Pension schemes are acting on social impact, new research shows.
The UK’s growing social impact investment market could lead to a broader range of pension products.
Karen Shackleton, founder of Pensions for Purpose, welcomed the recent news that the UK’s social impact investment market grew to £10bn at the end of 2023 and she is hopeful this will lead to a broader range of products that cater to funds looking to incorporate social impact into their strategies.
The growth in the market was announced earlier this month following an annual assessment by Better Society Capital (BSC). It represents a seven percent increase from £9.4bn in 2022.
Shackleton said: “Our research shows that trustee knowledge and understanding of social impact investing has been slower to take off, with fewer of them aware of suitable social impact products compared to environmental impact investing. However, this is changing, and the latest figures demonstrate just how significant that shift is.
“The seven percent year-on-year rise in the social impact investment market signals that investors are increasingly recognising the close connection between social impact, climate action, and other forms of positive impact investing.
“It also reflects growing confidence that social impact can deliver strong financial returns while benefiting the communities and individuals pension funds serve. This growth has also been fuelled by a number of larger managers launching purpose-built impact investing funds.
“For pension fund investments, we would expect this growth to lead to a broader range of products that cater to funds looking to incorporate social impact into their strategies.
“As a result, pension funds are likely to allocate more capital to impact-driven opportunities and take a greater role in addressing some of society’s most pressing issues. In the short and medium term, Pensions for Purpose would like to see institutional investors integrating social considerations more systematically into their portfolios and investment processes - and we know from our membership that this work is underway.”
In prime position
Many experts believe pension funds are in a prime position to drive positive social change through their investment strategies.
Ines Cunha Pereira, responsible investment manager at TPT Investment Management, said:
“Pension funds are well positioned to take leadership in driving positive social change through their investment strategies. By proactively incorporating social considerations into their investment frameworks, they can play a critical role in addressing pressing societal challenges. This reflects a growing investor appetite for generating positive societal outcomes in addition to financial returns.”
She added that the growth of social impact investment in the UK is closely aligned with evolving regulatory trends, particularly through the increasing emphasis on environmental, social and governance integration and stewardship within the pensions industry.
She added: “Social impact investments offer pension schemes a valuable opportunity to align their long-term objectives with sustainable finance. With growing evidence of the ability to achieve better risk-adjusted returns, it also enables pension funds to respond to increasing member demand for responsible and impactful investments.
“As pension scheme members, particularly younger generations, are becoming more engaged with how their pensions are invested, there is a growing call for transparency and for investments that contribute to positive social outcomes.
“Social impact investments not only address these demands but can also strengthen the connection between members and their pensions, enhancing trust, fostering engagement, and reinforcing the alignment of members’ values with their financial future.”
BSC argues that the rise in the UK’s social impact investment market shows stable investor support for initiatives focused on tackling social issues such as reducing child poverty, combatting homelessness and preventing long-term health conditions, even in challenging macro and micro economic conditions.
The latest data showed the different types of investors that are active in the market and what areas they are investing in.
In fact, the analysis found that pension funds provide 21% of investment, with the highest concentration in social and affordable housing.
Endowments and charities are the second largest investor group, committing 14% of the investment.
The groups cover a broad range of capital ownership from government bodies, including state-owned funds, through to private wealth.
The composition is an estimate based on over 1,000 investors covering BSC’s investor data and contributions from our wider collaborators on its investor base.
Stephen Muers, chief executive officer of BSC, said: “It is a source of encouragement that the UK social impact investment market grew once again last year. However, we must not lose sight of the significant challenges ahead, whether that’s in housing, social inequality and the disparity in health and wellbeing across the UK.
“As we look to the future, it is crucial for investors, businesses, and the government to work closely together to channel investment towards organisations that need it.”
