Introduction

Our goal is to see the emerging social impact investing market establish itself as an alternative investible market for mainstream investors.

There is every reason to believe that social impact investing can make this transformation – as private equity did, as the high yield bond market did, as developing country equity markets did, as commodity investment did, as hedge funds did, and so on.

This transition from emerging to emerged, and from exotic to mainstream, needs more than the innovative investors and good initial investments that this market already has. Essentially, it requires aggregated investment data to attract new capital and more institutional investors.

A mature market needs clear investment benchmarks and the ability to quantify the real levels of risk – this is key to social impact investment being recognised as investible.

EngagedX completed a pilot in 2013 to test the feasibility of creating an index. It was undertaken with a sample of investments from the portfolios of three UK social investors. Read the press release here. This successful proof of concept led to the Social Investment Research Council commissioning a research project to redress the lack of appropriate risk and return data in the market, which EngagedX won via competitive tender.

What is it ?

• Aggregated investment data for the market as a whole, comprising equity, quasi-equity and debt / bonds, as well as hybrid instruments like Social Impact Bonds, which gives investors an investing benchmark and baseline for this new market 

• Analysed and classified data (anonymised) from the portfolios of existing social impact investors covering, as a data series over time: principal invested; date invested; yield; maturity; write offs/specific provisions; simple product categorisation; simple sectoral classification; and importantly their reported social impact and methodology used

• Analytics and data visualisation for stakeholders to assess and understand the market

• Applying an established capital markets approach to impact investing

• Core index data is an open and collaborative social asset of the impact investment market

• Index management run as a social enterprise with a licensing and subscription model (core data free to social impact investor providers)

• Scalable across Europe and globally, scalable also to other investment activity that could be classifiable, but not currently classified, as impact investing

• Layering approach to additional data / content aggregation, including in the longer run issuer financial data and fund data

Why is it needed ?

• Catalyst for investment – the capital markets show that indices drive and stimulate investment flows. Investment loves an index.

• Asset class definition – to be understood and treated as an asset class (rather than as an interesting collection of interesting individual investments) social investment needs to have aggregated financial investment data that defines its basic risk and return characteristics. Currently there is a dearth of aggregated data, especially as a dynamic data series over time, a gap which one off research reports cannot fill. This index will meet that need

• Financial data as well as impact data – proper consideration of social returns is core purpose for social investment but debates on impact measurement and reporting risk over-shadowing a more fundamental need for transparent aggregated financial data. Aggregated financial risk and return benchmarks will actually also give more transparency to implied pricing in of social returns

• Recognition as an Alternative Investment Market –investible by broader and deeper groups of investors requires that transparent aggregated data be readily available – to give the basic financial definitions of its benchmark investment characteristics and, more simply still, helping to tell the basic story of the social investment market in terms of size, momentum and investment activity (for everyone from actuaries to journalists)

• Supports investment product development – an index helps new investment products to be developed and marketed

• Asset allocation basis – data that enables professional investors, asset owners and investment consultants prudently to look at impact investing for inclusion in their portfolios and on a basis that is comparable with other markets and asset classes

• “Suitability” for the private wealth industry – providing the benchmark investment data that will help support a judgement on suitability

• London/ EU domicile – supports UK’s position as a time zone/global leader in social impact investment and European Union's priority for developing social business 

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Supported by:

Awards from:

As a result of this pioneering work, EngagedX was shortlisted for the UK Social Enterprise Awards in the category ‘Innovation - Product or Service’.

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Presentations

1) Original pitch to undertake proof of concept

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2) Summary of the pilot and making the case for implementation

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3) Lecture to MBA students at the Saïd Business School, University of Oxford

(Includes additional background information on the case for an index)

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