The Esmée Fairbairn Foundation has allocated £10m of its investment portfolio to pilot impact investing.
In a statement the Foundation said: “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.”
Making an impact
The starting point for the impact investment allocation will be to generate positive, measurable social and environmental outcomes alongside the achievement of financial returns.
It will invest exclusively into funds rather than make direct investments, and investments will not need to have a UK-only focus.
These funds will be required to target, and report on, social or environmental performance as well as financial performance.
The Foundation will work with investment consultants Cambridge Associates to identify and review potential investments, before these are reviewed by its investment committee and agreed to by the board.
‘Bridging the gap’
Esmée Fairbairn says that it believes that impact investing can play a role in “bridging the gap” between its £45m social investment allocation and its £25m allocation to investments with environmental, social and governance (ESG) considerations.
The social investment allocation targets “impact-first, financial returns secondary (therefore our acceptance of concessionary returns)”.
The ESG allocation has “the primary objective of achieving financial returns in line with our mainstream investment strategy alongside enhanced environmental, social and governance impact”.
The Foundation’s mainstream investment strategy aims to maintain the real value of its endowment over the longer-term (currently set at RPI +4%).
Ben Smith, head of social investment at Esmée Fairbairn, said: “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 advisers 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.”
‘Becoming a more challenging shareholder’
According to the Foundation’s annual report and accounts for 2020, the market value of its investments at the end of 2020 was £1.172bn, a year-on-year increase of £65.6m after spending.
The portfolio’s total return for 2020 was 12%, which compares with 10.4% for 2019.
The report and accounts also state that Esmée Fairbairn is transitioning its entire portfolio to “managers who place ESG considerations at the centre of their investment process” and that it is planning a “move to become net-zero and become a more challenging shareholder”.
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