Asset owners should challenge impact investment developers with RFPs – report

Major new research aims to promote innovation

Asset owners such as pension funds should challenge those who present impact investment propositions to bring them proposals which meet their requirements, according to a new ‘toolkit’ developed by an investment bank and social finance house Bridges Ventures.

“To encourage bundling, asset owners (either individually or in groups) should challenge product developers to bring opportunities forward that match the investment allocations the asset owners are prepared to commit,” the pair say in new research.

“If asset owners are prepared to issue Requests for Proposals (RfPs) that have a relatively long development timeline (for example, two years), this will also significantly increase the likelihood of matching, as product developers will have sufficient time to understand the asset owners’ requirements and build in the appropriate de-risking features to their product.”

The research cites the example of five UK local authority pensions which are seeking opportunities that satisfy both financial and societal needs – the Investing4Growth initiative.
The comments come in a new 36-page publication called ‘Shifting the Lens: A De-risking Toolkit for Impact Investment’.It aims to “unpack” the “general sense of risk” associated with impact investment into five distinct features. These are capital risk, exit risk, unquantifiable risk, transaction cost risk and impact risk.

It includes 20 case studies highlighting de-risking features already at work, drawn from around the world.

The report aims to encourage collaboration amongst asset owners, advisors, product developers and government to broaden the impact investment market.

The report acknowledges that adding “impact” to investment has increased the concern of risk for many mainstream investors, “deterring or even prohibiting many from pursuing impact investments”.

Seven ‘de-risking’ features are identified such as “catalytic guarantees” (such as from governments/foundations) to specialised brokering services and credible distribution platforms.

Clara Barby, Head of Impact at Bridges Ventures, said: “By clarifying some of the key risks and exploring features that will mitigate them, we hope that more investors can participate in the market and more impact-driven organisations can access the capital they need.”

Link to report