There does seem to be an increasing appetite amongst clients for both an investment return – to help them reach their goals and also a social impact return – to help others. Increasingly opting out of investing in ‘unethical’ companies (using negative screening) is just not seen as doing enough.
There is obviously a general appetite for this approach as we have seen a slew of new fund launches that are focussing on investing in this way and in particular using the UN 17 Sustainable Development Goals as a benchmark. One of the leaders in this field EQ have gone as far as developing an impact calculator which you can access here.
Disappointingly the government’s attempt to intervene in this sector have ended in, at best, anaemic results. In 2014 HMRC’s Social Investment Tax Relief was launched to encourage investors to give money to companies or charities who need expansion capital to increase their social impact. The tax structure very much mirrors that of the more mainstream Enterprise Investment Scheme (EIS). Investors receive a cash rebate of 30% of their investment provided they owe an equivalent amount of income tax, capital gains can be deferred into the investments and gains made in the investment are exempt. Unlikely EIS funds, SITR funds can lend money as well as investing equity which can potentially make an investment less risky.
Despite these advantages SITR has attracted 0.5% of the amount EIS has and only 5% even of the much smaller, risk-taking sister of EIS, the Seed Enterprise Investment Scheme (SEIS). This result is a huge disappointment if you believe that there is an appetite to invest for a social good, achieve growth and benefit from tax relief.
So why has it not taken off? Well a lot has to do the lack of options provided by the traditional fund managers. The rules are sufficiently flexible that most EIS providers could structure a decent SITR fund but we suspect that many don’t understand how to ‘sell’ a tax efficient investment that also acheives a positive social return. They may also not see the need as there is plenty of EIS/SEIS and VCT business to do.
There are some great organisations working in this area and promote the concept so hopefully fund managers will start to take more notice and developing a range of products. Once this happens adviser and therefore client awareness and interest will hopefully increase.