The Government will next month hear that intermediaries have an important role to play in helping investors align their savings, pensions and investments with their values through social impact investing.
The Minister for Civil Service and Economic Secretary to the Treasury formed an advisory group on creating a culture of social impact investing last December.
Aberdeen Standard Investments, LGIM and Architas are among the group’s members, as well as St James Place and Hargreaves Lansdown. The Investment Association and FCA are also represented.
The UK used to lead the world in social impact investing, but is slipping behind, says AllianzGI deputy chair Elizabeth Corley, who leads the advisory group.
Improving information available to advisers and pension trustees so that they can help investors align with the values will be one of the recommendations, says Corley.
The supply and scale of investments also need to improve and there must be be more consistent messaging, she told a Good Money Week event this week. Currently there is confusion about the difference between ESG, social impact, ethical screens and socially responsible investing, she points out.
Recommendations will be presented to the Government next month.
“We have brilliant financial advisers in this country and we have excellent pension trustees,” Corley says.
“They are overwhelmed by regulation and concerns that they might get something wrong on behalf of their customers. How can we help them with advisory tools and places to go to get information.”
Corley adds that indemnity insurers need to understand that responsible investing “isn’t a dangerous area”.
On the contrary, Corley says that screening for environmental, social and governance factors (ESG) facilitates the avoidance of black swan events. “There is an argument that the way that we price investments today we are underpricing future risks,” she says. “We are definitely underpricing externalities.”
Research released by Bank of America Merrill Lynch earlier this year named ESG as the “best signal” for future risk, particularly within financials, energy and materials and real estate and utilities.
The bank noted investors could have avoided 90 per cent of bankruptcies by considering ESG factors.
UK risks losing its crown
Corley says it is “a shame” that the UK is trying to reclaim a crown it once had as a world leader in social impact.
The country launched a social impact task force when it hosted the G8 in 2013. Chaired by venture capital veteran Ronald Cohen, it has since become a global steering group, supported by the G8 and additional members, including the EU.
But Corley says she called around international industry leaders when she was appointed chair of the advisory group and was told the UK is losing its previous ranking as a social impact leader.
“We’re proud of being global leaders in many aspects of financial services, why is it we’re at risk of losing this wonderful crown we had,” Corley says.
The US is now considered one of the leading countries for a savings and investment culture around social impact, Corley says.
“Private industry has decided they can’t wait for public policy to do anything. This has stimulated enormous demand from Millennials, from wealthy individuals, people moving into retirement to think about what they can do with their money because they realise they can’t rely on public policy to make the changes necessary.”
The presidential election of Donald Trump has previously been described a ‘fillip’ for ESG as inflows outpace other strategies, while Morningstar has reported research for its ESG fund data has quadrupled since his inauguration.
The social impact investment and savings advisory group was launched by Rob Wilson MP, who lost his seat in the snap general election.
Corley says she was reassured the day after the election that their work remained part of the Government’s policy.
The full list of recommendations will be presented to Tracey Crouch, minister for civil service, and Stephen Barclay, economic secretary to the Treasury.