Exclusive: Is this the woman who can persuade pension funds to invest for impact?

First announced in June, the UK’s newest impact investing body launches this week. We met CEO (and former business journalist) Sarah Gordon, who spoke to us about the rise of enlightened boardrooms, why she's so keen to avoid reinventing the wheel – and why the startup will soon be having a few words with its own pension provider.

Last week, the venture capitalist and philanthropist Sir Ronald Cohen called for a campaign to turn the trillions of dollars held by pension funds and other institutional investors into a force for good.

Now, the UK’s new Impact Investing Institute has added further firepower to these efforts – with pensions a core part of its strategy, announced this week, to mobilise more capital towards the Sustainable Development Goals.

First announced in June and officially launching yesterday in Sheffield and this evening in London, the Institute aims to accelerate the growth and improve the effectiveness of the impact investing market. 

CEO Sarah Gordon tells Pioneers Post that training and awareness around pensions will be a “key focus” for the new organisation, which will work closely with Pensions for Purpose, a group that aims to promote understanding of impact investment.

While some pension funds are already doing “really quite innovative and sophisticated work around impact, there are others for whom the word ‘impact’ is a dirty word,” she says. Getting the latter on board will require “confidence- and competence-raising” among pension scheme trustees, financial advisors and pension consultants, as well as individual pension-holders. The Institute hopes to achieve this in part by curating high-quality, “very accessible” information on its website and social media platforms, tailored both for the public and for specialists – with the hope, ultimately, that better understanding of impact investing will lead to more money allocated in that direction. 

“For some pension funds, the word ‘impact’ is a dirty word”

For Gordon, who took up the role in September after standing down as business editor for the Financial Times, the startup process has already driven home the need for better information. 

“We’ve been on a journey trying to find a pension provider for the Institute – and in fact the difficulty of the journey really bolstered our feeling that our work is necessary,” she says. The organisation settled on government provider Nest – a “perfectly adequate choice”, but one that still doesn’t allow customers “to really understand how you as a Nest pension investor are delivering any kind of impact whatsoever.”

How will they change this? As well as speaking to its own provider, the Institute plans to showcase good examples – she cites the Greater Manchester Pension Fund as one that’s “ahead of the pack in terms of pioneering allocation to impact” – and to identify obstacles. One common hurdle is already clear: “A lot of pension scheme trustees believe that it is incompatible with their fiduciary duty to invest for impact and we’ve already started doing a piece of research to show why that isn’t the case.”

Bridging a gap

The Institute’s current work plan runs until March 2022, and has an estimated operating budget of about £3m (including a commissioning budget) until then. Supporters have been named as the City of London Corporation, the UK’s Department for Digital, Culture, Media and Sport and the Department for International Development, plus financial services firms including Aberdeen Standard Investments, BlackRock, CFA Institute, Columbia Threadneedle Investments, Credit Suisse International, Generation Investment Management, Hermes Investment Management, Investec Asset Management, Schroders and Triodos Bank. 

Bringing together the UK’s National Advisory Board (NAB) on Impact Investing and the Implementation Taskforce on Growing a Culture of Social Impact Investing in the UK under one roof, the Impact Investing Institute describes itself as an independent non-profit, and is incorporated as a private company limited by guarantee (as such it has no shareholders, and its two directors are listed as Dame Elizabeth Corley, who chaired the Implementation Taskforce and is chair of the Institute's board, and Sir Harvey McGrath, who chairs Big Society Capital and is chair of the Institute's advisory council). It will have a “small executive staff of about six or seven people”, according to Gordon, working alongside a larger group of volunteers, including many of those who previously gave their time to the NAB and the Taskforce. 

Objectives of the Impact Investing Institute

  • Mobilise big pools of capital, such as defined contribution pension funds, to increase their impact
  • Make capital more accountable, by working on initiatives to improve the effectiveness and accountability of capital seeking to have a positive impact
  • Empower people to save and invest in line with their values, by addressing barriers that prevent people from investing for impact

 

The organisation is temporarily based in a branch of WeWork (the US-based real estate company and office space giant) in the City of London – though Gordon says she would “definitely” consider a social enterprise workspace or provider when the time comes to relocate somewhere more permanent. 

But its base is likely to remain close to the heart of the UK’s financial district. 

“I think where our comparative advantage lies is in our connections that were built, through the Taskforce and the NAB, with institutional investors in the City. I think that’s where we need to concentrate our efforts,” says Gordon. The Institute could also play “a really important role” in bridging the gap between the social sector and mainstream finance. “That gap is still too wide and it needs to be narrowed. We’ll be putting as much effort as possible into doing that.”

“I think where our comparative advantage lies is in our connections… with institutional investors in the City”

However, the CEO emphasised a wish to avoid being “London-centric”: board meetings will be held outside the capital, and the choice of an initial launch in Sheffield aimed to send a message “that we’re not just about London.”

And, while the Institute was first introduced as (among others) a key way to maintain UK leadership in impact investing, it is also expected to “inform global practice” and accelerate progress “well beyond the UK”, as Rosemary Addis, who chairs the Australian advisory board on impact investing, puts it in a statement published today

How might their influencing happen in practice? Gordon points to “policy work both nationally and internationally”, adding that the Institute is “already part of the conversations in this country and in Brussels.” One goal, she says, is making sure that the ‘S’ in ESG investing (investment that takes into account environmental, social and governance factors) is seen “not just as important as the ‘E’, but as intimately linked with the ‘E’. That you cannot make an environmental choice without taking your social impact into account.”

No more reports

The direct benefit of the new Institute for small social enterprises remains to be seen. Asked how it will engage with such organisations, Gordon says the key thing is to “make extremely sure that their voice is heard both in the design of the work and in its continuation”. The Institute's board includes the CEOs of the Esmée Fairbairn Foundation and the Social Investment Business (both big players in the UK impact investment scene, who have provided millions of pounds for charities and social enterprises), as well as the CEO of the Brussels-based European Venture Philanthropy Association (EVPA). Social entrepreneurs and investors are expected to join an advisory council.

But Gordon says she’s “extremely wary” of offering social enterprises something specific “because I think that in the past too many initiatives led out of London, and involving people from the City, have promised an awful lot and not delivered what they promised. It would be entirely inappropriate for me to think that we had anything to teach social entrepreneurs about how to run their businesses”.

What many social entrepreneurs may be expecting, however, is a sense that the new Institute is taking their repeated calls for more patient capital seriously. Gordon says this is a priority, with plans for “a number of specific projects”, the first aiming to build evidence for how grant, concessionary and mainstream capital can work together, and develop practical guidance and case studies for investors.

“In too many situations it’s either/or: you either take the grant money or you take the loan money. What we want to be doing is helping bigger organisations think about how they can use both together. We are not reinventing the wheel – an enormous amount of important work and thinking has been done around this – but we hope to give practical guidance and practical case studies.” For Gordon, who insists the sector doesn’t need more reports, but rather usable tools, this is “a good example of the way that we want to work”. 

Exporting and importing

Among the other activities announced today are support for the Impact Management Project, which is building a global consensus on how to measure and manage impact, in the design and dissemination of a digital platform for asset owners and managers to report on their impact. It will also collaborate with others on an impact framework for social and affordable housing. 

And, as the world’s first national advisory board on impact investment, the Institute is also going to share what it has learned with a fledgling NAB in Ghana. Gordon is keen to both export and import good ideas: “The UK used to be a pioneer in impact investment but there’s amazing stuff going on elsewhere.” There are specific policy developments – one in particular that she’s visibly excited about, but declines to reveal details – “which I think we should be talking about here”. 

How confident is the former business journalist that companies and investors will take up the call? The amount of investment “dedicated to ESG [i.e. responsible investing, which essentially seeks to avoid negative impact along environmental, social and governance issues], let alone impact is tiny compared to global assets under management,” she says. And if the ideal outcome is to see her own organisation become obsolete, she admits that’s clearly not going to happen in the next few years.

But, while Gordon has previously written about greedy, exploitative corporate bosses, she also notes that “the more enlightened boardrooms are having incredibly interesting and innovative discussions about… how you genuinely integrate ESG into your operational model. I feel, I hope we will help in that process.

“It’s a really amazing time to be launching an institute like this. Because there’s a sense of so much momentum and energy – among not just the public [but also] businesses, boardrooms, investors. There’s a real recognition that we have to do things in a different way.”

 

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