The UK should learn from France’s approach to social investing and consider launching an investment option aimed solely at impact and charitable assets, according to a think tank.
In a paper funded by asset manager Big Society Capital, the Social Market Foundation (SMF) argued there was a case for introducing what it termed social pension funds in the UK.
It said the fund could be based around a retail savings product – the solidarity investment fund, or 90/10 fund – in place in France since 2001.
In its report, ‘Good pensions: Introducing social pension funds in the UK’, the SMF said: “Whilst regulatory change is largely not needed for the establishment of the funds, the government could promote their development through targeted regulatory action, such as by allowing ‘mark to model’ pricing to overcome liquidity constraints within the social element of the fund, as well as to provide assurance to trustees they are not failing in their fiduciary duty.”
The ‘mark to model’ approach, based on the French model, would base asset value on pre-determined prices and help reduce liquidity constraints within the immature social investment market, the SMF said.
However, the paper argues that many social investment funds are focusing on screening and exclusion rather than a positive social outcome.
“This does not provide the positive social intention that survey evidence suggests could be mobilised,” it argues.
“These ethical funds also often fail to effectively analyse and report on the social impact achieved in the same engaging way and with detail that modern social impact reporting achieves.
“Second, even these ethical funds do not appear to reflect consumer priorities.”
The report also said pension investors were failing to include impact investing in their portfolios.
A number of UK local authority pension funds have recently committed to social or affordable housing projects, while interest in renewable projects with a measurable impact has also increased.
Interest in ethically themed investment options among defined contribution members has also been low to date, with the National Employment Savings Trust – which had £420m (€570m) in assets under management at the end of its most recent financial year – only seeing £660,000, or 0.15%, allocated away from its default fund option to ethical fund options.