Making ‘impact’ the norm for future investments

Eliz­a­beth Cor­ley isn’t one for qui­et retire­ment. After decades in the City, the for­mer chief exec­u­tive at Allianz Glob­al Investors UK is tak­ing on a new chal­lenge to bring so-called impact invest­ing into the main­stream.

As co-chair of the new­ly estab­lished Impact Invest­ing Insti­tute, she hopes to per­suade the world of finance to become as excit­ed about deliv­er­ing social and envi­ron­men­tal good as it is about mak­ing mon­ey.

I want to make it eas­i­er for peo­ple to invest with their val­ues and then for that mon­ey to flow in an account­able way through to ini­tia­tives that are real­ly going to deliv­er

On the face of it, she is push­ing against an open(ing) door. Since the glob­al bank­ing cri­sis of 2007-08, finan­cial insti­tu­tions have become increas­ing­ly cog­nisant of their respon­si­bil­i­ty to wider soci­ety and not just to their share­hold­ers.

Envi­ron­men­tal, social and gov­er­nance issues, known as ESG, are “absolute­ly enter­ing the main­stream” of finan­cial mar­kets, says Ms Cor­ley. Impact invest­ing takes these con­cerns one step fur­ther, cre­at­ing finan­cial prod­ucts that explic­it­ly set out to deliv­er pos­i­tive soci­etal ben­e­fits.

Credible indicators for impact investment

To qual­i­fy as an impact invest­ment, such ben­e­fits can­not be the acci­den­tal out­comes of an oth­er­wise busi­ness-as-usu­al arrange­ment. “They are some­thing that has to be decid­ed before you put your mon­ey in. In this sense, intent is real­ly, real­ly impor­tant,” she says.

The intent of the Impact Invest­ing Insti­tute, which is part-fund­ed by the City of Lon­don, is to catal­yse the epony­mous move­ment that it rep­re­sents through research and advo­ca­cy.

Ms Cor­ley isn’t start­ing from scratch. In 2016–17, she chaired a gov­ern­ment task force on impact invest­ing and how to make it grow. A large part of her cur­rent role will focus on push­ing for­ward the over­ar­ch­ing theme of the task force’s 53 final rec­om­men­da­tions, name­ly to “inte­grate social impact in busi­ness as usu­al”.

But what does this mean in prac­tice? And what would be the effect were such an inte­gra­tion ever to come to pass?

Ms Cor­ley iden­ti­fies at least three mea­sures that could accel­er­ate the impact invest­ing mar­ket, val­ued present­ly at just over $500 bil­lion, which is a not insignif­i­cant sum, but still just a frac­tion of the $79-tril­lion glob­al asset man­age­ment mar­ket.

Her to-do list starts with data. Investors are, by nature, a scep­ti­cal bunch. In the absence of cred­i­ble and con­sis­tent ways of mea­sur­ing the real-life out­comes of ESG invest­ments, that scep­ti­cism will only grow.

More personal and interactive communication systems

Progress is being made, she insists. By way of exam­ple, she points to the World Bench­mark­ing Alliance, a new ini­tia­tive designed to rank pub­licly list­ed com­pa­nies by the con­tri­bu­tions they are mak­ing to the Unit­ed Nation’s Sus­tain­able Devel­op­ment Goals.

Slow­ing up progress, how­ev­er, is the pro­pri­etary nature gov­ern­ing how non-finan­cial data is assessed. Going for­ward, Ms Cor­ley would like to see banks and data providers share their method­olo­gies and infor­ma­tion more wide­ly, prefer­ably on open source plat­forms.

“So, there are things going on [regard­ing data], but they are not going suf­fi­cient­ly at scale yet and they are het­eroge­nous; they are not con­sis­tent enough as yet to allow com­par­isons,” she says.

Ms Cor­ley fore­sees tech­nol­o­gy infra­struc­ture giv­ing a boost to the future impact invest­ing sec­tor. Indi­vid­ual savers and investors are increas­ing­ly engaged with the big issues of the day, from cli­mate change to trade jus­tice; mil­len­ni­als, espe­cial­ly so.

Yet, when it comes to what banks and pen­sion funds do with their mon­ey, most indi­vid­ual savers feel dis­en­gaged. More per­son­alised, more inter­ac­tive com­mu­ni­ca­tions sys­tems could change all that.

“In the near future, peo­ple will be able to decide what kind of infor­ma­tion they want and how they want it, so more per­son­alised to their own inter­ests,” she pre­dicts.

Easier and more transparent investments

Engag­ing the pub­lic on mon­ey mat­ters is not just a tech issue, how­ev­er. Banks will have to drop the jar­gon and start using sim­ple lan­guage. At present, finance vocab­u­lary is “pret­ty impen­e­tra­ble” to the vast major­i­ty of the pop­u­la­tion, Ms Cor­ley con­cedes.

Learn­ing to step into the shoes of oth­ers and com­mu­ni­cate mean­ing­ful­ly is a skill she honed while head­ing up Allianz Glob­al Investors. “When I was a CEO, I was so focused on employ­ee engage­ment and how peo­ple felt about the com­pa­ny,” she says. “There’s a real inter­est in under­stand­ing how the com­pa­ny is per­ceived and being more account­able for it.”

Impor­tant as engag­ing peo­ple in impact invest­ing may be, they need prod­ucts to invest in. More needs to be done on build­ing up the sector’s offer, Ms Cor­ley argues.

For inspi­ra­tion, she looks to the finan­cial tech­nol­o­gy sec­tor, which has seen a pro­lif­er­a­tion of new prod­ucts in recent years. She draws par­tic­u­lar atten­tion to the sector’s sand­box approach, where­by reg­u­la­tors gives star­tups sup­port to test out their solu­tions in real-world con­di­tions. “We should do the same for impact invest­ing,” she says.

Again, the impact invest­ment move­ment is not with­out progress. As evi­dence, Ms Cor­ley talks enthu­si­as­ti­cal­ly about an inno­v­a­tive crowd­fund­ing plat­form run by Bris­tol-based eth­i­cal bank Tri­o­dos UK. The web­site pub­li­cis­es a range of high-impact enter­pris­es and projects that indi­vid­u­als can invest in direct­ly. In the first year since its launch, the plat­form has £20 mil­lion for eight projects.

“I want to make it eas­i­er for peo­ple when they are doing their long-term pen­sions or their ISA to invest with their val­ues and then for that mon­ey to flow in an account­able way through to ini­tia­tives that are real­ly going to deliv­er,” she says.

Ethical impact-oriented investment

Her final aspi­ra­tion is direct­ed towards reg­u­la­tors. In the years ahead, once impact invest­ing has bed­ded in a lit­tle more, she would be hap­py to see pen­sion funds and oth­er asset man­agers oblig­ed to put 1 or 2 per cent of their funds into impact-ori­ent­ed invest­ments.

It is a mod­el that has worked very well in France, where employ­ers with more than 50 work­ers are oblig­ed to offer their staff an option­al sol­i­dar­i­ty sav­ings fund. Some 10 per cent of the assets of such funds, which run along­side reg­u­lar sav­ings schemes, are allo­cat­ed to eli­gi­ble social enter­pris­es.

Should Ms Corley’s aspi­ra­tions for the impact invest­ment move­ment take hold, the effects could lit­er­al­ly be world chang­ing. Instead of just avoid­ing so-called harm indus­tries, such as  tobac­co, fos­sil fuels, arms and so on, a tur­bo-charged impact invest­ing sec­tor would see cap­i­tal start flow­ing to those active­ly tack­ling the big issues of cli­mate change, edu­ca­tion for all and uni­ver­sal health­care.

The investor in Ms Cor­ley also sees poten­tial for reform­ing the cul­ture of the main­stream finance sec­tor. If impact investors can demon­strate that a more trans­par­ent, more engag­ing, more direct approach to invest­ing is pos­si­ble, what is to stop con­sumers expect­ing the same from their pen­sion provider or bank?

Her answer? “Not a lot.” Indeed, the rise in con­sumer and employ­ee boy­cotts of uneth­i­cal stocks points to a rise in the indi­vid­ual empow­er­ment of investors and to a desire for those man­ag­ing our mon­ey to become more account­able. “It’s a nat­ur­al rebal­anc­ing,” Ms Cor­ley con­cludes.

Credible indicators for impact investment

More personal and interactive communication systems

Easier and more transparent investments

Ethical impact-oriented investment