Pension funds will increase impact investing, study finds

Pension funds should increasingly invest with impact, according to a survey by the Impact Investing Institute and EY, the professional services firm.

The UK impact investing market had approximately £58 billion in assets under management at the end of 2020. Only 1% of this was attributed to pension fund managers.

But pension funds, asset managers and family offices were seen as the main drivers of future growth given the scale of capital they control, according to a survey for the report. The wider repo market was worth £4bn at the end of 2020, the Investment Association estimates.

A challenge to the growth of impact investing is pension trustees’ ‘misperception’ that their fiduciary duties are incompatible with impact investing, the report says, with an exclusive focus instead on optimization financial return at the lowest possible cost, and within pre-defined risk parameters.

Charlotte O’Leary, CEO of Pensions for Purpose, which encourages the flow of capital into impact investing, says: “While other pension fund markets around the world have reallocated capital to increase impact investing private, the UK is lagging behind.

“Impact investing offers the perfect opportunity to revisit allocations to private markets, recognizing that environmental and social impact investing opportunities exist and are being made by pension funds across the UK.

“Our research has demonstrated the perceived and real challenges and solutions in environmental and social impact investing, but there is no doubt that more education and greater transparency is needed in the marketplace.”

Chloe Cheung is a feature writer at FTAdviser