As we emerge from the shadow of the Covid-19 pandemic, people are rightly challenging government and businesses to deliver the economic recovery in a way that is equitable for communities and regions across the UK. This challenge is at the front of mind for Phoenix as we seek to play our part in delivering on two key national priorities: supporting the post-Covid recovery and levelling up the UK, and contributing to the UK’s “journey to net zero”.
At Phoenix, we see addressing these challenges as both a societal and a business imperative. We’ve always taken the view that companies who act responsibly perform better. They provide better services to customers.
They deliver better shareholder returns. They are more sustainable businesses. Equally, we know that we have the scale to make a genuine difference to society. With more than £300bn of assets under administration, we have a duty to take a responsible and sustainable approach to investing the savings that our 14 million customers entrust with us, whether that is in infrastructure, green technology or
social housing stock. Or, to use current political terminology, “levelling up” the UK.
We know this is what our customers want and expect of us. A 2020 survey conducted by our Standard Life business found that 65 per cent of our workplace pensions customers believe it is important to invest in a way that drives positive change. And the more we can do so in a regionally diversified manner, the better – not only does it enable us to reach a broader range of stakeholders, but also to diversify the risks associated with the investments we make.
That is why we are working to invest in assets and sectors that can provide stable, long-term returns, while contributing to the recovery of the UK economy and addressing climate change. We take our environmental responsibilities very seriously. We are the largest asset-owner signatory to the UN Principles for Responsible Investment in the UK, committing us to integrating sustainability into our investment practices.
Our commitment to acting in a responsible and sustainable way is perhaps best illustrated by the investments that we make. We have invested £460m into a community-based housing association in the East Midlands, providing affordable housing to more than 3,000 people, and £170m in a renewable energy portfolio targeted at onshore wind, hydro and solar power initiatives, covering all four nations of the UK.
And earlier this year, we made our first sustainability-linked commercial real estate investment. This comprises a £50m portfolio of regional offices in the north-west and Midlands, where the borrower is incentivised to put in place environmental initiatives to reduce interest costs.
We want to do more. We want to invest up to £20bn in environmental and social initiatives over the next
five years in a regionally diversified manner. But this investment comes primarily from our annuities related business; existing regulations governing the rest of Phoenix’s multibillion-pound portfolio make it difficult for us to provide long-term capital to support economic growth, including investment in infrastructure, venture capital and growth equity, and other long-term productive assets. There is a potentially significant opportunity to unlock further investment if these regulatory barriers can be removed.
Specifically, reforms to Solvency II could provide a foundation for insurance firms like Phoenix to provide more long-term capital to the UK economy. The current rules make it difficult for insurers to fully support the government’s investment priorities. In particular, applying a more flexible, principles-based approach to the Matching Adjustment (MA) would bring a broader range of investments into scope, many of which are the types of long-term illiquid infrastructure and social investments that are needed to support the “Build Back Better” agenda.
The Prime Minister and the Chancellor were right to issue a “challenge letter” recently, calling for UK institutional investors to do more to support the country’s economic and infrastructure ambitions. But, crucially, they were also correct to acknowledge the important role for the government in helping to remove any regulatory impediments to investment. The Treasury’s ongoing review of Solvency II offers the prospect of delivering tangible, positive changes that will facilitate greater investment, and we hope that ministers are prepared to pursue these reforms.
It is vital that we bring together local government representatives, community groups, investors and other stakeholders to exchange ideas and tackle shared challenges on the subject of regional investment. Only through collaboration can we achieve our collective goals, whether they be levelling up the UK, driving the country towards net zero or recovering from Covid.
I am delighted that Phoenix is sponsoring the New Statesman’s Regional Development Conference on 9 September, where we look forward to discussing and debating these issues and, ultimately, to playing our part in driving regional economic growth to the benefit of the UK as a whole.
Michael Eakin is chief investment officer at Phoenix Group. This article originally appeared in our issue on Regional Development: Access to Opportunity. Download the full issue here.