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Sustainable and impact investing - your time is now

Kate Parkinson, BDB Pitmans
Kate Parkinson, BDB Pitmans

Covid-19 has highlighted the inequalities in our society across a range of issues, from healthcare to education. Because of this, returning to ‘business as usual’ as lockdown eases will not be enough, and it is clear that business, government, and the third sector can no longer work in isolation to provide the solutions to the social and environmental challenges that we face.

Impact investment may be one solution. Against the punishing backdrop of Covid-19, it is heartening that there has been a palpable coming together of society. Investment behaviour has followed suit, with trends pointing toward sustainable and impact investment, whereby investors continue to make clear, particularly among younger generations, that they wish to make a difference as well as a financial return.

Although ESG (environmental, social and governance) has grown significantly in importance, it is only one subset of the wider social investment movement, other members of which have not yet gained equivalent traction. While there is some crossover with ESG, social impact investment is actively concerned with providing solutions to the world’s great challenges alongside delivering a financial return. This area is growing, and it is particularly encouraging to see charities emboldened by a shift in societal trends taking greater interest.

Charity trustees can take comfort from the growing body of evidence which demonstrates that impact-led investments which avoid harm and provide social solutions can mitigate financial risk and may provide opportunities for financial outperformance, which dovetails neatly with the fiduciary obligation to act as prudent investors. Both the Charity Commission and HMRC recognise that charities may invest their assets in a manner which advances their charitable purposes enabling them to align their investment activity with their charitable mission.

It is understandable that charity trustees, who shoulder an enormous weight of responsibility in the proper application of charity resources, might be reluctant to depart too far from what are regarded as the established norms. But, in a time of scarce resources and increasing challenges, boards should now ask themselves how, by doing good through their investments, they can leverage their organisational impact beyond delivery of charitable activity.

Kate Parkinson is a senior associate in BDB Pitmans’ specialist Charities and Not-for-Profit Team in Cambridge. Contact kateparkinson@bdbpitmans.com or visit bdbpitmans.com.

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