Five of the largest local authority pension funds have announced a commitment of £152m to the UK social impact investment market.
In May last year, the Investing4Growth (I4G) initiative was established, in association with Pensions & Investment Research Consultants (PIRC). The initiative will see the five funds seek investments that have an economic impact as well as positive social and environmental outcomes.
The funds involved are the Greater Manchester, West Yorkshire, South Yorkshire, Merseyside and West Midlands pension funds, with East Riding pension fund recently joining the initiative.
The Global Impact Investing Network (GIIN) defines impact investment as “investments made into companies, organisations, and funds with the intention to generate social and environmental impact alongside a financial return”.
A 2012 report – Local authority pension funds: investing for growth – published by the Smith Institute noted local authority pension funds hold investments and assets of more than £120 billion.
The report also found impact investment was growing in popularity. It said, “Most funds stated they would be interested in developing impact investment for the future.”
This is good news for local councils, with headlines usually focusing on their investments in tobacco, which many uphold while simultaneously raising awareness about the dangers of smoking.
Many members have claimed this is a conflict of interest. However, some councils have justified their position by saying their main duty is to generate a good return for their investors.
Last year, the charity Action on Smoking and Health (ASH) told Blue & Green Tomorrow that this argument no longer has any grounding, as many tobacco firms have not performed as well financially in recent years.
This new commitment to impact investment is important because it goes some way to pension funds moving towards investing in what shareholders deem important .
Speaking about the commitment, a spokesperson for PIRC said, “This is the ice breaker as other funds are more likely to consider [social impact investment] in the second round.
“This is the extension of the view that if you sit around and wait for investments to fall into your lap you are not fulfilling your role as a trustee.”
The spokesperson explained that it’s a new process that involves a lot of work, and that “it’s not easy but will gain returns to members and social benefits”.
With socially responsible investment (SRI) doing well and potentially reaching the mainstream, impact investment is something pension funds need to seriously consider.
Councillor Kieran Quinn, chair of Greater Manchester pension fund and the I4G group, said, “Impact investing for pension funds is a new area of activity and I hope that having established the investment potential, other funds will join us in seeking further opportunities leading to the establishment of a strong flow of good opportunities and provision of pension fund investment returns.”
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