The problem with impact investments? There simply aren’t enough of them.
This was the resounding message that rang out of the Social Stock Exchange’s fourth annual investor conference, which saw over 200 impact investing professionals gathered in London at the start of February. Although those involved in the issuance of impact investments will be rightly cheered by the news, as is all too often the case, the devil was in the detail. In a well-received keynote speech by Tom Hall, Executive Director and Head of Philanthropy Services at UBS, delegates heard that 30% of UBS Family Office clients are already impact investors, and this figure was growing apace.
However a subsequent panel, which included senior bankers from the likes of Barclays, JP Morgan and Blackrock, very much crystallised the tone with a relatively simple request. As with the situation at UBS, they had no problem convincing an ever-growing number of clients of the benefits of investing for a positive social or environmental impact, but the key challenge was simply ensuring that the pool of investment options was sufficiently deep enough. Bankers don’t want the liability of, having sold a client an investment, to be returning to say ‘sorry, there’s none left’. They need more impact investments in the market.
It would seem that this presents two development routes, at least for those already convinced on the benefits of impact. Firstly, a mature, liquid market for impact investments, as being developed by the Social Stock Exchange, certainly helps as the product will never sell out, it’s simply a case of asking whether the price on offer is appropriate. Secondly, it signifies the importance of umbrella vehicles like funds or investment trusts in this space, as again they have the adequate scale to accommodate multi billion pound investments from a high net worth individual in exactly the same way as they can cater for the retail market.
Whilst there remains a weight of investors who still hold the belief that grant-making or pure philanthropy is more effective than impact investing, the hope must be that this attitude will continue to move into the long grass. There’s certainly no shortage of academic research that suggests investing for impact has no negative effect on returns, and indeed Esther Gilmore of Generation Investment Management pointed out that portfolios they have developed that are 75% less carbon intensive deliver an unimpeded return. A growing understanding of the United Nations 17 Sustainable Development Goals (SDGs) again is shifting attitudes – impact in notoriously difficult to quantify on a standardised scale, but the SDGs draw on the sustainable inputs, not just the outputs, and as such provide an overarching structure to help make impact investment decisions.
Prior to the break four impact companies raising both equity and debt took to the stage to provide a rapid overview of their business alongside their investment requirements. Capital for Colleagues, HaloSource, Oikocredit and Symbiotics all gave a snapshot of the types of impact opportunities – both public and private – that can be found amongst the 45 organisations on the Social Stock Exchange and reflects the diverse nature of the membership.
Nigel Wilson, Chief Executive of Legal and General offered a second keynote on re-equitising the UK, illustrating the significant work that his business has undertaken in recent years to try and address this spiralling problem. L&G may be a world leader when it comes to pooling risk with long term investments when it looks for the solutions society need, like addressing pension provision, but it seems this is only a fraction of the problem. Mr Wilson highlighted the huge amount of money globally sat round doing nothing, with some $10tn dollars offering negative yield.
There’s also billions locked up in property owned by the older generations in the UK alone. Again, how can we channel that money back into equity to help capitalise all these projects, be they house building, education or long term care? Politicians seem to be doing little to help the cause here, but Mr Wilson’s ambition was that the investment psyche now stands at an inflexion point – L&G is already harnessing this change but the expectation is that more investors will soon realise the importance of backing the projects that deliver an impact.
And for those who are looking for the next big innovation in terms of investing for impact, a second panel session during the day held some invaluable insight. Entitled impact in action – success stories from the front line, panellists included Denise Cockrem, the CFO of Social Stock Exchange member Good Energy Group and Daniel Godfrey who is currently in the process of launching the People’s Trust. This investment trust vehicle will have patient capital at its core again as it bids to go down the route of re-equitising some of those positive impact businesses who have been starved of capital for so long.
The thesis of the conference asked whether 2017 was the year that would see impact investing move truly into the mainstream. Once again, the evidence is there to say it’s on the very cusp, but inertia from investors is far from being the only constraint. It’s the wider acceptance and understanding amongst advisers and issuers that’s acting as the brake now, but as more high profile names sign up, impact investing can only continue to grow. This year could well see that inflexion.
Please find our conference guide here
08.30 – 09.00: Registration & Breakfast
09.00 – 09.10: ‘Welcome’
09.10 – 09.25: Keynote 1: ‘Why London is driving investment into organisations putting social and environmental issues at the forefront of their commercial aspirations?’
09.25 – 10.20: Panel Session 1: ‘Turning good intentions into a comprehensive investment strategy’
10.20 – 10.50: Pitching Session
10.50 – 11.20 Coffee break
11.20 – 11.35: Keynote 2: ‘Growth Britain – harnessing investment and technology to benefit all generations’
11.35 – 12.30: Panel Session 2: ‘Impact in Action – success stories from the frontline’
12.30 – 12.45: Closing Remarks
12.45 – 14.30: Lunch & Networking
Watch a short video of the Annual Investor Conference: