Too damned difficult

People in the UK find impact investing a bit like spaghetti – a big and confusing tangle that is possibly less satisfying than a dish of something else. That’s the conclusion of a study from Barclays Wealth and Investment Management, published last week.

It surveyed 1,800 retail investors: 56% of them were dead keen on making investments that might do some social good – but only 9% of them had actually done so. Not only were they deterred from impact investing by the complexities; a big majority (four out of five) wanted to see their investments make a return close to an equivalent benchmark. Just 19% of them are prepared to sacrifice financial performance.

The Financial Times asked Greg Davies, behavioural finance specialist at Barclays, what might be done to get people more comfortable with making impact investments. He said: “Nobody has been asking how can we get investors comfortable with this…It’s a new field, it feels uncomfortable [and] when faced with making difficult decisions, people abdicate responsibility and step back.” Investors apparently prefer to make charitable donations rather than put their cash into more directly-related social investments.

How to mobilise more money into impact investment is the $64 million question – and there are no easy answers. The Social Stock Exchange (SSX) was set up precisely to give investors easier access to companies that want to make profit and progress – but more can be done. Nesta, the innovation charity, came up with the suggestion that impact investing ISAs should be created, which might help spread the word.

But in a way it’s a communications and coordination problem as much providing access to investments. The access already exists – although it takes a bit of determined hunting to find. And there are numerous funds and individual companies out there offering financial returns to match or exceed those on more conventional investments.

I think the real issue is that there are too many, too small, competing voices in the impact investment world, all clamouring to be heard above the others. This in itself creates a sandstorm of confusion, a background of obfuscation. Who but the very unwise trusts themselves to navigate such a situation?

Perhaps an even greater blockage to greater investment flows into impact vehicles is the relative lack of financial advisers who understand this universe, or are sufficiently familiar with it, to adopt impact investing as a front-line possibility. Without a sufficiently large cohort of specialist social investment advisers, who are also sufficiently convinced of the case and – critically – inspire potential investors to trust them, this type of investment is always going to be seen by investors as a bit of a luxury.

Perhaps this is just a matter of time – maybe this marketplace needs to evolve. What it doesn’t need though is any hype about how fast/large/successful impact investing really is; that smacks of protesting too much. It’s growing, and it deserves to grow. But maybe it also needs a bit of consolidation, and further time to prove to reluctant investors that it’s not only morally worthwhile but also financially successful.

 

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