions of Johannesburg in 2016.

Negative outcomes:

• Divercity minimises the embodied and lifestyle carbon emissions of its developments through sustainable construction material selection and carbon reduction targeting design.

 

Give an overview of your sustainability outcome policies and/or targets, explaining the methodology for establishing them.

Divercity places a particular emphasis on sustainability, which goes beyond compliance. We have some of the highest and broadest positive environmental and social impact of any for-profit company in South Africa – as outlined in our three sustainability theory of change (ToC) outcomes. The three ToC outcomes listed below link to the SDGs whilst enabling better financial returns for Divercity’s private institutional capital investors.

ToC policy outcome 1 - A more prosperous and equitable society

General:

• Divercity affordable housing investments use private institutional capital to redress Apartheid’s spatial divide, which relegated majority sectors of the populace to the urban periphery, with little or no access to amenities, economic opportunities, or transport options.

Primary SDGs:

• SDG 11 – Sustainable cities and communities (positive and negative outcomes detailed above).

Secondary SDGs:

• SDG 1 – No poverty: Well-located housing reduces commuting costs for school children and workers.
• SDG 3 – Good health and well-being: National healthcare provider tenants are intentionally located within precincts.
• SDG 4 – Quality education: Pre-school, primary, and secondary education institutions comprise anchor tenants within precincts.
• SDG 5 – Gender equality: Safety teams patrol Divercity’s precincts to encourage families and women to feel safe. The ability to leave children in pre-school enables increased economic participation from mothers and reduces unemployment in that key demographic.
• SDG 10 – Reduced inequalities: Divercity’s well-located precincts provide access to economic participation opportunities for lower- and middle-income families.

 Sustainability outcome annual KPIs:

• Number of new people housed (change from the previous year)
• Direct and indirect jobs created
• Retain 2X Challenge certification for number of female-headed tenant households
• Investment made into renewable energy initiatives per annum (ZAR)
• Investment made into water-saving initiatives per annum
• ECD beneficiaries through day-care centre (number of)
• Estimated commuting time and cost saved by residents (per annum, hours)
• Average household income of tenants

ToC policy outcome 2 - Greater environmental sustainability

General:

• Well-located housing is feasible to deliver large-scale city-wide carbon emission reductions, limit sprawl, and preserve natural habitats.

Primary SDGs:

• SDG 11 – Climate action (positive and negative outcomes detailed above).

 Secondary SDGs:

• SDG 6 – Clean water and sanitation: Divercity has committed to seek IFC EDGE certification on all its new developments, with ongoing commercial viability assessment on its legacy portfolio. If this is not completed, Divercity’s high-density precincts could place significant pressure on municipal water resources.
• SDG 7 – Affordable and clean energy: Tenants benefit from assured lighting from renewable energy in the investment portfolio.

Sustainability outcome annual KPIs:

• Number of IFC EDGE-rated portfolio units
• Estimated carbon emissions prevented from operations (tonnes)
• Investment in renewable energy initiatives per annum (ZAR)
• Reduction in grid electricity consumed from previous year (%)
• Investment in water-saving initiatives per annum
• Average amount of water consumed per square metre of portfolio area (kl/m²)
• ECD beneficiaries through day-care centre (number of)

ToC policy outcome 3 - Broad-based economic growth

General:

• Well-located affordable housing precincts reduce commuting time and costs. Divercity’s about 6,700 households provide a considerable market for small to medium enterprise products and services.

Primary SDGs:

• SDG 11 – Sustainable cities and communities (positive and negative outcomes detailed above).

Secondary SDGs:

• SDG 1 – No poverty: Well-located housing reduces commuting costs for school children and workers.
• SDG 4 – Quality education: Pre-school, primary, and secondary education institutions comprise anchor tenants within precincts. High-quality private school education institutions find it commercially viable to provide services within Divercity’s high-density precincts.
• SDG 8 – Decent work and economic growth: Significant commercial tenants provide employment opportunities within the precincts.
• SDG 10 – Reduced inequalities: Divercity’s well-located precincts provide access to economic participation opportunities.

Sustainability outcome annual KPIs:

• Direct and indirect jobs created
• Number of people housed
• Investment in renewable energy initiatives per annum (ZAR)
• Investment in water-saving initiatives per annum
• ECD beneficiaries through day-care centre (number of)
• Total CSI spend (ZAR)
• Estimated commuting time and cost saved by residents (per annum, hours)
• Retain 2X Challenge certification for number of female-headed tenant households
• Average household income of tenants

The three ToC policy outcomes highlighted above apply to 100% of Divercity’s AuM portfolio and to the ongoing Jewel City precinct development project.

 

Explain how you have sought to increase positive and decrease negative sustainability outcomes.

Divercity invests private institutional capital into above-market-return affordable housing precincts with top-tier primary to secondary education facilities, financial institutions, national retail shops, sporting and recreational facilities, healthcare, and commercial office facilities. To achieve these intertwined financial and impact results, Divercity uses the following levers:

Investment Allocations

• Divercity’s strategy achieves diversification from city-specific risks by developing precincts in major metropolitan nodes across South Africa. The backbone of any Divercity precinct is well-located affordable rental housing, which typically makes up 70-80% of a precinct’s built-up area.
• The demand for well-located affordable rental housing, coupled with the rise of residential as an investment-grade portfolio class, sets the scene to sustainably deploy large sums of capital. With a stable portfolio of high-quality assets and prudent capital and financial management expertise, Divercity is well-positioned to capitalise on this opportunity and enjoy sustainable growth.
• Divercity’s well-located precincts provide access to economic participation opportunities for lower- and middle-income families.
• The development of affordable housing in the urban core increases pressure on municipal services and infrastructure. Divercity has contracted bridging services while the municipality increases its capacity.

Stewardship

• Divercity has a fully internalised fund management, asset management, and development management model, preventing fee leakage and ensuring alignment between institutional investors and management. The economies of scale associated with these management functions decrease the marginal cost of management as the fund grows, providing a further uplift in shareholder return.
• Divercity has institutional shareholders that demand the highest standards of corporate governance. Divercity’s board is comprised of an experienced majority of non-executive Directors who exercise oversight over the executive management’s financial and impact strategy execution.

Engagement with stakeholders

• Divercity proactively interacts with relevant spheres of government to positively influence spatial planning, and climate action planning toward sustainable uses of limited urban land. This engagement also prioritises adequate planning and budgetary resources for public transport. This reduces use of private modes of transport.
• Divercity’s founding partners include Atterbury Property, Ithemba Property, JSE-listed RMB Holdings and Nedbank Property Partners. Further investment has been raised from British International Investment (formerly the CDC Group), and leading local impact investor Futuregrowth.
• Divercity is a member of, and active contributor to, several organisations and NGOs that promote better urban form, promote responsible investment, invest in inner-city rejuvenation, and share industry best practice.
• Divercity aims to contribute to the global sustainable cities and communities’ body of knowledge as an active participant in academic research.
• Divercity provides sustainability KPI data at portfolio level.

 

Describe how you are tracking performance against your sustainability outcomes targets and/or policies (qualitative and quantitative).

Performance tracking

• Divercity has formed a Social, Ethics and Impact investment management Committee (SEICom). The SEICom undertakes a quarterly review of progress against the sustainability KPIs laid out in Diversity’s Environmental & Social Management System (ESMS) and any ad-hoc impact action plans.
• Divercity provides sustainability KPI data at portfolio level. This upward flow of sustainability outcome data to Divercity’s institutional investors ensures that sustainability outcomes create a positive capital cycle loop and are subject to external scrutiny, which avoids the possibility of “greenwashing.”
• The most significant learning from Divercity’s strategy has been the confirmation of the possibility of attracting largescale private institutional capital investors to deliver affordable housing with no government subsidies.

Key learnings to date

• The ability of Divercity’s impact-focused for-profit portfolio to deliver above-market benchmark returns through active portfolio asset management and internalised property management, has made it a desirable investment destination for local and international institutional investors. Divercity’s “self-contained” mixed-use precinct investment approach is scalable and adaptable to many inner-city locations worldwide.
• To succeed, there must be a fundamental belief held within executive management, the Board and investors/shareholders in the inherent power of delivering sustainable outcomes using a for-profit investment vehicle. The affordable housing product has to address the housing and amenity needs of the target lower to middle-income housing market base, emphasising quality affordable housing units. This makes the offering a counter-cyclical investment portfolio product.
• To support buy in, it is essential to use international benchmarks/standards when making sustainability commitments.