Impact investing – Roundtable


vaccines and those who do not, so there is a need for impact investing to increase. From my own experience at Aon, clients are making more of an effort in this area. In the past year, a lot of that discussion has been translated into making such a move. There is still diver- gence across the client base, but pockets of action and acceleration are happening. Cusack: If it wasn’t for the pan- demic, would we have made more pro- gress? Business has carried on through- out and there are compliance issues, but I wonder if we would have been further ahead because people were able to focus on this rather than all the other issues.


PI: What are the barriers to making impact investments? Pinnock: Even though we are a faith-based investor, we have a fiduciary mandate. We are searching for ‘win-win’ investments: those that have a positive impact and risk/ return profile broadly in line with our other investments.


There is a high bar in which we choose our managers, and the nature of impact investing in being a new and nascent area, the investments that come to us often do not have a track record and the areas they are investing in are often unproven. It is trying to get comfortable around the strategy and the team that are involved in an impact investment compared to our regular investments. Sometimes we can get comfort from that. We expect the market for these types of investments to continue to expand over time.


Landymore: The lack of track record and the perceived lack of product are issues for pension schemes because of fiduciary duty, size and other constraints. No one wants to be the first mover. It is about finding a track record for that strategy, manager or asset class. We have researched the UK’s social hous- ing market. What does it look like in


terms of its risk/return characteristics? This is the first time it has been done and demonstrates that, as an asset class, it is a viable investment for institutional inves- tors with fiduciary duties.


Anna Rudgard


ESG fixed income fund research Aon


We then have to find examples of where pension schemes have gone before, so people do not feel like they are the first mover.


In the UK, unfortunately, it is hard to find those examples, so we had to look globally. We have found some good examples of large


institutional investors who have


made pioneering and successful impact investments, which we take to pension schemes to demonstrate what is possible. Manuel: Pensions for Purpose published a collection of polls around impact invest- ing about two years ago. What came top in that poll, in terms of barriers to impact investing, was a lack of understanding and lack of consultant recommendations. We re-ran that poll and it was a lack of opportunities and concerns about sacri- ficing return that came top this time. For me, the market has moved on. That means the education strategy needs to change and highlighting schemes that have done it successfully is critical. But some schemes who have done it suc- cessfully do not want publicity. In some ways, that has enabled them to go about it without worrying about what might come back to them when they put their head above the parapet.


It would be great if we could encourage those schemes to help others realise that the concept of first mover is a myth that needs busting. There is no such thing as being a first mover in a market that is worth $700bn. L’Estrange: Absolutely. There are lots of


trustees who do not want to do this because they are subject to the myths around returns.


PI: Is it possible to make an impact in short-term strategies? Rudgard: It is possible. We have seen green bonds issued with a one-year duration. Coronavirus is another example of where there have been opportunities for impact investors. You need to have a nimble investment strategy to address those short-term needs. Perhaps where there might be a struggle is that there are not as many pooled investment vehicle options coming to market, such as short-term impact bond funds. L’Estrange: It would be interesting to talk about defined contribution. I have been disappointed in the government’s approach to support for the pandemic – there was an opportunity to attach requirements to government support which could have made a huge impact, but that opportunity has been lost. However, the consultation on infrastruc- ture is a huge opportunity. Infrastructure is an area where you can have a fantastic impact, deliver great returns and is an


Naomi L’Estrange Managing director 20-20 Trustees


engagement tool. Because younger mem- bers tend to be more interested in this and master trusts are rapidly gaining funds, there is an opportunity to tie all these pieces together to get some of these case story wins. Then you can expand the fund range at less risk for defined contri- bution schemes. There are huge opportu- nities here and we need to lobby in every direction to support each other.


PI: Is impact investing a lost opportunity for DC? Cusack: There is a risk of trustees focus-


Issue 103 | May 2021 | portfolio institutional | 47


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