The results of JTC and OpportunityDb’s Impact Investing Survey are in, providing information on the current status of Opportunity Zones.
Since the initiative was first passed in 2017, JTC has strived to help Opportunity Zones do the good they’re intended to do by providing solutions that allow OZ funds to better serve their investors and community stakeholders. In order to properly serve this sector and help it thrive, we need accurate information about how Opportunity Zones are doing, and that includes how they’re viewed by the public.
JTC and OpportunityDb recently collaborated on a wide-ranging survey about opinions on ESG and Impact investing both in the US and abroad, including perceptions of OZ. The survey report is now complete and offers insights not only into how people perceive OZ, but what is really driving investor interest.
The Survey Report
Titled, “The Next Phase of ESG + Impact Investing is Here. Are You Ready?” the report is based on a wide-ranging survey conducted by JTC and OpportunityDb “drawing on the insights of nearly 300 advisors, fund managers, and investors across the US and Europe.” The survey covered many issues, including how US and European respondents differ on their opinions of Impact investing and ESG and whether people actually know the difference between those two terms.
For OZ funds, the report gives us a chance to compare this year’s results to the results of the 2022 survey report. By doing so, we can see if efforts within the industry to better communicate the value of investing in Opportunity Zones have been effective.
What we learned about Opportunity Zones in 2022
JTC and OpportunityDb’s 2022 report, Opportunity Zones in 2022: Perception vs. Reality, helped shed light on who was investing in OZ and why. Overall, opinions were positive, even among those who hadn’t invested, with 3 in 4 saying Opportunity Zones were equally advantageous for communities and investors. And with 62% of investments being $500,000 or less, the survey showed OZ wasn’t just for the super-wealthy.
The 2022 survey also helped us understand what potential investors were looking for, with 31% saying their biggest consideration was “measurable impact on communities,” a greater percentage than among those who’d already invested. 58% of those who’d considered OZ but hadn’t yet invested responded positively to the prompt, “I would be willing to accept a lower financial return if I was investing in a good impact project.”
This issue of whether investors must accept lower returns in order to achieve impact has always been a difficult hurdle for Impact fund managers to overcome, and was discussed at our recent webinar, “The Evolution Toward Impact Investing: Rising Above the Noise,” where a panel of experts broke down the 2023 survey results in detail.
“I do think there is a very strong perception out there that you have to trade off return for impact,” said Trisha Miller, Executive Managing Director, Capital Markets at Redbrick LMD. Regarding investors being willing to accept those returns, she said, “I think that’s very admirable, but not necessary.”
She added that “battling this perception issue” has long been a part of Redbrick’s efforts, because as a company, they “are adamant that you don’t have to accept a lower return.”
While the 2022 survey results were encouraging for the future potential of OZ and useful in fighting misconceptions about the program, they also provided clues as to what may have been holding OZ back. As it turned out, many survey respondents didn’t even know that OZ investments were Impact investments, with only 27% saying they were “very familiar” with the relationship between OZ and Impact investing.
The 2022 survey made it clear that the industry needed to do a better job of communicating the positive effects of OZ investments to combat negative press in the media, and that industry stakeholders wanted better measurement and reporting on impact. Now that a year has passed, has anything changed? Has the industry done a better job of communicating with investors and potential investors, or are we still facing the same problems?
What the 2023 survey report tells us about the state of Opportunity Zones
The 2023 survey report has some encouraging results for Opportunity Zones. As noted in the report, “Sixty-four percent of advisors and investors are currently investing (or have invested) in an OZ, and 51% of fund managers have launched at least one OZ fund. These investors are interested in a wide range of OZ funds, from real estate to operating businesses to energy, and most describe the program (accurately) as both a tax incentive and economic development tool.”
Respondents also had a wide range of preferred markers for social impact, including “Internet accessibility, improved access to healthcare, and decreases in food deserts and crime.” This shows that both investors and fund managers are thinking critically about measurable outcomes.
As for how the results differ from the previous year, there were some encouraging signs. “Significantly more respondents” viewed OZ in a positive light when compared to the 2022 report, with only 3% having a negative view of OZ.
And what about the notion that one must accept lower returns in exchange for impact? According to the report, “Most (69%) also agree that accepting a lower financial return isn’t usually necessary for achieving high social impact.”
At the webinar, Reid Thomas, said this was a major improvement, because when OZ first started, “it was often just perceived that if a fund manager was talking about impact, the return must be low, and this chart seems to suggest that investors don’t necessarily equate that to be the case anymore.”
“Being more impact-forward is probably a good thing is what this is suggesting,” he said.
“We lead with impact,” said Miller. “It’s part of the core of who we are,” and importantly, she said, Redbrick believes impact is “a value creator” in the long term, “particularly around environmental sustainability.”
“You don’t have to sacrifice returns to make an environmental impact,” added Jimmy Atkinson, Founder & CEO of WealthChannel. “In fact, by making that environmental impact, you’re staying ahead of the curve and you’re increasing the returns for your investors.”
The 2023 results indicate fund managers are getting better at explaining the social impact of OZ investments to investors. “Whereas in last year’s report, roughly half of investors said that they heard about social impact from fund managers during the first conversation (15%) or in initial marketing outreach (36%), 80% of respondents this time around said the same (33% during the first conversation, 47% in initial outreach).”
While that shows improvement, the results this year also highlighted what is missing from OZ – namely, the impact reporting that many want to make a requirement. When asked what would encourage them to invest in OZ, 39% of respondents said, “quality, frequency, and transparency of reporting.” Among those who indicated they were unlikely to invest in OZ, “complex reporting” was the #2 reason as to why. This indicates that investors are frustrated by the lack of quality impact reporting provided by some funds, but also shows that simplified access to fund and impact information can be a major differentiator for the best funds.
“We really believed if we’re going to be an impact money manager on behalf of investors, we need to be able to prove to them that we’re actually accomplishing this and hold ourselves accountable to it,” said Miller at the webinar. “JTC and your team there did a tremendous job of taking this data and bringing in both industry-standard quantitative measurements as well as a qualitative review to this to generate a baseline report for us that then will be updated every six months, and we think it adds real value to our business proposition.”
How Opportunity Zones can be improved
Overall, the 2023 results show encouraging signs in many areas. As the survey notes, “respondents overwhelmingly hold positive views of OZ funds, see them as an equally important tax incentive and social impact investment vehicle, and expect to contribute more capital moving forward.”
“I think as each day goes by, more and more people become attracted to Opportunity Zones because they’re still finding out about it,” said Atkinson.
“What the survey this year showed was that a significant number of people are investing in Opportunity Zones and will continue to invest in Opportunity Zones, so the program seems to be going very strong,” said Thomas, who added that the report shows “big progress from a year ago.”
But there is still work to be done. The survey report goes on to say, “fund managers could still be doing more to communicate the impact benefits of these investments to prospective investors.”
Atkinson noted that “the best funds are collecting data already,” and gave a strong prediction regarding the possibility of impact reporting being made a requirement by Congress.
“I think it’s going to be in less than 2 years or it’s not going to happen,” he said.
The panelists at the webinar agreed that impact reporting can only help the sector, with Thomas pointing out that “impact reporting doesn’t have to be hard if you set things up correctly.”
JTC has been a leader in Opportunity Zones fund administration since the program’s inception, with solutions purpose-built for the sector that incorporate impact reporting with our award-winning 24/7 online investor portal, providing OZ fund managers with the ability to demonstrate their progress toward both financial and impact goals. Regardless of what happens with regulation in the future, JTC is ready to meet the challenge.
More insights from the survey
Many other topics were covered at the webinar, including the challenges of impact reporting, how fund administration and impact monitoring are linked, and helping investors understand the differences between Impact investing and ESG.
The survey report contains other useful information on the variance in priorities for different investor age groups, how European attitudes toward ESG differ from American attitudes, best practices for measuring impact, and the importance of personalization in fund offerings and measurement. Download the full survey report for access to information you won’t get anywhere else.