Impact investing can align with fiduciary duty, research shows

Research revealed that UK pension funds can reconcile impact investing with fiduciary duty, successfully aligning financial returns with positive social and environmental outcomes.

Research by Pensions for Purpose noted that impact investments had key themes such as renewable energy (56.4%), energy efficiency (49.1%) and health (40%), aligning with the Principles for Responsible Investment Impact Investing Market Map. Biodiversity is gaining importance, findings revealed, signalling a broader scope of impact investing among UK pension funds.

The research, covering £18.6 billion impact assets managed by 17 asset managers, revealed competitive returns of impact funds across diverse asset classes, including listed equity, bonds, private equity, real estate and infrastructure. Additionally, interviews with six UK pension funds and four investment consultants provided qualitative insights to supplement data.

The research indicated that impact investments in private markets, particularly in real estate and private equity, constitute a significant portion of pension funds allocations, emphasising a strategic preference for these asset classes.

Private market investments comprise 47.3% of the total funds, with listed assets comprising 52.7% of options offered by managers providing impact solutions to UK pension funds.

Pension funds surveyed, dedicating resources to impact investments, commit between 1% and 25% of their portfolios to such solutions. These funds adopt a long-term outlook of 10 to 30 years, anticipating investment to fulfil financial and impact goals. 

Asset owners with a more extended history in impact investing express satisfaction with returns, while those with shorter investment durations acknowledge the need for a full market cycle for comprehensive performance assessment.

Karen Shackleton, chair and founder of Pension for Purpose said: “This research paper also serves as a resource for pension funds contemplating impact investing strategies and shows the potential of these investments to contribute positively to society and the environment while meeting fiduciary obligations.” 

© 2023 funds europe

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