Year after year, research highlights the gap between what impact investment consumers want and what they are being offered by advisers, banks and pension funds. The UK’s new Impact Investing Institute hopes to bring everyone to the table to change this.
The UK saw the launch of its Impact Investing Institute (III) on November 28. It’s hard to get excited about yet more impact initiatives or coalitions, but this one I can get on board with.
For a start, it’s consolidating two government initiatives into one – the UK National Advisory Board on Impact Investing and the Implementation Taskforce on Growing a Culture on Social Impact Investing in the UK. The reduction in verbosity alone must be worth applauding.
Indeed one of the aims of the III is to help stop the noise around impact investments and provide curated information for the public, financial advisers, investment managers, pension funds, regulators and policymakers: a one-stop shop of all we need to know, rather than the 245,000,000 results a Google search of ‘impact investing’ brings up.
The institute is tasked with helping the development of impact investing standards. It is working with the Impact Measurement Project on the convergence and standardization of measurement and reporting of impact, and on developing a digital platform to allow asset managers and owners to report their impact in a more comparable way.
‘Impact’ is still seen as a vague term, although the EU taxonomy for ‘green’ should help on the environmental angle. ‘Social’ is the next term to be clarified.
The institute is also expanding from being a pure public-sector initiative to one that is also supported by the private sector. Several asset managers are backers, as well as the City of London and two UK government departments.
I have mixed feelings about this. Can it really be independent in suggesting, for example, that passive investing may be a barrier to moving capital towards impact investments while BlackRock is a supporter?
Still, at least the institute is putting both the social sector and the financial sector together in the same room. It might not be sexy, but it’s work that needs to be done.
Take the UK as an example. A study by the Department for International Development (Dfid) released in September shows over 70% of people say they want their own investments to avoid harm and achieve good for people and the planet. Appetite for investing in impact is higher among those with more than £25,000 in investable assets and with those aged 18 to 39.
Blended finance is being led by public finance, but banks could be more involved – investing at the mezzanine level, for example – Head of sustainable finance
As an aside, but definitely worth further reflection, 52% of those surveyed say they would save more if they knew their savings made a positive difference.
However, the difference between those wanting to do positive things with their savings and investments and those who have been able to was substantial. Only 13% of those surveyed by Dfid say they hold a sustainable investment. It is the kind of gap I’ve seen in data for the last three years.
Frustratingly, nothing seems to be changing, despite demand from local authorities for investments in, for example, social and affordable housing and demand from UK pension funds and asset managers for long-term sustainable investable opportunities. There just doesn’t seem to be a meeting of the minds among the various constituents – all of whom stand to benefit.
This is where the institute comes in.
Sarah Gordon, chief executive of the III and former business editor for the Financial Times, points out that at present many initiatives lead with the finance sector, instead of balancing the financial sector view with the voice from the social sector. Too often the financial sector leads with its demands and then walks away when they’re not met.
Breaking down barriers will not only help with education and open up opportunities, but it could help with blended finance, for which many in the sustainable finance industry want greater attention.
One head of sustainable finance mentioned to me recently that banks are failing to use their potential to play a role in catalytic financing for example. “Blended finance is being led by public finance, but banks could be more involved – investing at the mezzanine level, for example,” he says. “We all have the ability to do things that aren’t just full-on commercial, but we’re just not right now.”
Of course, regulatory tweaks would be useful in allowing banks to be flexible in their risk parameters to try and achieve a greater impact. And here the institute may also prove its worth because it has the remit of working with policymakers and regulators in the UK and globally.
Finally, the institute is developing a programme for financial advisers. The EU’s revised Markets in Financial Instruments Directive instructs advisers and asset managers to take into account their clients’ preferences in terms of environmental, social and governance factors, but advisers are under prepared.
Gordon says the institute will develop a competency framework with trade bodies to provide an accreditation in impact investing. That has the potential to be transformative.