Is the investment community doing enough on impact?

Wednesday 11 March 2020

Sarah Gordon

Author: Maha Khan Phillips 

Both individuals and investors need to be empowered to save and invest in line with their values, says Sarah Gordan, Chief Executive of the newly launched Impact Investing Institute 

PI: The Impact Investing Institute launched last year. Why now?

The Impact Investing Institute was set up to answer people’s need for more information and guidance on impact investment, to address the current barriers to its growth and to build more links between institutional investors and the social sector. 
 
The Institute was launched at the end of November 2019, and brought together two existing groups: the government-backed Implementation Taskforce for Growing a Culture of Social Impact Investing in the UK, led by Dame Elizabeth Corley, former CEO of Allianz Global Investors, and the UK National Advisory Board on impact investing (UK NAB), led by Sir Harvey McGrath, former chair of Man Group and Prudential, and chair of Big Society Capital and Heart of the City.

More capital is needed to address social challenges in the UK and elsewhere, and to achieve the UN’s Sustainable Development Goals (SDGs). We aim to facilitate the flow of capital to impact investment to solve these challenges. Meanwhile, more and more people want to use their capital in a way that benefits society and the environment as well as generating a financial return.

The Institute actively engages across the spectrum of investors and investees – with asset owners, managers and intermediaries and with businesses, social enterprises, other organisations and individuals committed to making a social impact. 

We also work with national governments, regulators and multilateral bodies to influence policy and advocate for impact investment and build on the UK’s track record of creating a world-leading market for impact investing. 

PI: With just over $500 billion of the over $100 trillion industry dedicated to impact investing, what have been some of the barriers/challenges to impact investing, and what should be done to address them?
 
Achieving even a small increase in the proportion of money dedicated to impact investing would potentially move billions into investment that will help deliver on the SDGs, by funding a better and more sustainable future for us all.
 
The Institute has been set up to address some of the barriers to impact investment which exist. These include lack of awareness, lack of investment opportunities, lack of accessible information, and the challenge of reporting and measuring impact.
 

PI: What are some of your flagship policies?

The Institute is an independent organisation and we deliver specific projects which facilitate impact investment, provide high-quality information for the public and for investors about impact investment; and advocate for supportive policy and regulation around impact investment.
 
We have three key objectives. The first is to mobilise big pools of capital.  We will focus on increasing the impact of big pools of capital, such as defined contribution pension funds. The second is to make capital more accountable. We will work on initiatives that improve the effectiveness and accountability of capital seeking to have a positive impact. Our third objective is to empower people to save and invest in line with their values. We will address barriers that prevent people from investing for impact.  

The flagship projects which we announced at launch, and which are already underway include:

  • Partnering with Pensions for Purpose on a programme to improve confidence and competence in impact investing for the pensions industry.
  • Collaborating with the Impact Management Project to provide digital tools to allow investors to assess and compare the impact of their investments.
  • Developing a knowledge exchange programme with new and aspiring national advisory boards on impact investment in sub-Saharan Africa.
  • Collaborating with the World Benchmarking Alliance to develop and utilise benchmarks focused on SDG impact, including a financial system benchmark.

We also released a joint report with Deloitte in January exploring current practice in technology-enabled impact reporting. The report calls for organisations and investors to make a greater investment in systems and people to deliver transparent, consistent comparable measurement and reporting of environmental and social impacts and advises that stakeholders need to work with the technology and data providers, focused on this area, to fill the reporting resource gap and accelerate progress.


PI: Does the investment industry need to be more accountable for where capital is allocated, or do savers need to take the initiative here, and demand more from investment firms?
 
Both individuals and investors need to be empowered to save and invest in line with their values.  The Institute will make it easier for the public, investors and the social sector to find the best quality information on impact investment.  We will have an informative and engaging digital presence, run a briefings and events programme; a speaking schedule; and additional activities as part of the Global Steering Group for impact investment, including helping organisations, policymakers and individuals from outside the UK get the information they need on impact investment.

PI: What are three things that investment firms could be doing today, to increase capital in this space? 

Impact investing is still a relatively small, niche area of broader investment practice. The impact investing community needs to take on a number of activities to scale and enhance impact investing and accelerate progress towards addressing the global challenges to society and the environment and the Institute is looking to play a leading role in enabling some of these. 

Examples would include: 
 
Contributing to the establishment of core principles for impact investing by educating and sharing best practice about the range of risk, return and impact which impact investment can deliver. 

Expanding impact investment products available to the full spectrum of investors and accommodating the capital needs of all types of investees, for example advancing blended-finance vehicles that combine capital with different risk-return expectations. 

Helping establish best practice for impact measurement, management and reporting and facilitating collaboration among investors with different goals and practices.
 
PI: What would you like to see happen in a decade’s time, in terms of impact investing?

I would like to see businesses reporting their positive - and negative - impact alongside their financial performance. I would like the people who run those businesses to understand that their future success depends on running truly sustainable operations, which take into account all stakeholders. And I would like everybody who makes a financial decision, whether having a bank account, a savings product or a pension, to understand that they have power over the decision as to where that money goes, and what impact it has.

 

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