The UK government has sent out a strong signal that investment and legal professionals advising trusts and foundations should make clear that their clients are not obliged to maximise investment returns.
It comes with the launch of a tool and working paper to help institutional investors integrate social impact into investment decisions.
The pilot ‘Total Impact’ tool is aimed at charitable foundations, but the Cabinet Office department notes that it may be useful for other institutional investors, such as pension funds, family offices, faith-based organisations and university endowments.
The tool is designed to help charitable foundations formulate an impact strategy, and can also be used by other investor organisations who are considering the social impact of their decisions in addition to financial ones.
It helps organisations calculate the projected social impact (“SIMP”) value of an investment, and it helps charitable foundations compare the SIMP of a social investment versus a grant programme.
The Cabinet Office has published some results and finds if an investment has a neutral, or low level SIMP rating, it will only tend to generate more social impact overall than a social investment if its net financial return is over 5% per annum.It also finds that an investment with a SIMP value of -0.5 returning 5% per annum will generate less than half the total social impact of an investment yielding the same return but with a neutral SIMP value.
The Cabinet Office is currently testing the tool and seeking feedback. Alongside the tool, the Cabinet Office has launched a guide for charitable organisations on adopting a total impact approach to achieving their charitable mission. The paper says a Total Impact approach is when a foundation considers the social impact of all its activity, including its investments and supply chains and uses this information to plan the allocation of its resources to maximise social impact as far as possible.
It says engaging in the growing social investment market is one option in a Total Impact approach, along with moving resources within a grant portfolio or redirecting resources within a supply chain, towards organisations that better align with the foundation’s mission.
The working paper is based on in-depth research with organisations pursuing a Total Impact approach such as the Esmee Fairbairn Foundation, the Barrow Cadbury Trust and the Wolfson Foundation. Big Society Capital, Mercer and Sarasin & Partners has also contributed to the paper, along with the F.B. Heron Foundation, a $300m New York-based foundation which follows a ‘100% mission’ approach. Link