Impact Investment: The Invisible Heart of Markets. Deutsche Bank contributes to G8 Taskforce report
The Taskforce on Social Impact Investment, established by UK Prime Minister David Cameron under the UK’s presidency of the G8, has called on governments and the financial sector to take action to unleash $1 trillion of private sector impact investment to tackle social and environmental problems.
The recently published report highlights the potential that impact investment has to help solve some of society’s most pressing issues, such as caring for children and the elderly, community regeneration, financial inclusion, housing and prisoner reoffending. Impact Investments are investments made into businesses and social sector organizations, directly or through funds, with the intention of generating a measurable, beneficial social and environmental impact alongside a financial return.
Achieving more impact
A new model of ‘sustainable capitalism’
At the 2013 Davos meeting, UK Prime Minister David Cameron said “We will work with other G8 nations to grow the social investment market and increase investment, allowing the best social innovations to spread and help tackle our shared social and economic challenges.” Colin Grassie, CEO of Deutsche Bank UK and member of the Group Executive Committee, was invited by Prime Minister Cameron to speak at the G8 conference in June 2013 where the Taskforce was announced with an objective is to catalyze a global market in impact investment. Sharing his vision of impact investment, Grassie said: “With sufficient engagement from institutions like Deutsche Bank, impact investment has the ability to become an asset class of true significance, and from this, a new model of ‘sustainable capitalism’ can emerge. Impact investment should be fully integrated into the business model to make it not just a ‘nice to have’ but an integral part of business. My vision is for every asset manager to have a social investment fund.” (watch the speech here)
J.P. Morgan estimates that $10.6 billion that can be broadly classified today as impact investment and many market participants expect this to grow. The report notes that investors holding $45 trillion have committed responsible investment decisions and a small portion of these assets could become impact investments.
The G8 Taskforce recommendations
Several Deutsche Bank staff contributed to the German, UK and Italian National Advisory Board Reports as well as the Asset Allocation Working Group. The report’s recommendations are:
- Encouraging pension funds and providers of tax-advantaged savings schemes and products to include impact investments as part of their offering.
- Calling on charitable foundations and trusts to allocate part of every charitable endowment and high net worth investment portfolio to impact investments.
- Encouraging mainstream investors and the wider public to engage in impact investment by providing some investment protection.
- Establishing a kitemark for impact investment products to make them quality certified, accredited, recognizable and differentiated in a complex marketplace.
- Developing social impact bonds and development impact bonds.
- Appointing a senior government Minister to champion impact investment within and beyond government.
- Enabling impact-driven businesses to lock-in their social mission through legal forms and removing regulatory obstacles around fiduciary duty.
- Expanding regulatory and tax incentives offered for investment in social enterprises and charitable organizations, enabling investors to offset their impact investment income against tax.
- Reforming legal and regulatory frameworks for charitable organizations to help them to embrace entrepreneurial risk-taking and innovation where it furthers their mission.
- Publishing better and clearer data about the cost to government of addressing social issues to encourage more impact investment participants to the market place.
Deutsche Bank activities in impact investment
There are numerous examples of how Deutsche Bank is active in impact investment including:
- In the US, the Global Social Finance Group has invested over USD 2.5bn into the impact investment space over the last 20 years
- In Europe, Deutsche Asset & Wealth Management has strength in impact investment funds that focus on food security, poverty alleviation and employment creation as well as climate change mitigation.
- Deutsche Bank Italy launched a €20m social bond on behalf of Banco Alimentare, an organization which redistributes surplus food to the less fortunate
- In 2011, Deutsche Bank created a discrete ring-fenced fund, “Impact Investment Fund I (IIF)”, allocating £10mn to funds that generate a social and environment impact. Recently IIF invested £1mn in the UK’s first social impact bond fund which achieved a final close of £25m in Q3 2014
$1 trillionof private sector impact investment should be unleashed to tackle social and environmental problems
“With sufficient engagement from institutions like Deutsche Bank, impact investment has the ability to become an asset class of true significance, and from this, a new model of ‘sustainable capitalism’ can emerge. Impact investment should be fully integrated into the business model to make it not just a ‘nice to have’ but an integral part of business.”