As a former Financial Times (FT) journalist, Sarah Gordon knows better than most the power of the written word. But after an 18-year stint with the newspaper, Sarah put down her pen to take up the position of chief executive at the recently formed Impact Investing Institute (the Institute) in July 2019.

Sarah is well placed to deliver practical change, having entered the financial sector in 1991 as a programme officer for the UN Conference on Trade and Development’s debt management programme in Geneva (see CV boxout for career details). In 1994 she moved to an economist position with Foreign & Colonial, before joining Citibank in 1997, where she worked in emerging markets fund management for the next three years in New York and Connecticut. In 2001 she joined the FT, working her way up from companies reporter to business editor over the following 18 years, before applying for her current role.

Institute objectivesThe Institute is an independent, non-profit organisation, launched in November 2019, with a mission, according to its website, "to accelerate the growth and improve the effectiveness of the impact investing market, so that more capital contributes to achieving the UN’s Sustainable Development Goals". It formed from the merger of two former initiatives: the Implementation Taskforce for growing a culture of social impact investing in the UK, and the UK National Advisory Board on Impact Investing.

Its three main objectives are to mobilise large pools of capital, such as defined contribution pension funds; to make impact capital more accountable; and to empower people to save and invest in line with their values.

Key features of the work programme include engagement with some of the UK’s leading pension initiatives, such as Pensions for Purpose, the development of a ‘Green + Gilt’, a sovereign instrument that will seek to attract private sector capital into both a green recovery and social renewal in the aftermath of the pandemic (it has received backing from 32 investors, asset owners and professional bodies to date), and working partnerships with the Impact Management Project and the World Benchmarking Alliance to grow the impact investing market, courtesy of regional, national and international initiatives.
"We want financial advisers to be thinking not just about ESG, but about positive impact"

To that end, the Institute is also part of a global network of national advisory boards that have come together under the banner of the Global Steering Group for Impact Investing, which has 33 member countries.

In addition, it is developing an impact investing training toolkit for providers of financial training programmes/qualifications and financial advisers. "The updated Markets in Financial Instruments Directive means that financial advisers now have a responsibility to ask clients about their ESG [environmental, social and governance] preferences," Sarah says. "We want financial advisers to be thinking not just about ESG, but about positive impact."

Setting a common standardThe Institute is currently developing recommendations focusing on the global convergence of non-financial reporting standards. It has partnered with the Impact Management Project to drive change in this area.

The Impact Investing Institute's main aims

To mobilise large pools of capital, such as defined contribution pension funds.

To make impact capital more accountable.

To empower people to save and invest in line with their values.

As Sarah points out, firms have certain reporting duties – for example, many UK companies must report their carbon and energy footprints under the Streamlined Energy and Carbon Reporting guidelines. But a more integrated approach is needed, and Sarah believes this should take into account a "much more holistic set of positive and negative impacts". The key to this, she argues, is simplification. "I talked to a huge UK-domiciled but multinational company and it had worked out that its corporate social responsibility reporting required 250 different data points every year," she says. "That needs to not be the case. What we aim to get to is where companies have a simple way of thinking about their impact, reporting their impact, and accounting for their impact. And as investors and the public, we can have a simple and transparent way of understanding the impact, as well as the financial return, that businesses are delivering."

Sarah believes we could eventually see uniformity in global impact reporting standards, but acknowledges that a timeframe for this is uncertain. "When I started at the FT in 2001, UK companies were still reporting using UK Generally Accepted Accounting Practice [compliance with UK company law, UK accounting standards and best practice]. The idea that everyone would be using International Financial Reporting Standards [accounting standards issued by the International Accounting Standards Board to ensure financial statements are consistent, transparent and comparable worldwide] was still reasonably controversial. It took decades to get that convergence and I hope the convergence around impact reporting and measurement standards is not going to take decades."
"Some of the funds that call themselves ESG funds are not, it’s as simple as that"

The Institute is also seeking to transform the way companies think about impact investing. Some firms view reporting on impact investing as a potential burden, but Sarah believes that instead it provides an "opportunity for competitive advantage". If companies act now, they can get ahead of the curve.

Sarah believes that mandated reporting will help to settle the issue of ‘greenwashing’: "Some of the funds that call themselves ESG funds are not, it’s as simple as that. Until you have agreed mandates for reporting and measuring impact, you can make claims for delivering impact that cannot be verified. The work on reporting we are engaged in is absolutely critical to the future avoidance of greenwashing."

Could Covid-19 be a catalyst?Just a few months after the Institute launched, the pandemic struck, plunging global economies into freefall and placing companies and workforces in unprecedented situations. The Institute found itself on the frontline, partnering with Big Society Capital and Social Investment Business on vital emergency lending facilities for social enterprise charities and businesses in disadvantaged parts of the UK.

Once the continuing shockwaves have been negotiated, Sarah says that impact investment will have an incredibly important role to play in the recovery phase. "I hope that the crisis speeds up the action on climate change. I think we have all seen its impact on developed economies, as well as developing ones. It’s given us an increased sense of our vulnerability. I think it’s shown us climate change is around the corner and it could destroy society as we know it."
"We have seen that inequality has been a real factor in this pandemic"

Sarah believes that impact investment can deliver increased resilience via its focus on delivering fairer and more just societies. The pandemic has shone a light on inequality in the UK, with a June 2020 report by Public Health England, Disparities in the risk and outcomes of Covid-19, noting that "people who live in deprived areas have higher diagnosis rates and death rates than those living in less deprived areas".

"We have seen that inequality has been a real factor in this pandemic," Sarah says. "Impact investment delivers better opportunities. It rewards companies that look after their employees and their supply chains. It delivers essentially more resilient economies, healthcare systems and societies, and resilience is the thing we need to avoid a crisis, or make us better able to react when a crisis like this hits."

Consumer trust and the knowledge gapConsumers too have a role to play when it comes to growing impact investing. In her final article for the FT, Sarah argues that the public must bear some culpability for the 2007–2008 global financial crisis. "Lack of financial literacy was one of the reasons the financial crisis happened," she says. "It’s profoundly disempowering not to be financially literate."

Sarah makes a case for including finance on national curriculums. "I think you need to be taught these tools when you’re at school. If you don’t understand compound interest, how can you make a judgement about which mortgage is right for you? If you’re a student and you are trying to choose between different bank accounts, how do you decide if you don’t have the tools and the knowledge in order to inform that decision?"

Trust also falls into the realm of the financial literacy debate. Many people in the UK remain fundamentally suspicious of the financial services sector and, more specifically, the country’s banks. YouGov Omnibus research from August 2018 shows that two-thirds of adults in the UK don’t trust banks to work in the best interests of society, while 63% are concerned that they could cause another financial meltdown in the future.

However, progress is being made, with trust in financial services increasing by 12% over the past eight years, according to the 2020 Edelman Trust Barometer. Trust takes on further importance in relation to financial literacy and impact investing when considering the following conclusion by Antoine Harary, president of Edelman Intelligence, in a summary of the report’s findings: "Trust is undeniably linked to doing what is right. The battle for trust will be fought on the field of ethical behaviour."

Investing for goodThe appetite for impact investing among consumers is there. A September 2019 report, published by the UK’s Department for International Development (now known as the Foreign, Commonwealth & Development Office), reveals that 70% of over 6,000 people surveyed "want their own investments to avoid harm and achieve good for people and the planet". Some 56% are interested in making a sustainable investment (now or in the future), with this figure increasing to 71% for millennials, and 74% for those who have investable assets over £25,000. The key will be whether the sustainable investing market can meet demand.

When it comes to mobilising capital, Sarah feels that "the game changer" is for large institutional investors and pension schemes to allocate more to impact. "If you are one of the many pension schemes with tens of billions of pounds under management, if you even ship 1% of your portfolio into impact, that is a serious amount of money." Certain pension schemes are showing the way. The UK Environment Agency’s pension scheme, the EAPF, has been integrating ESG into its investment process for a number of years.

"There was already a lot of momentum behind young people in particular wanting their savings to be invested in line with their values and to do good for people and the planet," Sarah concludes. "The pandemic is only going to increase that desire for money to be used responsibly. Whether that’s your pension, your bank account, your savings. And one of the ways we are pushing that momentum further is to work with Make My Money Matter, a campaign spearheaded by film writer and director Richard Curtis, which is trying to raise public awareness about the power that they have in their purse and in their pocket – the power of their money to do good."

The full article was originally published in the October 2020 flipbook edition of The Review. 

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