Roundtable – Impact investing
ing on their strategy for DB without rec- ognising the importance of DC. If a DC scheme member wants a fund that does X, why can’t the trustees set it up. Usually, it is not that difficult, it can be self-select and makes members feel good because they have been listened to. That is some- thing we should be doing as matter of course.
DB engagement is more challenging, although I heard a case study of someone using recycled plastic to make affordable furniture. An organisation put one of these chairs in the foyer of their building and said this is what your pension scheme is doing. It is tangible evidence of doing something worthwhile and being respon- sible with an investment. Landymore: Aon is doing great stuff in this space, but when you speak to the different parts of the chain – trustees, consultants or fund managers – there is a lot of finger pointing. It is always someone else’s fault. We have put a lot of pressure on trustees, who are under pressure already, and so this is a call to action to invest- ment consultants.
There is an onus on them to search out that product, to bring the idea to the trustees, to edu- cate them that this is a strategy worth pursuing. We are not getting that level of proactiveness from consultants. Cusack: I did a webinar for professional trustees talking about, not so much impact investing, but SRI. Everyone was complaining about not having the tools to do it, but no one was asking how to get them. It was disappointing because it was that finger pointing Bella talked about. Manuel: I want trustees to challenge us. The more we are asked the question, the more I can corral resources and expertise to try and find those answers. I want those challenging questions to keep coming. L’Estrange: That is exactly what we are try- ing to do. We are about to issue a docu- ment to all the consultants advising us, saying that each year we are going to ask you certain questions. We are going to
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keep asking them to achieve continuous improvement.
PI: What returns do you expect to make from impact strategies? Pinnock: We expect to make the same returns as our non-impact strategies. The issue with this question is that impact investing covers a very wide spectrum of returns and means different things to dif- ferent people. To say that an impact strat- egy is likely to return X%, is similar to asking how much will a technology investment return? It can make nothing, or it could make an awful lot. Manuel: Getting back to DC, we thought we should sort our own house out first. Aon’s DC plan has an element of impact investing. It was put in first as a self-select option and was one of the most actively selected. It now features in the default strategy.
It focuses on public equities and it now has more than £70m invested. When we communicated this, the general
Melanie Cusack Client director PTL
reaction was a sense of pride in what their money was doing. Not one person said, “I wish we had not done this.”
PI: How do approaches to public and pri- vate assets vary in impact investing? Rudgard: There is an argument that you get more influence and control through a direct approach, but to make it an oppor- tunity for all sizes and investment levels, there needs to be pooled fund options. Not everyone has the ability to invest directly.
The overall approach is the same. The ideas that underpin how you are making the investment are the same, the differ- ence comes in terms of the closeness and the control that you get within the actual investment when investing privately.
MacArthur: Private assets have a greater potential to make a deeper impact. You could, perhaps, see more clearly how your money is explicitly influencing an out- come. In the public markets, that is increasingly becoming part of the conver- sation. Some might say it could be democ- ratising impact investing from its endow- ment-led
background to a more
mainstream offering. From a broad public equity context, we think about delivering impact in two ways: using equity financing to support companies offering better environmental and social outcomes, like clean energy companies, vaccine suppliers or providers of meat alternatives.
Then there is using the tools of active ownership to encourage change, whether that makes a business more sustainable or aligning them with stakeholder inter- ests, say with natural capital accounting, for example. Public markets increasingly have a role to play. Previously, impact investors have looked down upon public equities, which has changed in the past couple of years. Hopefully, that continues because all asset classes have a role to play in the broader conversation.
PI: How do you measure the impact of such strategies? Pinnock: A common approach from our managers focusing on impact is to target just a few KPIs that are directly relevant to the business, baseline them and then see how extra capital and active ownership improves the performance of these over the course of that investment. This is not perfect, but it is one of the easiest ways for fund managers or portfolio companies to collect that information. It is easily digest- ible by the asset owner, so it is probably the best way at the moment to look at your impact at this level.
It becomes more difficult if you are taking an impact lens in addition to your respon- sible investment approach, for example across your entire portfolio. We try to look
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