Different perspectives: Growing the Social Impact Investment Opportunity in the UK
Investing to actively seek social and environmental benefits is not new but it is a relatively fresh concept to the investment mainstream. Last year’s report “Growing a Culture of Social Impact Investing in the UK” used the following definition: The purchases of the shares or loan capital of companies and enterprises that not only measure and report their wider impact on society — but also hold themselves accountable for delivering and increasing positive impact.
With that definition in mind, practitioners of the social impact movement gathered recently in London to assess progress in helping people support social issues and invest with confidence. In a panel discussion on envisaging the future, three speakers from different backgrounds offered their perspectives on what they felt were important next steps in the development of this market. The speakers were myself, as chief executive of the Esmee Fairbairn Foundation, Katherine Brown, head of sustainable and impact reporting at the World Economic Forum, and Dominic Rossi, senior adviser and former CIO at Fidelity.
The Esmee Fairbairn Foundation has charitable objectives. It operates across the spectrum of capital from philanthropy, impact investment and traditional ESG investing. This year we celebrated the 10th anniversary of the Foundation’s Social Investment Fund, in which we look to make investments that meet our charitable aims and achieve high social impact as well as a financial return. This has led us to also look at our endowment and ensure that we are assess the negative effects of our capital and how we can transition all of our resources to deliver positive social and environmental impacts. We are fortunate in that we have staff who fundamentally understand the issues and opportunities that exist in seeking these types of positive impacts. As we move forward and learn more we realize that incorporating social and environmental considerations into investment decision making fundamentally changes the ‘operating system’ of financing. As well as taking into account risk and return, we also have to consider the consequences of our decisions on society and our planet. It is a little like moving from playing 2D chess to 3D chess. We are starting to bring those worlds together, hopefully taking a small step toward reconfiguring finance for the future.
I was fascinated to hear from Katherine Brown on the World Economic Forum’s (WEF) work around knowledge building and the around 80 projects the Forum is involved with globally. Working for a public private organisation, Katherine said she was all too aware of the importance of bringing stakeholders to the table, observing that as social impact investing has grown that task has become easier. At this year’s Davos meeting of the WEF, there was a veritable stampede of interest, she reported; a big change from previous years when it was a challenge to get social impact topics on the agenda. Katherine offered a compelling vision of a “flotilla of capital” coming into this space. The challenge she said is to build a ‘lighthouse,’ or easily identifiable target for this flotilla to make sense of all facets of this investment approach versus the pervasive fragmentation found today.
We were fortunate at the conference to also have the experience and wisdom of Dominic Rossi of Fidelity, who after many years at the coal-face of investing, is ideally placed to offer a view of how the progress of social impact is changing finance. He observed that asset management is going through a period of significant change as non-financial outcomes become part of the equation and asked how well equipped the industry is to respond to the new agenda. He highlighted that the asset class still lacks some key elements. There needs to be the right architecture to enable scale, he said, and a common language to support discussions, labelling, reporting and benchmarking. The public, private and social sector must come to together to put that architecture in place, he said, because a lack of global standards is still a huge barrier to social investment at scale.
An inspiring session with a sobering thought to end, which I think serves perfectly to highlight how far we have come and how far we still have to go to build a finance system that can deliver social and environmental benefits.
by Caroline Mason