New £10m allocation for impact investing

We’re delighted to announce a new £10m allocation to impact investing, which will be in addition to our £45m allocation to social investment.

As an asset owner, how we invest is an important way for us to leverage our impact. Using learning we have gained from our long history of social investment and research by the Impact Investing Institute, we’re excited by the potential of impact investing as another tool we can use to effect broader change.

We want to use this new £10m allocation to experiment with impact investing opportunities, and to test the potential for achieving financial returns by investing into impact funds that align to our impact goals and which generate a measurement impact. We will use this pilot to inform our longer-term investment strategy.

What we mean by impact investing

We see impacting investing as bridging the gap between our social investment where our approach is impact-first, financial returns secondary (therefore our acceptance of concessionary returns), and our ESG carve-out, a £25m allocation within our endowment that invests with the primary objective of achieving financial returns in line with our mainstream investment strategy alongside enhanced environmental, social and governance impact. Our mainstream investment strategy aims to maintain the real value of our endowment over the longer-term (currently set at RPI +4%).

The starting point for our impact investing decisions will be the intent to generate positive, measurable social and environmental outcomes (the impact) alongside the achievement of financial returns in lockstep.

Our approach to impact investing

Our impact investments will need to have a clear and articulated social or environmental purpose and be aligned to our impact goals. In contrast to our social investing, we will invest exclusively into funds rather than make direct investments, and investments will not need to have a UK-only focus. Funds will be required to target, and report on, social or environmental performance as well as financial.

We will work with our advisors, Cambridge Associates, to identify and review investments. Proposals will then be reviewed by our Investment Committee before being brought to the Board for approval.

Ben Smith, Head of Social Investment, Esmée Fairbairn Foundation, said:

“We are delighted to announce this £10m allocation to impact investing which bridges a gap in our offer. The financial world is changing and seeking financial returns alone without giving any regard to the effect investments have to society and nature is unacceptable. We believe that investment can be a force for good. Based on the learnings of our extensive experience in social investment, and the positive work we have achieved through our ESG carve out thanks to our advisors Cambridge Associates, testing impact investing in this way may inform how we invest our endowment and, we hope, influence others, whilst having a positive benefit to society and the environment.”

Simon Hallett, Partner, Cambridge Associates, said:

“The last few years have largely proven the case for financial investment strategies that seek also to make a positive social or environmental contribution. Such strategies have shown market or better returns scaled up to large (institutional) size. But often their non-financial impact is hard to measure, incidental or simply vague. We firmly believe that innovation and experimentation will be essential in enabling investment become more of a force for good, so we’re excited to have the opportunity to partner with Esmée Fairbairn Foundation in this project. It will fuse our investment expertise with the Foundation’s deep understanding of what makes material impact. If successful, it can start to bridge a funding gap for focused strategies that lead with specific and robustly measurable impact, while also offering what we hope will be competitive returns.”

Sarah Gordon, Chief Executive, Impact Investing Institute, said:

“We welcome this significant impact investing allocation by one of the UK’s leading foundations. Esmée Fairbairn Foundation is a beacon of good practice within the charitable foundation sector: their thoughtful, experimental approach to this area, with a view to further developing their long-term investment strategy, is one we heartily endorse. We hope that their commitment to deliver this £10m of investment with impact, whilst delivering a risk-adjusted market rate return, will inspire others to do the same.”

If you’d like to learn more about our impact investing or social investment, please email ben@esmeefairbairn.org.uk.

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