Impact investments can contribute positively to asset diversification, lower overall volatility and reduce the effect of negative externalities. They can also increase the future fitness, resilience and prospects for long-term capital growth and overall performance of pension funds and other forms of institutional assets. There are lots of important questions that trustees and other asset owners need to ask themselves and answer and this module is designed to support that process.

How to use these resources

The initial sections of this module help asset owners to think about why and how to invest with impact. The subsequent material looks at the effect of incorporating impact at a total portfolio level. There is then a review of impact and fiduciary duty as well as other legal and regulatory questions for asset owners, before the section closes by looking at how impact influences communication with beneficiaries. 

Resources

Determining impact investment strategy 

Impact Investing Principles for Pensions (opens new window)

Impact Investing Institute

Reading time: 20 minutes

Together with leading practitioners from across the pensions sector, the Impact Investing Institute has developed four Impact Investing Principles for Pensions. They are a practical guide to impact investing and provide four concrete steps pension schemes can take to pursue an impact investing strategy.

introductory RECOMMENDED READ
Impact Investing: Strategy and Action (opens new window)

Rockerfeller Philanthropy Advisors

Reading time: 40 minutes

This is a 38-page guide that explains how to take practical steps towards implementing your first impact investment and builds on RPA’s introductory guide.  It breaks the process down into three stages; 1 Prepare; What do you wish to achieve? 2 Build; Where do you land on the impact investing spectrum of risk and engagement? 3 Refine; Make your first investment.  Further resources and a glossary are included at the end.

What the reviewer found helpful: “A very informative and easy read. I enjoyed the real life case studies which provided interest and broke up the report.”  Rebecca Lagan

advanced
Impact Investing from Ideas to Practice: How to evaluate Impact Investing Fund Managers (opens new window)

World Economic Forum Investors Industries

Reading time: 10 minutes

The report considers 4 factors that should be considered when evaluating an impact investing fund manager, recognising that focusing on their track record might not be practical given that the sector is still in its early stages. The report identifies and explains 4 key factors, providing asset owners and advisors with practical advice about what aspects of a fund manager’s organisation to consider in their evaluation. Under each key factor is a list of relevant key questions asset owners might consider.

What the reviewer found helpful: “The report provided interesting insight into how fund managers’ background, organisational structures and governance affect their investing style and decision-making processes.”   Yinni Hu

intermediate
Impact Investing Made Simple (opens new window)

Pensions and Lifetimes Savings Association (PLSA)

Reading time: 45 minutes

A 20-page guide to introduce anyone involved in investing for retirement to the concept of impact investment. It presents the opportunity to make a positive impact on people and the planet through investment, while also generating healthy returns for pension savers.  The guide looks at the growing importance of ESG investment, UK regulations for pensions and the UN Sustainable Development Goals. It seeks to outline why impact investing will drive future growth, concluding that sustainability is an imperative, not an option for pension funds.   

What the reviewer found helpful: “I liked the gentle gearing up of the significance of the issue throughout the report. I doubt that a pension trustee could read this through without some serious reflection.”  Rebecca Lagan

introductory
The Case for Impact Investing – What Pension Funds Need Know (opens new window)

Impact Investing Institute

Reading time: 1 hour (webinar)

This webinar explores why investing with impact is a smart decision for your pension fund and how pension funds can start thinking about making a change while delivering a substantial financial returns, today. The session was hosted by the Impact Investing Institute’s CEO Sarah Gordon, in discussion with Emma Howard Boyd, Chair of the Environment Agency, which successfully runs a pension scheme with a strong focus on responsible and sustainable investment, and David Blood, co-founder and Senior Partner of Generation Investment Management, who has 16 years of experience in successful sustainable investment.

introductory

Impact investment risk, return and portfolio effect 

Risk, Return & Impact: Understanding Diversification and Performance Within an Impact Investing Portfolio (opens new window)

Community Wealth

Reading time: 45 minutes

This fifteen-page brief focuses on how best to understand risk, return (financial, social and environmental) and impact. It begins by explaining basic concepts and building a picture of the impact investing landscape. Then addresses the question of “What is risk?” explaining the various subcategories and points relevant to impact assets. Return is then considered, focusing on what constitutes market-rate returns and the balance between doing good and doing well. The final third of the brief is dedicated to understanding impact and the new efficient frontier created when adding impact as a third dimension to the traditional two dimensions of risk and return.

What the reviewer found helpful: “I liked the questioning approach of the brief. It helped to engage my brain on the issue before delving into the answers put forward.” Rebecca Lagan

intermediate

Fiduciary duty and regulation 

Impact Investing by Pension Funds: Fiduciary Duty – the Legal Context (opens new window)

Impact Investing Institute

Reading time: 60 minutes

A 24-page paper focusing on the duties of pension scheme trustees when making investment decisions. A gentle introduction to the changing world and its impact considerations is followed by a detailed discussion of the legal context of trustees’ fiduciary duty, summarising the way different legal sources and principles interact in relation to the investment of pension fund assets.  The paper includes case studies and academic analysis and covers further considerations for both defined benefit and defined contribution schemes, concluding that the law permits impact factors to be taken into account in investment decision making. 

What the reviewer found helpful:  “A complex and pressing issue, thoroughly and concisely covered in a very readable paper.”   Rebecca Lagan

advanced RECOMMENDED READ
Pension Funds and Social Investment (opens new window)

Department for Digital, Culture, Media & Sport

Reading time: 30 minutes

This report is the Government’s final response to the Law Commission’s paper on how far pension funds should consider the social impact when making investment decisions. The report acknowledges the Law Commission's findings on barriers that are preventing pension schemes from more easily investing in opportunities with wider social benefits, and outlines the Government’s actions and plans towards removing these barriers. Included in the report are recommendations for the Government, regulators and the wider industry, including changes to the regulatory framework and to FCA guidance.

What the reviewer found helpful: “This paper provided useful insight into the Government’s position and approach regarding the potential for pension funds to invest with impact, and how policy can address barriers to such investment.”   Yinni Hu

advanced
Fiduciary Duty in a Changing World: Impact Investing – the Why and How (opens new window)

Impact Investing Institute

Reading time: 1 hour (webinar)

How should pension funds, which hold some of the largest pools of capital in the world but have strict fiduciary duties, approach impact investment?

introductory