Growing a Culture of Social Impact Investing in the UK
UK Government advisory group, 2017: Click here to read the report.
In 2016, the UK government set up an independent advisory group to answer an important question: How can the providers of savings, pensions and investments engage with individuals to enable them to support more easily the things they care about through their savings and investment choices?
The reason for the question was that the UK had long been a leader in social impact investing, but individuals who wanted to make impact part of their personal savings and investment choice still found it hard to do so. The advisory group was asked to look into the reasons for that failure and recommend potential solutions.
The UK has been a pioneer in social impact investing. The Treasury first established a taskforce to investigate how entrepreneurship could be applied to combine financial and social returns in 2000. The UK again took the initiative in 2012 and 2013, launching Big Society Capital, a wholesale social investment institution, to grow the market and then establishing a Social Impact Taskforce and National Advisory Board during its presidency of the G8, helping take the idea global. In 2015 this led, among other things, to the Social Impact Taskforce being expanded into the Global Impact Investment Steering Group of 13 member states plus the EU.
The establishment of Big Society Capital and the National Advisory Board on Impact Investing were bold innovations that have been admired and sometimes replicated in other parts of the world. Yet closer to home, the UK is now failing to keep pace in enabling individuals to make social impact investments, despite the availability of exceptional skills, competence and the entrepreneurial drive to build on an impressive track record of innovation.
The risk is not due to a lack of demand. Younger savers in particular often see positive social outcomes as a key element in their investment decisions, and rising interest from that group is beginning to be reflected in the wider investment community. However, products that embed social impact investing are scarce, with the consequence that they are not at the forefront of financial adviser or pension trustee thinking when investment allocation decisions are made.
Reasons for a lack of investable products include the fact that social impact investment opportunities can be difficult to identify and crystallise; many are early stage, implying material credit and liquidity risk. In addition, there is sometimes a challenge in explaining social impact intentions to investors who think more in financial terms. Consistent measurement of track record and non-financial returns are still a work in progress.
Perhaps not surprisingly given those challenges, there is also some investor inertia, with enthusiasm for social impact investing yet to be reflected fully in volumes. A recent survey of 1,800 individuals in the UK revealed that 56% had at least a moderate interest in impact investing, but only 9% had already invested.
Having looked into the reasons why the UK is not fulfilling its potential for social impact investing, the advisory group has concluded that none are insurmountable. In fact, there is a real opportunity to build on a history of social impact innovations in the UK and contribute actively to global sector leadership.
Achieving these aims will require a sustained commitment to creating a culture of social impact investment and savings across UK financial services, its regulatory and supervisory institutions and in government.
In asking for the advisory group to be set up, government has catalysed renewed interest across financial sector leadership. This has included many people previously not directly engaged who now wish to contribute to enabling individuals to invest and save knowing that they are doing good.
Combining this sector determination with that of leaders in social impact around a focused set of actions will provide a unique opportunity to accelerate the changes required to meet growing demand.