London poised to become global financial centre for impact investment
New research released today explores the role global financial centres for social impact investment (SII) could play in the development of the gradually maturing market.
While there are a number of strong domestic SII markets globally, including London, New York and Luxembourg, the market has yet to coalesce around a global financial centre. The research, by PwC for the City of London Corporation, identifies a three-stage process to becoming a mature global financial centre for SII and evaluates the potential of London to take on this role.
The Developing a Global Financial Centre for SII report concludes that London is currently at stage one of the process as, while it is considered a mature national financial centre for SII, in order to move into stage three of the process, it requires the “ability to attract greater international supplies of capital”.
This capital could be derived from a range of investors including “government, charitable trusts and foundations, impact investing funds, mainstream financial investors and development finance institutions”.
The third and final stage in the process of becoming a global financial centre for SII involves “combining the international supply of capital, with attracting international demand for SII capital from the global community of social sector organisations and others delivering these impacts”.
Speaking at the launch of the report, Mark Boleat, chairman of policy & resources at the City of London Corporation said: “SII is a dynamic, expanding field. Financial centres looking to broaden their offering and appeal to the maturing financial markets now have guidance to help them identify their strengths and weaknesses in this nascent market and track their progress on the path to success.”
The report expands on the three stage process by detailing six essential features which any city will need to excel in order to become a truly global financial centre for SII:
- Knowledge and expertise
- Innovation in products and instruments
- Maturity and attractiveness of financial markets
- Favourable environment
- Social impact standards and reporting
- International connections
According to the Eyes on the Horizon Impact Investor Survey by J.P. Morgan and the Global Impact Investing Network (GIIN), the estimated size of the SII market globally is in excess of $12bn with significant growth potential.
Head of social investment at the Cabinet Office Kieron Boyle said: "Around the world, markets are increasingly asking the question of how they can maximise social value alongside financial value. The UK is seen as the most advanced country in the world for offering a robust infrastructure and support for social impact investors and enterprises. This research clearly highlights social impact investment’s potential."
The City of London Corporation’s report also concludes that cities must increase their SII appeal and increase their offerings to retail investors in order to become a global centre. Supportive regulatory and policy environments are also considered key, as well as adherence to global standards such as the IRIS indicator, which is a set of performance metrics used in the US to measure social, environmental and financial success. By using standardised metrics, the report argues that different social impact investments will be comparable, as is the case with mainstream investments, and will help to build a credible track record of activity in the market.
The new report concludes that “only when a financial centre acts as a central channel for domestic and international flows of SII capital supply and demand will it be a truly global financial centre for SII”.
To download the Developing a Global Financial Centre for Social Impact Investment report, please click here.
Photo credit: Davide D'Amico
