Impact Investment – 5 Adviser Tips 

Last week I had the pleasure of speaking at a conference organised by the Social Stock Exchange – an initiative launched by the Prime Minister at the London Stock Exchange last year. 

This event, also held at the London Stock Exchange, was aimed at helping financial advisers to ‘upskill’ in this area.

My role was to set the scene by explaining how Impact Investment fits within the SRI spectrum – a task that I was happy to perform given that when you view SRI through a client’s eye the synergies are very clear.

This area is however new to most in the investment world, so with the benefit of the conversations I have had over recent months and the notes I took on the day and here is your starter for 5!

5 adviser tips… for getting started in this area:

1.  Definition:  Impact Investments (AKA Social Investments) are those which focus on demonstrating a measurable, positive social impact alongside financial returns.  (These can be ‘issued’ by a wide range of organisations  eg housing, technology, social care, energy).  As such these are often hugely interesting and great topics of conversation. But be aware – when talking about Impact/Social Investment people are often talking about individual enterprises not collective investments.
2. Government enthusiasm: The government has been an enthusiastic backer of this area and has acted through different mechanisms.  Most notable is the creation of grant maker ‘Big Society Capital’, which is enabling things happen through the use of dormant bank account money.
3. Tax Relief:  also government related  – this area now benefits from ‘Social Investment Tax Relief’ (SITR) which was introduced this summer.  When it comes to financial planning this now puts Impact Investment in competition with EIS and VCT’s in many respects – and likely to compete for the attention of ultra high net worth investors.
4. Risk.  This area is generally not for the faint hearted – most investments are through individual projects rather than collectives and so only really suited to wealthier clients.  The lead exception to this is the Threadneedle Social Bond, which is pretty much a regular (collective) corporate bond fund but with exposure to this area.
5. Growth:  this area is growing very fast.  It may be best to view this as an ‘icing on the cake’ type investment – but what a great sweetener – an investment that is genuinely interesting and useful!  The main downside however appears to be around the area of adviser PI cover.  From what I hear (Paradigm Norton also presented on the day) this area is accessible to advisers, but best talk to your provider first.

For further information:

• Impact Investment explained – To read up on this area see: www.Impactinvestment.org  or www.SocialStockExchange.com
• Understanding SITR – To understand SITR speak to Gavin Francis at www.worthstone.co.uk
• Other investment options – For clients who are keen on this area but looking to invest in more diverse portfolios the next closest option is to use sustainability funds that are deeply sympathetic to this mindset – if not exposed to the exact same holdings.  Boutique but fast growing specialist sustainability investor WHEB (the home of the xHenderson SRI team) probably come closest to this area (and have many fans in the impact investment arena).  (http://www.whebgroup.com/). 
  • See www.FundEcoMarket.co.uk for other Sustainability themed funds.