Recent research undertaken by IFF Research, on behalf of Big Society Capital, Ethex and Triodos Bank, has mapped out the potential size of the retail impact investment market in the UK, provided guidance on which investor ‘tribes’ are most receptive to these products and recommended methods of reaching and engaging with these groups at a national level. For clarity, when we discuss ‘impact investing’, we are talking about retail investments whereby as well as a financial return, the investor is aiming to achieve some form of societal benefit with their capital.
The scale of demand
There is clearly a strong degree of interest for impact investments and savings products – the UK consumer is interested in having a positive impact as well as securing a return on their cash. When asked what proportion of their wealth they would want to commit to impact investing, 39% of the UK population say they would like to commit more of their wealth than they do now.
Despite this degree of interest, only a relatively small proportion of the current population have what we would recognise as an ‘impact investment’. Perhaps more concerning is the difference in profile between those currently making this kind of investment (older, wealthier, better educated more likely to be men), and those that are interested in doing so (a similar profile as the country as a whole by age, gender, region, wealth). What we appear to be dealing with is not a question of demand, but a question of access, credibility and familiarity.
What areas are potential investors most interested in?
Perhaps as a reaction to reduced to pressure on NHS services combined with the aging demography of the country people are the most interested in products that improve health and social care. Combined with this there is a strong preference for products that bring local, rather than international, benefits. So, in general, a product that directly invests in local care homes or support services is going to have greater appeal for nearby investors than a general fund for international aid.
The potential market is motivated by a desire to live responsibly, and to a large extent by wanting to feel they are part of a group having a positive impact on the world. However, they often believe that money invested may be wasted, and desire societal benefits to be measured and reported on to ensure their capital is going to good use. It should also be noted that the group that are interested, but not currently investing, want simple products such as savings and current accounts rather than more complex investments.
The new impact investor segments
Breaking the population down into different types sheds further light on the nature of interest in impact investing. Close to half of the population can be considered a Sceptic – those who do not feel they owe anything to society, do not believe the products are of benefit and are not willing to take a lower return. A further 9% are Unsure, in that they want to do good by society but lack the financial confidence and know-how to engage. However, the remaining 44% of the population can be broken into three types, all of which are already positively investing or are interested to engage. These are the Well-informed, who are both knowledgeable and committed; the Receptive, who are wealthy and engaged but need persuading of the benefits; and the Progressive, who are committed to all forms of social progress but are less confident and less certain that positive investing is the best route to follow. These are the three investor segments that are most likely to join the market, and will be easiest to gain cut-through with. A fuller exploration of these segments, their needs, and communications preferences are included in the full report.
A question of age
Perhaps the starkest attitudinal differences lie between the younger and the older age categories, a trend mirrored in the today’s political discourse. Those over 50 show a level of scepticism to impact investments and do not particularly want to increase their holding in these products, but younger age groups are much more socially motivated, and more willing to both to invest a higher proportion of their wealth, and to forego financial returns in favour of social or environmental outcomes.
Given that they have less money now, but are likely to be wealthier in the future, attracting younger investors is a longer-term consideration, but one likely to pay off. It entails offering impact current and savings accounts and, and potentially pensions, rather than more complex products. It also means marketing products with lower minimum investment sizes, through a wider range of channels. By removing the financial barriers to access, and conducted targeted marketing by preferred channel (e.g. online search, social media, peer/influencer recommendation), we believe that younger people would far prefer to save into a product that has a positive impact on society, than one that does not.
There is much work to be done by providers of impact investments if they are to capitalise on this interest. They must produce simple and accessible products that tackle the local issues that people most care about; they must demonstrate clearly that the benefits to society can and are being realised; and they must be honest and direct about the level of financial return that people can expect from a positive investment (inc. whether or not it is likely to be at a sub-market rate). Only then do the benefits that positive investing can bring to society stand to be realised.
The research programme included a census of 2000 current impact investors, followed by a statistical segmentation of these investors to better understand previously unknown investor groups, grouped by their motivations and barriers to make this kind of investment. After this census, we then conducted a nationally representative survey of 2000 UK consumers to map out the size of these investor ‘tribes’ at a UK level, and better understand the market potential.