For a number of years the UK has been at the forefront of innovation around social impact investment, says Elizabeth Corley Vice-Chair at Allianz Global Investors, but it hasn’t yet been able to drive this into a mainstream savings or pensions offering.
To tackle this disconnect, the UK government asked Corley to chair an advisory group to look at how to create a social impact investment culture across the country. It released its final recommendations last week. Such is the interest in the work that the group will continue independently in some form.
“For me that is very exciting,” says Corley. “There was enormous interest from the mainstream financial industry when I went out to talk to people about forming the original group. And one of our recommendations is how to maintain momentum and build cohesion across these multiple initiatives and the group said to me ‘can we please continue to meet so that we can drive forward with others in the social sector?’”
It comes at a time when global interest in impact investing is increasingly moving from niche to mainstream attention, driven largely by clients. UK retail social impact investment opportunities across all asset classes exceed £87bn, according to advisor Worthstone, and demand is growing.
“It’s no doubt at all that among big swathes of clients and customers this is becoming a very, very important topic. And people want more than a simple tick-box, ESG answer. We are getting much more into outcomes and intentionality which is really encouraging.”
But this interest cannot instantly translate into investible products. “It has to be a multi-level approach,” says Corley. “There is no one silver bullet that will fix the issue of why we are not getting more product in front of individuals which they can buy.”
The new report from the advisory group – Growing A Culture of Social Impact Investing in the UK – is a comprehensive overview that identifies recommendations across regulation, government and business over the short, medium and longer-term.
It highlights five key action areas –
• Deal flow and scale
• Competence within the financial services industry
• Better reporting of non-financial outcomes
• Making it easier for people to invest
• Momentum and cohesion across initiatives
The scope of the report included not only investment in regulated social enterprises, but also companies that report and measure their impact on wider society and hold themselves accountable for delivering positive impact. Corley says it decided to be as inclusive as possible to capture and accelerate enterprises at the leading edge.The report has already garnered support from industry bodies and regulators. The Investment Association, a member of the advisory group, plans work on a social impact investment label, says Corley. And the Financial Reporting Council watchdog will consult on changes to its Corporate Governance and Stewardship Codes around social impact.
The advisory group is engaging with the UK’s Financial Conduct Authority (FCA) on its regulatory advice – one area is perception around liquidity requirements.
This has been a longstanding issue for the social impact investment space. The Global Impact Investment Network’s recent Annual Impact Investor Survey found that private equity is the most commonly used instrument deployed by over 75% of respondents. But as an asset class it is typically illiquid.
“The right to liquidity has been seen as part of consumer protection,” says Corley. “But the problem for infrastructure, property, environmental and social investing is that the opposite is the case. You don’t want short-term money. You don’t want risk capital. You want long-term capital that is going to be put to sustainable use.
“So we have to work with the regulators. We have to work with the asset valuers and the asset reporters on reporting performance. And we have to work with the platform providers. It’s a bit like getting venture capital trusts or enterprise schemes into the mainstream. We have to work on all three levels.”
The advisory group also wants to drive academic research on the topic.
“More academic work needs to be done on the diversification impact of including non-correlated investments,” says Corley. “There has been quite a lot of work done on ESG screens and how they improve the risk/returns characteristics of the underlying investment. But that’s about ESG funds that are excluding. I haven’t been able to find anything done on intentional inclusion.
“The slight challenge is that the investible opportunities are so small so it may be difficult to do the academic work as you don’t know what happens as you scale up those opportunities. We might find there are two or three stages to it as the size and shape of the investible universe changes.”
The UK government has welcomed the report. The advisory group has urged it to support co-investment, look at tax incentives and support more social impact bonds.
Stephen Barclay, Economic Secretary to the Treasury (junior finance minister) said: “The market has enormous potential, but we need to make it easier for people to make a social impact investment. The recommendations will help make this possible.” The Treasury is a department that many feel holds the purse strings to catalyse impact investment in the UK at scale.