Workplace pension ‘auto-enrolment’ has been one of the most successful financial policies of the 21st century
Over 10 million more people in the UK are now investing for their retirement, with their employer contributing, and only one in 10 people opting out of the scheme.
Auto-enrolment has done more than get ordinary people saving for their retirement. It has created an army of impact investors. They just don’t know it yet.
If you ask someone about impact investing – making an active choice about where their money goes beyond the ‘default’ option – most will say they lack the confidence to do so. The world of investing is opaque and even the most user-friendly apps on the market still require some degree of financial education with which to make a choice that is not just the ‘norm’.
But tell someone that they are already an impact investor, and eyebrows are raised. The choice not to do something, the default option to leave your money where it is, still has an impact. All money, whether spent, invested or saved, in funds, shares, bonds or deposits, has an impact. Good or bad, positive or negative.
Financial institutions will increasingly be required to tell you what that impact is against issues we all care about, such as the climate crisis, social justice or ethics. But whatever the disclosure you can be sure of one thing: your money already has an impact on the wider world.
Despite this, conscious and proactive impact investing remains a niche activity restricted mainly to philanthropy, very wealthy individuals, ‘family offices’ and specialist funds. While impact investing has seemed on the cusp of a breakthrough into the mainstream, so far it has been limited to funding a few worthy but not yet scaled-up projects.
To address this and unleash all that impact investing could achieve in the mainstream, a series of private, charitable and public sector initiatives are encouraging people to think about making a positive impact with their savings and investments. These include the Green Finance and Impact Investing institutes, DfID National Conversation, UN Sustainable Development Goals, Share Action, divest coalitions and more to come.
The revolution has started. People are waking up to the fact that their money has the power to affect the world around them, for better or worse. And that brings the realisation that they have another weapon – more powerful than hours on Twitter or even protesting on the streets – to exercise their values in a way that will be felt and that might make a meaningful difference.
So we are all impact investors now, whether we realise it or not. What started as a moral crusade to get us saving for retirement should spark a new revolution in what we demand from our financial institutions. The opportunity to put our money where our values are. And it is very timely. With the planet facing so many crises, is there really any point in profit without purpose?
Bruce Davis is joint managing director of Abundance Investment and a member of the Government’s Green Finance Taskforce. He is also a visiting research fellow at The Bauman Institute at the University of Leeds and a trustee of The Finance Innovation Lab