Invest
Report ‘de-risks’ impact investment to open sector up to mainstream
A new report has set out how to de-risk impact investment, which could make the sector more appealing to a wider range of investors. The strategy has been described as a “win-win” because of the financial and social returns it offers.
The study, Shifting the Lens: A De-Risking Toolkit for Impact Investment, was published in January by Bank of America Merrill Lynch and Bridges Ventures. It states that concerns around risk were deterring many mainstream investors from pursuing impact-centred strategies.
In June last year, impact investment – which is often referred to as social or social impact investment – received a boost when David Cameron said it had the power to tackle some of the most difficult social problems we are facing today.
This latest report argues that by adjusting the risk involved with impact investments, the sector will become more accessible to a wider range of investors. Separate research from ethical bank Triodos found that 3 million investors could consider this strategy in 2014.
Clara Barby, head of impact at Bridges Venture, said, “One way to reduce the sense of risk is to wait for impact investment strategies to prove themselves, but we don’t have time – some societal challenges that impact investments can address are too urgent.
“By clarifying some of the key risks and exploring features that will mitigate them, we hope that more investors can participate in the market and more impact-driven organisations can access the capital they need.”
One of the de-risk features the report identifies is bundling. Bundled products offer asset owners the opportunity to buy a single product that is compromised of two or more different underlying investments. This means that intermediaries can create a range of investments that are of the same asset class but exposure is in sufficiently different sectors or geographies.
Another mitigation tool is impact evidence. A product with impact evidence has a defined impact strategy, and worked collaboratively to track progress against the expectations set. Sir Ronald Cohen, widely regarded as a founding father of social impact investment, described the ability to measure social outcomes from investment as “breakthrough thinking” at an event in October last year.
The other ways to de-risk listed in the report were: downsize protection, track record, liquidity, technical assistance, and placement and distribution.
The report includes a catalogue of products from a range of providers, including the Ecology Building Society, Threadneedle and Triodos, which investors interested in impact investing could use to identify potential opportunities and risks.
Further reading:
Fiona Woolf: London must lead in social impact investment
Triodos survey says 3m may consider social investment in next year
Government sets out social enterprise support in Social Investment Roadmap
David Cameron’s social impact investment speech: full text
Cameron: ‘social investment can be a great force for social change on the planet’