1 Elizabeth Corley CBE
Elizabeth Corley CBE Vice Chair, Allianz Global Investors To: Tracey Crouch MP, Minister for Sport and Civil Society Stephen Barclay MP, Economic Secretary to the Treasury CC: Guy Opperman MP, Minister for Pensions and Financial Inclusion Dear Ministers, Last year, I was asked by the then Minister for Civil Society and Economic Secretary to the Treasury to chair an advisory group looking at how to create a culture of social impact investment and savings in the UK. This means increasing the number and scale of investments that seek positive social outcomes alongside financial return, such as investments into social and supported housing, and into companies with a clear commitment to deliver social impact. This also requires making it easier for individuals to access these investments. I would like to extend my thanks for this opportunity, which I am delighted to say has received strong support. The Advisory Group has convened a number of senior industry representatives from the savings, investment and social sectors offering valuable thought leadership and practical advice. In addition to this, the wider social sector and global organisations such as the World Economic Forum have also been very engaged. It is clear from the evidence gathered by the Advisory Group that there is growing appetite for private capital to be used as a driver of sustainable growth, directed towards investments that have a positive impact on society. You will likely be aware that government departments are also exploring the creation of blended public & private funds to invest in specific issues, such as education and affordable housing. At the same time, there is unmet demand from retail consumers for this type of investment. A recent study found that over half of the eligible UK population are keen to make positive investments1. Individuals should have the opportunity to invest in line with their values and have increased ownership over both the financial and social outcomes that their money generates. Over time, a cultural shift in the way retail savings and investments are used has the potential to create greater alignment between the public and business sector, with both supporting an inclusive, sustainable capital market. This growing interest confirms that the timing of the Advisory Group is right. Its contribution will be to a larger body of work that has laid the foundations for change, particularly the UK National Advisory Board on Impact Investing, which has helped instigate an increased focus on this issue. The mandate of the group is not to implement all potential solutions, but instead aims to harness the momentum that has already been built and encourage cross-‐industry and government alignment to move the market forward and create broader engagement within the mainstream financial industry. Nevertheless, we are giving careful thought as to how best embed the industry proposal in a way that sustains close attention. The Advisory Group remains in direct conversation with the FCA & Financial Ombudsman, as well as major industry bodies such as the Financial Reporting Council and Investment Association. Industry wide 1
Ethex, 2017: Understanding the Positive Investor
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engagement is an integral part of the Advisory Group’s approach, since the Group is not a permanent one. We anticipate different strands of the work to be taken forward by other organisations within the industry. An extensive analysis of some of the key impediments facing the financial industry when considering social impact in the creation and distribution of investment and savings products has been undertaken by the Advisory Group. This has led us to structure our recommendations on developing the social impact investment chain in the following way: • Investable assets: Increasing the supply of impact investment propositions from, for example, companies/enterprises with clear strategies to deliver and improve their impact, purpose-‐led businesses and social enterprises • Number and scale of investment & savings products: Improving the ability to invest at scale in products that have social outcomes alongside financial return, and understanding how effective existing tax incentives have been in stimulating the market • Advice and distribution: Increasing the knowledge and capability among financial advisors and other intermediaries to advise clients on social impact investments • Pension funds: Helping pension trustees become more comfortable in understanding ways to incorporate social impact into investment decisions • Engaging retail investors: Strengthening the understanding of retail investors through consistent messaging and an industry standard of good practice • Reporting on social impact: Increasing education and expertise into understanding, analysing and reporting on social impact by investment firms • Industry education and standards: Expand the technical competence for and raise standards in broader environmental, social and governance investing We intend to publish our final findings and recommendations in the autumn. The recommendations will incorporate an action plan with immediate, practical steps, as well as outlining actions needed for both the industry and government in the medium and long-‐term to embed a more systemic change in the financial services industry. This is a broad overview of the areas of focus, with a more detailed outline in an annex to this letter. I would also be happy to discuss these with you at greater depth if you have an interest in any specific points. Thank you again for providing us with this opportunity. With continued support across the market and from within government, we have a real chance to catalyse lasting, positive change in the financial industry. Yours sincerely,
Elizabeth Corley
2
Annex A -‐ Further detail on the outline of our enquiries 1. Investable assets: Increasing the supply of impact investment propositions from, for example, companies/enterprises with clear strategies to deliver and improve their impact, purpose led businesses and social enterprises ● Encouraging corporate reporting around sustainability, social impact and the SDGs, which would create a wider base of investable assets for investors to choose from ● Exploring impediments to the social enterprise and charity sectors raising repayable finance 2. Number and scale of investment & savings products: Improving the ability to invest at scale in products that have social outcomes alongside financial return ● Exploring the structural and behavioural barriers preventing investment funds and institutions from investing in social assets, which are often less liquid -‐ for example the perceived need for daily pricing ● Looking at aggregation of social investment assets, for example social bonds, through an institution to make it easier to invest ● Understanding how individuals and product providers could be incentivised to invest in social assets, for example through the use of ISA’s, and understanding how effective current tax incentives have been in stimulating the market ● Creating case studies for vehicles, funds, products (etc) that work well in this space, or could work 3. Advice and distribution: Increasing the knowledge and capability among financial advisors and other intermediaries to advise clients on social impact investments ● Working with major financial advisor associations on educational content, including CPD resources ● Developing a framework and proof of concept tool demonstrating how advisors can integrate impact into their business models ● Working with universities and business schools to understand how impact investing could be better integrated into core curricula ● Working with professional adviser association to develop good practice guides to help advisors navigate suitability requirements 4. Pension funds: Helping pension trustees become more comfortable incorporating social impact into investment decisions ● Building on the recent Law Commission paper, Pension Funds and Social Investment, which sets out a 2-‐part test trustees should adhere to when considering social impact ● Creating a set of hypothetical scenarios to add colour to this guidance, with input from regulatory and trade bodies ● Considering the Law Commission’s recommendations that trustees and Independent Governance Councils should be required to state their policies in relation to member’s ethical concerns, and in relation to stewardship ● Considering the issue of liquidity requirements, or perceptions around liquidity requirements, and which organisation(s) could look at this in greater depth and provide guidance ● Understanding the current analysis around social impact asset risk return profiles, and how this could be built upon further 5. Engaging retail investors: Strengthening the understanding of retail investors through consistent messaging and an industry standard of good practice
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Focussing on the role of the regular end-‐consumer, rather than institutional or high-‐net worth individuals Highlighting that as the market place for impact investing develops, so too can the concept of a principles-‐led social impact investment label Exploring the role of the employer as a ‘source of information’ and to offer impact investment options to their employees and considering how these could align with companies’ existing ESG and CSR policies Commissioning behavioural research to understand and characterise the underlying dimensions in which the broad population in the UK (with capital to invest) thinks about supporting causes they care about through investments Exploring with relevant regulatory bodies whether there are ways to accelerate approvals of products and services focused on social impact and work up case studies or examples of how to include impact investing in an advisory framework
6. Reporting on social impact: Increasing education and expertise into understanding, analysing and reporting on social impact by investment firms ● Building on, and potentially bringing together, the many initiatives seeking to create a shared narrative around understanding and communicating impact ● Understanding how investment managers have successfully reported on the impact of their investments to clients, and exploring how to develop a set of standards around this 7. Industry education and standards: Expanding the technical competence for, and raising standards in, broader environmental, social and governance investing ● Ensuring rigorous quality control over the social impact sought and reported in social impact investing, and integrating this approach into broader ESG investing approaches ● Understanding whether existing ESG frameworks are effective and adhered to ● Exploring how a social impact investment analyst apprenticeship scheme could work
4
Ethex, 2017: Understanding the Positive Investor
1
engagement is an integral part of the Advisory Group’s approach, since the Group is not a permanent one. We anticipate different strands of the work to be taken forward by other organisations within the industry. An extensive analysis of some of the key impediments facing the financial industry when considering social impact in the creation and distribution of investment and savings products has been undertaken by the Advisory Group. This has led us to structure our recommendations on developing the social impact investment chain in the following way: • Investable assets: Increasing the supply of impact investment propositions from, for example, companies/enterprises with clear strategies to deliver and improve their impact, purpose-‐led businesses and social enterprises • Number and scale of investment & savings products: Improving the ability to invest at scale in products that have social outcomes alongside financial return, and understanding how effective existing tax incentives have been in stimulating the market • Advice and distribution: Increasing the knowledge and capability among financial advisors and other intermediaries to advise clients on social impact investments • Pension funds: Helping pension trustees become more comfortable in understanding ways to incorporate social impact into investment decisions • Engaging retail investors: Strengthening the understanding of retail investors through consistent messaging and an industry standard of good practice • Reporting on social impact: Increasing education and expertise into understanding, analysing and reporting on social impact by investment firms • Industry education and standards: Expand the technical competence for and raise standards in broader environmental, social and governance investing We intend to publish our final findings and recommendations in the autumn. The recommendations will incorporate an action plan with immediate, practical steps, as well as outlining actions needed for both the industry and government in the medium and long-‐term to embed a more systemic change in the financial services industry. This is a broad overview of the areas of focus, with a more detailed outline in an annex to this letter. I would also be happy to discuss these with you at greater depth if you have an interest in any specific points. Thank you again for providing us with this opportunity. With continued support across the market and from within government, we have a real chance to catalyse lasting, positive change in the financial industry. Yours sincerely,
Elizabeth Corley
2
Annex A -‐ Further detail on the outline of our enquiries 1. Investable assets: Increasing the supply of impact investment propositions from, for example, companies/enterprises with clear strategies to deliver and improve their impact, purpose led businesses and social enterprises ● Encouraging corporate reporting around sustainability, social impact and the SDGs, which would create a wider base of investable assets for investors to choose from ● Exploring impediments to the social enterprise and charity sectors raising repayable finance 2. Number and scale of investment & savings products: Improving the ability to invest at scale in products that have social outcomes alongside financial return ● Exploring the structural and behavioural barriers preventing investment funds and institutions from investing in social assets, which are often less liquid -‐ for example the perceived need for daily pricing ● Looking at aggregation of social investment assets, for example social bonds, through an institution to make it easier to invest ● Understanding how individuals and product providers could be incentivised to invest in social assets, for example through the use of ISA’s, and understanding how effective current tax incentives have been in stimulating the market ● Creating case studies for vehicles, funds, products (etc) that work well in this space, or could work 3. Advice and distribution: Increasing the knowledge and capability among financial advisors and other intermediaries to advise clients on social impact investments ● Working with major financial advisor associations on educational content, including CPD resources ● Developing a framework and proof of concept tool demonstrating how advisors can integrate impact into their business models ● Working with universities and business schools to understand how impact investing could be better integrated into core curricula ● Working with professional adviser association to develop good practice guides to help advisors navigate suitability requirements 4. Pension funds: Helping pension trustees become more comfortable incorporating social impact into investment decisions ● Building on the recent Law Commission paper, Pension Funds and Social Investment, which sets out a 2-‐part test trustees should adhere to when considering social impact ● Creating a set of hypothetical scenarios to add colour to this guidance, with input from regulatory and trade bodies ● Considering the Law Commission’s recommendations that trustees and Independent Governance Councils should be required to state their policies in relation to member’s ethical concerns, and in relation to stewardship ● Considering the issue of liquidity requirements, or perceptions around liquidity requirements, and which organisation(s) could look at this in greater depth and provide guidance ● Understanding the current analysis around social impact asset risk return profiles, and how this could be built upon further 5. Engaging retail investors: Strengthening the understanding of retail investors through consistent messaging and an industry standard of good practice
3
● ● ●
●
●
Focussing on the role of the regular end-‐consumer, rather than institutional or high-‐net worth individuals Highlighting that as the market place for impact investing develops, so too can the concept of a principles-‐led social impact investment label Exploring the role of the employer as a ‘source of information’ and to offer impact investment options to their employees and considering how these could align with companies’ existing ESG and CSR policies Commissioning behavioural research to understand and characterise the underlying dimensions in which the broad population in the UK (with capital to invest) thinks about supporting causes they care about through investments Exploring with relevant regulatory bodies whether there are ways to accelerate approvals of products and services focused on social impact and work up case studies or examples of how to include impact investing in an advisory framework
6. Reporting on social impact: Increasing education and expertise into understanding, analysing and reporting on social impact by investment firms ● Building on, and potentially bringing together, the many initiatives seeking to create a shared narrative around understanding and communicating impact ● Understanding how investment managers have successfully reported on the impact of their investments to clients, and exploring how to develop a set of standards around this 7. Industry education and standards: Expanding the technical competence for, and raising standards in, broader environmental, social and governance investing ● Ensuring rigorous quality control over the social impact sought and reported in social impact investing, and integrating this approach into broader ESG investing approaches ● Understanding whether existing ESG frameworks are effective and adhered to ● Exploring how a social impact investment analyst apprenticeship scheme could work
4
