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Impact Investing For Social Change

Impact Investing For Social Change

Imagine what a difference spending $1.7 trillion to jump-start opportunities in communities which have seen “no real income growth” would make.

That’s exactly what a panel of public and private sector leaders, including former Labour MP Hazel Blears and the heads of Hermes Investment Management and auditor Grant Thornton have been doing. Combined, they serve as The UK National Advisory Board on Impact Investing (NAB).

The NAB is a voluntary body that was formed from a task force set up during David Cameron’s term as prime Minister, the group is made up of senior leaders connected to the impact investment sector.

"Impact Investing is the idea that capital, especially held in pension fund investments, can be a positive force for social change."

It isn’t a new concept, Victorian philanthropists, like George Peabody, founder of the Peabody Trust got it. A famous banker that JP Morgan Chase can trace its origins back to, Peabody gave generously to public causes to invest in improving the plight of the poor.

Today, rather than coming from rich individuals, impact investing comes from the pension savings of ordinary working people. In fact, three quarters of these pension fund members say they would prefer to save their pension in a social investment fund. Almost half of savers, according to the NAB, say they would do so even if their final retirement pot ended up slightly smaller.

The NAB has called on the government to create a £2bn Inclusive Economy Catalyst Fund to kick start further investment from the pensions industry. They believe this could attract an extra £300bn of investment for socially and environmentally focused businesses.

Now let’s imagine what combined local authority economic catalyst funds could do for our communities. If investors, business leaders and local regeneration and property teams consider social and environmental impact alongside financial value then we can start to address some of our biggest social and economic challenges.

And if you are in any doubt as to the appetite from the investment industry to support this, look at the recent start-up of and Impact Investing fund by UK-focused private equity firm Palatine. Not only did it raise £100 million from investors in September 2017, £25 million more than it had expected. It has a strong pipeline of high growth companies that make a difference to their communities.

Don’t think for a moment that these investment firms have somehow “gone soft.” Impact investors apply the same financial criteria as normal investors. They assess the company management team, the market and business plan. But to qualify for an investment, they expect to see a quantifiable social or environmental return. Often using the Environmental, Social and Governance (ESG) framework constructed by Big Society Capital to measure impact. But there are others.

The UK National Advisory Board has committed to develop a clear and accessible mapping of the landscape along with a proposed direction of travel to promote awareness and understanding.

Creating the environment for local authorities to follow their lead.