NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, December 21, 2012

A pilot is underway to test the world’s first financial index for social investment. Described as a potential “Bloomberg for social investment” by Sir Ronald Cohen, the index is backed by the City Bridge Trust, Big Society Capital, the Cabinet Office and RBS. Karl H Richter, co-founder of Engaged Investments, the organisation behind the pilot, explained that the ultimate goal is to create “a distinctive asset class” for social investment.

“Social investment has been happening for decades, but it is still very much a nascent cottage industry”, said Richter. “So what we’re trying to do is put in place a basic infrastructure that starts to connect information and data in a way that we can present as a capital market, and potentially an asset class.”

The market for social impact investment is forecast to reach £1bn in the UK by 2016 (Boston Consulting Group), and $1tn globally by 2020 (JP Morgan), but its current lack of classification is a barrier for mainstream investors. “The traditional push back is ’we love the idea, but we are heavily regulated with fiduciary duties and compliance requirements and we cannot invest money without robust benchmark data’”, said Richter. “So we’re providing that data … a long-term aspirational goal might be to see index-tracking funds and exchange traded funds, based on the index.”