How pension funds can align their investment strategies with the values and priorities of their beneficiaries
While many pension funds have already adopted ESG frameworks, there’s a growing recognition that impact investing goes further.
Impact investing takes a different approach, one that actively seeks out companies whose core business models are solving global challenges, claims Baillie Gifford, a UK-based investment management firm.
“For impact investing, it's about looking to deliver financial returns as well as addressing environmental and social challenges, and it's being deliberate about wanting to do both,” said Kate Fox, an investment manager at Baillie Gifford.
Impact investing presents a powerful proposition for pension funds and institutional investors: the ability to generate long-term returns, ensuring that capital is directed toward businesses creating real, measurable change.
Companies who address global challenges, whether it's expanding digital financial services, reducing healthcare costs, or tackling environmental issues, are increasingly shaping the economic landscape and are poised for long-term growth.
Impact investing also allows institutions to be more than just passive shareholders. By taking active ownership stakes in these companies, investors can engage with management teams to influence business decisions and encourage responsible extended strategies.
Additionally, by offering impact investing options, pension funds can better align their investment strategies with the values and priorities of their beneficiaries, ultimately improving member satisfaction and retention.
“There’s a really important role to be played in the public markets,” noted Ed Whitten, impact director at Baillie Gifford.
“Listed equity impact investing matters. The world is a challenging place, there’s lots of economic and political uncertainty, and we believe that being long term, engaged, active owners of the companies we're investing in is a really important thing,” he added.
“We think that they’re important for savers who want to grow their savings and their pensions while also contributing to society. It also provides accessibility because it's not as exclusive as private equity investing might be, added Fox.
This accessibility matters for pension funds, which have an obligation to safeguard long-term financial stability for beneficiaries. Investing in companies with strong impact potential means backing businesses that are well-positioned for future growth.
This approach is particularly relevant in sectors like financial inclusion, where technology is opening doors for underserved populations. Companies like NuBank and Mercado Libre are expanding banking access in Latin America, while firms such as Sea and Grab are driving digital financial services in Southeast Asia, highlighted Fox.
“The world's made a huge amount of progress in the last decade,” Whitten said. “There’s now 80 per cent of adults in the world who have access to some sort of bank account, whether that's mobile money or formal banking. The fastest growth we've seen has been in Latin America, driven by two companies in our portfolio, NuBank and Mercado Libre.”
Whitten asserted it’s this kind of progress that underscores why institutional investors need to rethink their strategies. Relying on ESG scores and corporate disclosures isn’t enough. Investing in the right companies, those with impact at their core, means that pension funds and institutional investors are positioned for both financial success and long-term stability.
“If we think about this over the long term, healthy societies make healthy markets,” Whitten said.
Institutional investors and pension funds have faced increasing pressure to deliver strong financial returns while demonstrating a commitment to sustainability. Navigating the landscape of responsible investing can be challenging.
Unlike ESG investing, which primarily evaluates how companies operate, impact investing focuses on what they do. It’s not just about avoiding harm or screening out problematic industries, it’s about putting capital into businesses that are making measurable contributions to issues like climate change, financial inclusion, healthcare, and education.
“It's more than investing in companies that conduct themselves responsibly through their operations,” Fox said. “It's about investing in those companies whose core purpose is to provide solutions to these large, significant, complex and interlinked challenges that we're facing as a world, whether that’s climate change, persistent inequality or biodiversity loss.”
This is where Baillie Gifford’s Positive Change strategy comes in. The firm, which was founded in 1908, runs a concentrated portfolio of 35 publicly listed companies selected for both their growth potential and their impact.
Their strategy is based around four key themes: social inclusion and education, environment and resource needs, healthcare and quality of life and base of the pyramid, considered to be the needs of those at the bottom of the global income ladder.
AbCellera, a Canadian-based biotech firm advancing antibody drug discovery, Duolingo, who provides free language education with a scalable business model and Dexcom, a manufacturer and distributor of continuous glucose monitoring devices, which helps diabetic patients better manage their chronic condition are just a few of the companies Baillie Gifford highlighted who are creating tangible solutions and significant change – delivering on the fundamentals of impact investing.
“We believe that we can deliver attractive financial returns and contribute towards a more sustainable, healthier, more inclusive world through investing in companies,” said Fox.
