Over 50 per cent of UK pension funds now hold some form of impact investing, with nine out of 10 of these schemes looking to make these impact investments in the UK in future.
This research by campaign group Pensions for Purpose and Big Society Capital found that impact investments currently account for around 5 per cent of the £150bn AUM in the surveyed schemes.
Social impact investments are increasingly being seen as a viable option, although most impact investments are still targeting environmental impacts and climate change. The survey found that 100 per cent of schemes intent on to targeting climate action.
However it also found 78 per cent of schemes invest in social infrastructure, which includes investments into hospitals and schools, while 44 per cent of schemes are investing in social and affordable housing.
A greater awareness of product and environmental issues were cited as the main reasons why more funds are being directed to environmental impact investments, rather than social. For example, 58 per cent cited a greater awareness of climate issues than social ones and 42 per cent reported a lack of suitable social impact investment products.
More education is welcomed by scheme managers and trustees to improve their awareness of social issues and suitable impact investment products that help provide solutions to those issues.
Impact investments are defined as an investment that is focused on positive social or environmental outcomes, as well as a financial return.
Charlotte O’Leary, CEO, Pensions for Purpose sats: “UK pension funds represent £2.2 trillion in assets (according to the 2019 ONS survey) and that is only going to grow with auto-enrolment. This represents a significant pool of capital that can be allocated to not just mitigate the risks associated with climate change and social inequity but also to invest in the solutions to those systemic risks.
“While other pension fund markets around the world have reallocated capital to increase private investment, the UK has lagged behind. Impact investing provides the perfect opportunity to revisit allocations to private markets, recognising that opportunities in social impact investment do exist and are being made by pension funds around the UK. This report highlights the perceived and real challenges and solutions in social impact investment with some very powerful case studies, but there is no doubt that more education and greater transparency is required in the market”.
Katie Fulford-Smith, Investor Relationships Director, Big Society Capital said: “It is right that pension funds are directed towards mitigating the impact of climate change, but supporting communities and tackling some of our most pressing social issues goes hand in hand with successfully reaching net zero. When people’s primary focus is shelter and food, greener living is not a consideration.
“Our investments must help society level up to enable the green transition. Fortunately, the social impact investment market is growing considerably, having rocketed nearly eight-fold from £833 million in 2011 to £6.4 billion in 2020. To meet this demand, we are working to increase the number of investment options in social impact and improve understanding of the vast benefits to the investor and investee.”