i i i captain

For many years the UK has led the world in leading the world in impact investing. In November, this leadership continued with the launch of Impact Investing Institute: a merger of two our two our top impact investing committees.

I talked to the Institute‘s chief executive, Sarah Gordon, about her plans for the organisation:

Q. You’ve outlined the three key objectives of the Institute in terms of mobilising big pools of capital, making capital more accountable and empowering people to save and invest in line with their values: Why are you sure that doing these things will make the world a better place?

A: The Institute comes from two initiatives, the National Advisory Board on Impact Investment (NAB) and the taskforce on growing a culture of social impact investing in the UK.

They were doing complementary things, with the NAB having more of an international focus, and the taskforce having more of a domestic focus. What both of them did was valuable work around identifying: the barriers to greater understanding of impact investment and greater effectiveness of impact investment – and what was holding the market back from growing faster.

What I’ve been doing since I took on the role at the beginning of September is thinking about those different areas of need and then identifying projects which will specifically address some of those needs. 

The other thing that I’ve focussed on since September is looking at what else is happening. There are lots of competing initiatives in this field, both nationally and internationally.  I’ve tried to think carefully about where we add value.

We do have some very good links with institutional investors, particularly in the City. There is still a big gap between those institutional investors and the social sector. That’s why one of our main focusses is going to be pensions. Some of the pension schemes, particularly the local authority pension schemes, are thinking in really innovative and sophisticated ways about impact and how they should be allocating to impact.

Some pension schemes are not even at the start of that conversation. We want to help a range of actors in that space: pension scheme trustees, financial advisers, pension consultants, lawyers, get over some of the hurdles that they believe exist, which are stopping them investing in impact.

Buildings and they will come 

Q: Is the end-game of this that more pensions will be invested into charities and social enterprises?

A: One of the issues that they have is that there are not enough impact assets at scale to invest in. I think social housing is a good example of something that is a potentially investable asset where we feel the Institute has some advantage in talking to those larger pools of capital, like pensions.

You’ve got to have metrics that are relatively easy to measure. Some of the social impact metrics are a lot more complex and difficult, but housing is somewhere where we feel there’s really great potential for more institutional money to be directed to impact. 

Q: So this is really about large sums of money going on relatively low-risk activities but with a positive outcome?

A: We want to address a number of different market needs. We’re also looking at the measurement and reporting challenge because investors find it very difficult to compare impact products, there’s very little standardisation.

We want to support the work of the Impact Management Project. There are so many competing frameworks and metrics in this area that are working towards convergence. I think it’s highly unlikely we’ll get to convergence in the sense of impact being able to be measured by a number, or even several numbers.

Impact has to be measured by sector, it has to be investment-specific, but I think the more common language around impact is really going to help this process, with work on training and competency.

Financial advisers now have to talk to their clients about their ESG preferences. We believe that many financial advisers are not prepared for that conversation. We don’t want it to be a tick-box exercise. We don’t want them just to say, “Are you interested?”, and the client says, “I don’t know, not really. Can you tell me a bit more?” We’re developing a competency framework for financial advisers, which we hope to deliver in partnership with other trade bodies to raise competence and confidence in the financial advisory community around impact. 

There are a number of regulatory developments which financial advisers, lawyers and consultants, are going to need to respond to and we want to help them. We want to help them to have better conversations with individuals who want to put their money to work in a different way.

Prod the other one

Q: The Institute is moving into an existing ecosystem of actors within the world of social investment, obviously including wholesale vehicle, Big Society Capital. What’s your relationship going to be with them and where do you fit more broadly into that ecosystem? 

A: One of the things that I’ve been doing is to look at all the initiatives that are going on in this space and really make sure that we’re not duplicating or replicating work which other people are doing a lot better. That’s been a really important principle for thinking about what projects we should be taking on. 

The second thing is that we work, internally and externally, as a partnership. Internally we’re a partnership between a small team of paid staff (it’s going to be about six or seven people) and a much larger group of volunteers, so people who are giving up their time freely, and their expertise. The workstreams are going to be led by volunteers.

Externally, we’re also a partnership in the sense that the vast majority of our projects will be delivered in collaboration with other organisations and initiatives.

We’ve got four strategic partners:  Pensions for Purpose – we want to support Karen Shackleton’s work but also work in co-ordination to deliver a competence and confidence programme around pensions.

We’re going to be working with the Impact Management Project, which is designing a digital platform so that asset managers can report their impact in a way which ought to be more transparent to investors and investees. 

We’re working with the national advisory board in Ghana as it sets up. Finally, we’re working with the World Benchmarking Alliancea global initiative that ranks the top 40 companies globally in terms of their performance against the SDGs

In the world of institutional investors, which is not the world of social entrepreneurs, you have to have this mixture of prodding and pulling. Prodding is the regulatory and the policy work and then the pulling is the encouraging and the transparency and the conversations. These activities speak to both the prod and the pull.

On Big Society Capital… We are not providing capital, we are not investing directly. 

Q: No

A: We’re not a funding or an investing agency in any way at all. We will work with Big Society Capital, we will work with other actors in this field, working out where we can enhance the valuable work they’re doing, being at the table of conversations where policy and regulation is being discussed. 

I think one of the things that has been learned from the Big Society Capital experience is to not over-promise. In initiatives like ours, we must be very clear about what we can do and what we can’t do and where we’re going to try to shift behaviour or actually deliver results. We can have a long conversation about Big Society Capital, but I want to talk about the Institute.

I thought that I heard you leading 

Q: I would just like to ask you one specific thing about Big Society Capital. They have a, dual role as a wholesaler and the UK’s ‘market champion’. There’s a feeling for some that there’s a potential conflict of interest between these functions. 

Is there a sense that the Institute is going to fill some of the market champion role – and take some of that conflict away from Big Society Capital?

A: We will certainly be taking some of the activities from BSC which, as you know, hosted the UK NAB. For example, some of this work around supporting NABs or efforts outside the UK – people from Big Society Capital would go on being involved in that, but I think we’d expect the Institute to be leading.

I’m quite wary of words like champion. What I want the Institute to do is to address specific hurdles and specific problems. There have been an awful lot of reports… There are words I don’t like, like landscape and thought leadership.

What we’ve done, and what we want to do, is have specific projects which are addressing specific problems. We will have, for example, toolkits for financial advisers so that they can have much more informed and knowledgeable conversations about impact with their clients. We will have guides for pension funds, so that they can say, “Okay, this scheme has done this, this is the way they’ve overcome the hurdles around, for example, perceived hurdles on fiduciary duty. This is how you can do it.” 

Leading the world in knowledge exchange

Q: I’m aware one of the funders is the Department for International Development. Governments over the years have been extremely proud that we are leading the world in social investment. Is that something that the Institute is looking to build on? How do you see that wider, global role? 

A: I think that there are ways in which the UK really was a genuine pioneer maybe 10, 15 years ago. Some of the tools, some of the conversations, wouldn’t have happened without some of the people, Brits, who started some of this thinking.

Even then, there were really interesting conversations and initiatives going on outside the UK.

What I see us doing is, where we do useful things, we want to export those useful things. All our research, everything we do at the Institute, will be open source, so available to the public both here and outside the UK. I also want us to be importing best practice and innovations, whether it’s financial vehicles, whether it’s policy choices, regulatory choices, I want to be importing from elsewhere.

I was at the Global Steering Group meeting last week. The most interesting thing we did there was sit all the NABs around the table and they had to share two or three things that they’d done in the last year or that they saw as successes. It’s very clear to me that there are policy innovations, specific investment structures, specific coalitions, where we should be learning from innovations outside the UK and bringing them into the UK.

I see it very much as a knowledge exchange system. It’s really important for the UK to develop a financial services industry after Brexit that does have comparative advantages. 

The Singapore comparisons are always with us 

I would like those comparative advantages to be around our ability to deliver measurable impact in investment products, to talk about impact investment in a way that allows other people to learn from our experience and our knowledge.

I went to Birmingham two weeks ago to [a meeting of] the Coalition on the Future of Social Investing. Someone said: “The question is, what kind of Singapore do we want to be?”

We have an opportunity after Brexit to design a financial system that does have comparative advantage in some of these areas. That will differentiate the UK in the future, and its financial system, from the rest of the world. I hope we can do that.

Less gloss, more Matt 

Q: A couple of overlapping final questions: as someone leading a charity or social enterprise, why should I or they be interested in what you’re doing? What’s in it for us?

A: One of the things that I did as soon as I got offered the job is that I went to talk to a number of social investors and the enterprises that they invest in.

I went to Sheffield and talked to Matt Smith of the Key FundI went to visit some of the things the fund invests in. I said to him and I asked all those people, “Given this is where our expertise and our comparative advantage lies, how can we be useful?”

I have designed some of our projects specifically in response to those conversations. Matt, for example, said: If financial advisers understood this, not impact so much as the broader asset class, ESG, social investing, more broadly… If financial advisers understood this better, that would be really helpful.

I’m now a member of this coalition which brings together some of the social investors who I will learn from. I will learn from those conversations and I will take that learning back to the Institute.

Also, on our advisory council and our board, we do have representation from the social sector.  One of the main purposes of that is to be directed by the social investor sector so that our activities are in direct response to the express needs of the sector. 

The Institute is not, going to help directly the enterprises that Matt Smith is investing in but, if I can help Matt Smith, that is the mechanism.

We want to have a digital presence where, if you have a question about impact investment, you will be directed to the right source of information. 

I think we can play a really useful role in curating the information that is there, to make sure that these different audiences, whether it’s the public, whether a charity, whether it’s a pension fund, that they will get better information on impact investment. 

Growing, growing 

Q. Just finally, really, a broad concluding question, what does success look like for the Institute?

A. We’ve got our objectives, but all our projects speak to our objectives. What we will do is made up of projects with deliverables and deadlines and milestones.

What will success, in the biggest sense, look like? It will mean more capital allocated to impact, more accountable capital and individuals who are more aware of the importance of impact. 

 

Thanks to Sarah Gordon for doing this interview.

Leave a comment

Filed under Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s