Funds: A look at the UK social impact space for retail investors

What are asset managers doing to address growing demand?

The UK retail impact investment universe was worth some £87bn at the end of last year, and there are concerted efforts to make this grow.
There has been a government-backed advisory group looking at how to catalyse the market, the Investment Association’s CEO Chris Cummings recently met Economic Secretary to the Treasury John Glen on the issue, and UK banks and fund managers are developing products to meet demand.
Triodos Bank has launched a crowdfunding platform allowing people to make social impact investments, while Aberdeen Standard Investments and social fund Big Issue Invest have launched a UK equity impact investment fund focused on ‘good employment’ – one of the 17 UN Sustainable Development Goals.
Allianz Global Investors Vice-Chair Elizabeth Corley, who led the social impact investment advisory group, said: “It is very encouraging to see the financial services industry addressing the need to provide a broader range of social impact investment options. Innovative, new products will help make it easier for people to invest in products that allow them to do social good as well as achieving a financial return, and will help ensure that the UK remains at the forefront of the global social impact investing movement.”
Ethical-focused Triodos says it is the first bank to launch a UK crowd-funding platform for retail investors. Whitni Thomas, Senior Relationship Manager at Triodos, says the online platform has allowed it to make the product much more accessible to ordinary savers. “The minimum is about £500. I’d love it to be even lower, say £100 and that is something we can possibly do because of the online element. If we’re doing things by pen and paper with the investment team the minimum would be about £2000. Now the investor journey is all online it is easier to lower that.”
The platform currently has three social bonds with interest rates ranging from 4% to 7%. The investments can also be wrapped in an Innovative Finance Individual Savings Account (ISA) and benefit from tax-breaks.
ISAs are a UK financial product allowing people to save or invest in stocks and shares up to £20,000 tax-free annually. In 2016, the government introduced the Innovative Finance ISA allowing for investment on peer-to-peer lending platforms with unlisted assets.
Thomas says that with social investment, some people get it straight away, but some don’t understand it. “The great thing now that it can be held as an ISA a lot of retail investors understand what that is and we are making it really straightforward for them.”
Thomas was part of the UK social impact investment advisory group alongside other Triodos executives. Aberdeen Standard Investments and Big Issue Invest were also members.Nigel Kershaw, chair of Big Issue Invest the social investment arm of homelessness charity The Big Issue, calls it “democratisation of capital”.
“It’s the ability of ordinary people to make a decision about where they put their savings, where they put their ISA and where they put their pensions. That was a real driver for us.”
Lesley Duncan, Fund Manager at Aberdeen Standard Investments, says: “By investing in quoted UK companies, the fund seeks to harness equity-market returns while also helping to direct significant capital in support of SDG 8 – full and productive employment. A special job assessment framework underpins the investment process, guiding portfolio selection and helping the Fund meet its impact objectives, thereby helping address inequalities in the UK.”
It uses metrics such as 50% or more of the company workforce has to be in the UK, as well as elements such as job creation, living wage employers, workforce development, young people’s employment and career development. There is also a metric looking at economic deprivation and employment areas.
It is Aberdeen Standard Investment’s second impact product following the launch of a global equity fund aligned with the SDGs last year.

The fund is around £97m and returned 6.3%, after fees

Aberdeen Standard Investments will manage the fund while Big Issue Invest will do impact assessment using a framework designed by social advisory firm The Good Economy Partnership.
It’s the latest in a series of impact products launched by Big Issue Invest, including notably a social bond fund with Columbia Threadneedle four years ago, with an investment minimum of £100. The fund is around £97m and as of last April has delivered 6.3% after fees to investors.
“We are trying to create a marketplace where it becomes the norm,” says Kershaw. “When we started, we always said it wasn’t about bringing impact investment to the mainstream it’s about impacting the mainstream so that everything in the mainstream has impact. That’s why it is so interesting working with ASI on an impact product with listed companies and saying every company can be impactful and we are going to try and help and engage those companies to become more impactful and for people to share in that impact.”