In 2020, the Impact Investing Institute, an independent non-profit launched in November in London, will initiate a programme to woo the pensions sector.
The usually cautious pension trustees have not always been receptive to finance embedding environmental, social and governance (ESG) factors, such as impact investment. Run by a group of impact investment advocates, the institute considers this a misjudgement, suggesting pension savers show strong desire for sustainable investments.
“More and more people want to use their pensions and savings in a way that benefits society and the environment, as well as making a financial return”, stated chief executive officer Sarah Gordon, quoting a 2019 survey of 6,000 people by the UK government.
Pension funds, she suggested, are missing a major opportunity due to their size. “We’d like to mobilise big pools of capital, such as defined contribution pension funds, to increase their impact,” said Gordon.
To achieve its objective of growing the impact investment segment, the organisation will strengthen and more clearly define the concept. This, it describes as investment with the intention to improve social and environmental issues while achieving a financial return. Impact investments, it said, must be accountable for delivery as well as measurable.
Prioritising standards construction and improving reporting are key to safeguarding against questionable claims and cultivating the sector, Gordon said. “Not enough of these investments have intent or accountability. The danger of this lack of precision is one reason we’ve brought the institute into being.”
Nonetheless, the organisation faces several obstacles: returns are often considered too low for pension funds endeavouring to meet liabilities; difficult to scale up; and illiquid due to long-term commitments – all viewpoints the institute challenges. “One clear benefit from impact investment is liability matching for pensions through projects such as wind farms and social housing”, Gordon noted.
To counter these views while raising confidence, the organisation plans to deploy a group of pension ambassadors. “Some pension funds are more advanced in this area. We will translate knowledge from the pioneers in pension funds to those not yet aware.”
It will also build a bigger evidence base to broaden awareness on investment returns, for instance.
“Many impact funds show a satisfactory three-year track record but no study has yet been made of returns in the impact universe as a whole”, said Karen Shackleton, director of Pensions for Purpose, an initiative collaborating with the institute.
New UK and European Union ESG disclosure rules have bolstered the institute’s proposition, improving pension transparency and driving ESG. “This is about getting investors to reconnect with the purpose of capital”, Shackleton said.