The Pensions Regulator (TPR), pension scheme trustees and the wider financial services industry should all work to develop social impact investing in the UK, according to a government-appointed advisory group.

Companies, the government and professional bodies also had a role to play, the advisory group said in a report on social impact investing in the UK.

The group comprises senior representatives from across the investment and savings industry, including Mark Fawcett, chief investment officer of UK master trust NEST, and Saker Nusseibeh, CEO of BT pension scheme-owned Hermes Investment Management.

With respect to pension scheme trustees, the advisory group said they should work with employers and pension providers to develop best practice for better engaging scheme members with their investments and encouraging them to register on their pension platforms.

“This should lead to better alignment with members’ non-financial values, with social impact investments as potential fund choices providing they have an appropriate risk/reward profile,” it said.

“As product track records mature, we also envisage growth in social impact investing as a natural part of default funds.”

Earlier this year the Law Commission said there were no legal or regulatory barriers to pension schemes making socially responsible investments.

TPR and other regulators and statutory bodies, such as the Financial Conduct Authority, should continue to build capability in relation to social impact investing so that the strategy would be embedded in regulatory frameworks and understanding, the group’s report said.

The role the FCA was expected to be able to play was set out in greater detail in a letter from Elizabeth Corley, vice chair of Allianz Global Investors and chair of the advisory group. Topics included the regulatory regime for fund structures and perceived restrictions for allocation to illiquid assets. Social impact investments are often made via illiquid assets.

The financial services industry should work with the asset management trade body (the Investment Association) and professional bodies to develop good practice and set common standards.

The industry should also support co-investment, and convene a follow-on group to allocate responsibility for taking forward specific actions and monitor progress.

The group said the UK, despite having been a pioneer in social impact investing, was failing to keep pace in enabling individuals to make such investments.

It found several reasons for this, but said none were insurmountable and suggested the UK was faced with fertile conditions for growing social impact investing.

“There are strong foundations in place,” it said, “including deepening investor demand and a growing social impact environment, strongly supported by the government.

“Financial market participants are also eager to do more, and the UK’s strong record on environmental initiatives and corporate governance and reporting augurs well for the development of standards over the coming years.”

The advisory body’s report can be found here.

Shining a light on impact investments’ financial performance

Investors wanting to know more about the financial performance of impact investing may wish to turn to a new report published by the Global Impact Investing Network (GIIN).

According to the GIIN, it provides a comprehensive review of more than 12 studies on the subject to date, describing each study and synthesising findings across available research by asset class as well as bringing to the fore implications for the impact investing industry. 

The focus is on private equity, private debt and real assets.

Findings include that impact investors targeting market-rate returns can achieve them, with the distribution of impact investing fund returns across private market strategies similar to what is seen in analogous conventional markets. The research also found many impact investors took a portfolio approach to building an impact investment strategy across multiple asset classes. 

The full GIIN report can be found here.