Comment by Peter Truesdale for October/November CCB 120.
Social Impact Investment? I’m a nervous Nellie investor
I am a sceptic.
If a trendy buzz word like ‘community’, ‘social’ or ‘fair’ features strongly in an argument dig deep! Check it out! Test it.
I saw the phrase ‘social impact investment’. I got onto the case.
What is going on?
It’s to do with the rise of the social entrepreneur- that easy to recognise, but hard to define character. Social entrepreneurs: combine social aims with business disciplines; are outcomes focused; are disdainful of demarcation lines; have an appetite for sequestering physical assets, upgrading them and making them sweat. They thrive on risk like City-boy traders. Given their energy and thrust you can see why they want capital.
What’s less clear to a risk-averse, nervous Nellie investor like me is why anybody would want to lend to them. What sort of financial return can the investor expect? What level of risk is involved? How quickly will the investment justify itself?
While totally in control of my own (cautiously positioned) private pension pot, I am also a trustee of the multi-million investments of a London Borough pension fund. As trustees we try to ensure that our stock is voted ethically, yet the truth is that the fund is all about returns, returns, returns. Tobacco might not have a net positive outcome but we invest in it because it gives our pensioners a good return.
How would we react to social impact investment vehicles?
We’d say: “Social entrepreneurism good! Beneficial social outcomes: fantastic!” and then we’d ask: “Is the return we’d get on your bond better than we’d get from shares in Diageo or bonds issued by the Australian government?”
Hmmm.
Conclusion: Social Impact Investment’s a great idea but its promoters need to show it can give a competitive return to the investor.
Peter Truesdale is an Associate Director at Corporate Citizenship. E-mail him at peter.truesdale@corporate-citizenship.com to discuss reporting, assurance and external standards
Japan and Korea are top performers on ESG
According to EIRIS’ State of Responsible Business (Asia) report, companies based in Asia are making steady progress in addressing the ESG challenges they face but have some way to go before they catch up with their European peers. The report focussed on 786 Asian companies – across China, Hong Kong, Singapore, South Korea and Japan to assess how well they are addressing key ESG challenges and compares their performance to their European and North American peers. Companies in Japan and South Korea have the highest overall performance on environmental, social and governance (ESG) issues achieved through local initiatives such as the recent introduction of Seoul’s “Low Carbon, Green Growth” initiative – which outlines a plan to reduce carbon emissions – along with a similar program in Japan.
Contact: EIRIS
UK at watershed moment for social impact investing with potential to be global leader
In a new report commissioned by The Social Investment Business, social impact investment has the potential to evolve from being an emerging market to a very large, mature investment market attracting mainstream investors. Making Good in Social Impact Investment: Opportunities in an Emerging Asset Classargues that the UK is well placed to be a global leader in the field, as social impact investment builds on our record as home to a well-developed, not-for-profit, charitable and voluntary sector and our historic strengths in financial services. The report explains the need for an integrated social impact investment market with a range of financial products suitable for the different stages of social sector organisations’ development.
The first European-wide survey of corporate pension funds, undertaken by Eurosif, finds that 56% now have a responsible investment policy. Other key findings include: 60% of respondents believe environmental, social and governance factors affect the fund’s long-term performance; 66% of pension funds from the Corporate Pension Funds and Sustainable Investment survey said a sustainable and responsible investment (SRI) policy is a fiduciary duty. Participants ranked governance as the most important ESG factor followed by social and environmental. The report also found that 62% of pension funds delegate SRI policies to fund managers and 49% to in-house management. Although some European legislature requires pension funds to disclose their SRI policy and activities, most are not externally revealed.
Ethical Funds releases 2012 Focus List to engage with more than 60 companies worldwide
Ethical Funds has announced plans to engage with more than 60 companies worldwide in 2012 to encourage them to adopt positive environmental, social and governance practices. Through the ESG Services team at NEI Investments, the focus will be on four major issues in 2012: pay-for-performance executive compensation, responsible oil sands development, forest conservation and access to life-saving medication in developing countries. Commenting on the plans says Bob Walker, Vice President, Ethical Funds said”Corporate adoption of positive environmental, social and governance practices is becoming an increasingly important consideration in an investor’s decision making process. By advocating with companies for adoption and improvements of these practices, we not only help our investors to reduce the long term risk of their investments but the organizations become better corporate citizens as well.”
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