The report, authored by Allianz Global Investors vice-chair Elizabeth Corley, chair of the advisory group on impact investing appointed by the government, says the financial services industry should be able to answer consumer demands of where their money is being invested and should be equipped to offer informed descriptions of the risks and opportunities involved. The DWP is expected to publish a consultation on ESG investing next week.
The report says 82 per cent of pension trustees and scheme managers feel they lack hard data on social impact investment risk, with many failing to appreciate the potential diversification benefits.
The report adds that while nearly 70 per cent of trustees place significant emphasis on advice from their consultants, many of them “are not well informed on social impact investing as an investment approach”.
Corley’s report also argues there is a general level of confusion around fiduciary requirements, which are contained in a patchwork of rules derived from different sources. Nearly 40 per cent of pension fund trustees incorrectly believe there is a requirement for daily pricing and liquidity, when it is primarily the trading platforms commonly used by pension funds that require daily pricing and dealing. There are no legal or regulatory barriers preventing pension funds from making social impact investments, provided thatthey have good reason to think that scheme members share the concern and there is no risk of significant financial detriment to the fund, says the report.
The report calls for regulators and other statutory bodies, including the Financial Conduct Authority (FCA), Financial Ombudsman Service (FOS), Prudential Regulation Authority (PRA), The Pensions Regulator (TPR) and the Financial Reporting Council (FRC), to continue to build capability in relation to social impact considerations so that social impact becomes embedded in regulatory frameworks and understanding.
It calls on the financial services industry to build capability and integrate social impact into business as usual, investing in improving professional skills for social impact and working with academics and service providers to develop a robust performance/outcome evidence base. Corley’s report also calls on the industry to develop with industry bodies initiatives to sustain momentum and ensure quality as the market develops; and to provide tools and training for pension scheme trustees and IFAs.
Professional bodies have been called upon to accelerate professional development around ESG and social impact investment, through CPD and professional qualifications.
The report says consistent non-financial reporting methods should be developed in conjunction with the Investment Association (IA) and CFA Society UK to establish consistent good practice and set common standards for social impact investing.
PLSA policy lead: investment & defined benefit Caroline Escott says:“We are pleased to see the Government committing to support this initiative, and championing businesses and industries that excel in social impact investing. Impact investing is the fastest-growing area of responsible investment. With their long-term investment goals and £2.2tn of assets under management, pension schemes are particularly well placed to have a positive impact on the economy and society through their investments.
“It’s encouraging the Government is focused on supporting trustees in considering the broader environmental and social impacts of their investments. We now look forward to the launch of the Department for Work and Pensions’ consultation next week, which looks to clarify rules around social impact and Environmental, Social and Governance (ESG) investing, making it simpler for pension funds to invest in line with their members’ beliefs.”