In January, the Impact Investing Institute, with generous support from our partner the London-based law firm Reed Smith, hosted its first Impact Futures breakfast roundtable in the City of London.
Gathered around the table were asset managers, asset owners, and investment consultants – there to explore and overcome the barriers to impact investing that exist within the pension sector.
Leading the conversation were Jamie Broderick, Deputy Chair of the Board and Lead Expert at the Institute and Chris Hitchen who has 35 years of experience working with pensions.
Chris is currently Chair of the investment committee at the National Employment Savings Trust (NEST) and Chair of the Border to Coast Pensions Partnership. He has been playing a crucial role in shaping both pension funds’ investment strategies since their beginnings and has a unique vantage point on discussions on pensions and impact.
The Border to Coast Pensions Partnership manages £60 billion of assets on behalf of Local Government Pension Schemes (LGPS) across the UK from the south-east to the north. NEST is a pensions provider representing 11.5 million members from 1 million employers with £25.6 billion of assets under management (AUM). Historically, NEST offers people who would traditionally be unable to access a pension a way of doing so.
The tensions between financial returns and positive social and environmental impact
Some key points that Chris raised and explored in the discussion included:
- The practical reality and tensions experienced by pension funds between wealth creation and creating positive impacts: The two may be instep over long-term time horizons, but in the short to mid-term, less sustainable options can drive better returns.
- In a NEST survey ESG considerations “mattered a lot” to 47% of members. But while members are increasingly interested in creating positive outcomes, answering that demand on a practical level across a fund’s investment strategies is complicated.
Some of the key questions raised by attendees included:
- How much can a pension fund engage its members on investment decisions and respond to their interest in contributing to positive social and environmental change?
- What are advocates for impact missing when talking to pension schemes? How can they better position their work with pension fund trustees?
- How can impact investors better demonstrate the materiality of social impacts to their long-term investment performance?
Taking the long-term view
Throughout the discussion, long-term trust to deliver practical, beneficial results for pension members was a recurrent theme.
It became clear that impact investors need to get better at telling the longer-term story of the impact performance on the investment performance: Social and environmental risks that are not financially material now will likely become so in the future. Business models that already do a great job of considering their positive and negative impact are benefiting financially now and will increasingly do so in the future.
Making use of practical examples
Impact investors can use that evidence to demonstrate how they are going to help de-risk pension portfolios, in particular on key sustainability issues such as a fair and inclusive transition to a net zero economy.
Ultimately, pensions need reassurance that an impact bet will perform financially over the long term. It is the responsibility of impact advocates, including some of those assembled, to provide a strong case for it.