Super funds urged to abandon "impact" investment fears
04 Dec 2013
Industry experts and researchers at the University of Sydney Business School say that despite long held concerns, there is no legal or any other barrier to superannuation funds making "impact investments" that seek positive social and environmental outcomes along with financial returns.
In a report titled 'Impact Investments: Perspectives for Superannuation Funds', the researchers say that Australian capital invested in impact investments in 2012 stood at around $2 billion.
At the current rate of growth the report predicts that the total might reach $32 billion in the next ten years. But, it also says that total investment figures could be much greater with the support of the nation's super funds.
The report says that super funds are reluctant to invest in impact opportunities because of the misconception that these investments must involve financial "trade-offs" in order to achieve their social and environmental goals.
Regulations governing the superannuation industry require that fund managers must adopt investment strategies that give regard to risk, return, cashflow, diversification, liquidity, valuation data, tax, costs and liabilities of the investment.
The report says that institutional investors, such as super funds, have long seen a conflict between their legal obligations to their members and the "soft" and "non-financial" goals of impact investment products.
However, the report says that, impact investment opportunities are increasingly being packaged in forms that are familiar to super funds, are offering market rates of return and have governance and reporting practices similar to those of more traditional investment targets.
"There is no restriction on super funds making impact investments so long as they proceed with care," said lead author Kylie Charlton, co-founder and managing director of Unitus Capital. "Super funds must apply the same professional processes and techniques for due diligence for impact investments as they use for any other investments."
The report says globally there are currently impact investment opportunities in agriculture, microfinance, renewable energy, small and medium sized enterprises, healthcare, affordable housing and community development.
Super funds have invested locally in the Benevolent Society Social Benefit Bond, Newpin Social Benefit Bond and the Community Finance Fund managed by Foresters Community Fund. Internationally they have invested in specialised microfinance and microinsurance investment funds.
"Via these investment vehicles and others, fund managers have an opportunity to invest in microfinance, clean energy, organic food production, Indigenous welfare, education and much more," said researcher Jarrod Ormiston. "The benefits to society are enormous."
"Impact investments provide super funds with an opportunity to align themselves with their members' values and actively contribute to strengthening local and international communities."