Taking Stock of Impact Investing

    Stockholm (NordSIP) – Despite its recent impressive growth, the trillion-dollar-worth impact investing market is still relatively young and immature. For anyone interested in gaging the pulse of this rapidly evolving space, the comprehensive survey that the Global Impact Investing Network (GIIN) has conducted regularly since 2010 provides plenty of valuable insights.

    On 27 June, members of the network’s Investors’ Council, currently gathered in New York for their annual meeting, held a press conference to reveal GIIN’s latest findings. Neatly packaged in a series of papers, GIINsights 2023 will be released in several separate instalments. The first two, covering Impact Investor Demographics and Impact Investing Allocations, Activity & Performance, have just been published.

    The reports reflect data and perspectives from a diverse sample of 308 impact investors globally who collectively manage USD 371 billion in impact investing assets. According to Dean Hand, GIIN’s Chief Research Officer, the main takeaway from the survey is that investors show increasing diversification, strong growth and viability of impact approaches. She calls these “healthy signs of a maturing impact investing market.”

    Passing the dual performance test

    One of the key findings this year is the consistent evidence that both financial and impact returns continue to meet or exceed investors’ expectations. This is no small feat under the current market conditions and given that most impact investors target risk-adjusted market rate returns alongside ambitious impact goals. According to GIIN’s paper, 79 % of investors reported that the financial performance of their impact assets meets or exceeds their targets. Meanwhile, 88% of the surveyed investors claim to have achieved or surpassed the predetermined impact targets.

    These results are encouraging as they support the argument that impact investing can be a financially sound and socially impactful approach. However, it is worth noting that investors still lack sophisticated and efficient tools to help them analyse the connection between financial risk tolerance and returns, impact risk tolerance and results, resource capacity and liquidity constraints.

    Shifting allocations

    The impact investing industry remains diverse across asset classes, sectors, and geographies. Private equity and private debt still tend to dominate investors’ impact portfolios. New trends are beginning to emerge, however. Since the previous survey, public debt has been the fastest-growing asset class at a 101% compound annual growth rate, followed by real assets at 27%. Generally, it appears that more and more investors are turning to listed assets to generate impact at scale.

    As to sectors, allocations remain quite stable. Yet, although the long-term favourites energy, financial services, healthcare and microfinance still attract the most money, new sectors are exhibiting faster growth. According to GIIN, the fastest-growing sectors during the observed period were housing, followed by information & communication technologies.

    As highlighted by one of the members of the Investors’ Council, the study reveals another persistent and rather worrying trend: impact investors continue to prioritise developed markets over emerging markets. This flight to safety is understandable, given the economic volatility resulting from geopolitical events. As to the near future, a third of investors plan to increase allocations to sub-Saharan Africa and a quarter – to Latin America and the Caribbean, reflecting clear interest in these emerging market regions at least.

    Outsourcing to the experts

    As institutional investors seek ever greater exposure to a broader range of impact opportunities, capital appears to be increasingly flowing from asset owners to asset managers, especially from pension funds and insurance companies. According to GIIN, this “suggests a growing appetite for more active approaches to generate impact on issues that matter to pensioners or insurance clients.” Asset owners seem to appreciate that managers specialising in various impact investing strategies offer diversification beyond traditional asset allocation models.

    Commenting on the research findings, Amit Bouri, CEO & co-founder of the GIIN, says that they underscore the growth in overall impact assets and the multiple avenues impact investors can explore to achieve their financial and impact goals. “The expanding appeal of impact investing is evident as investors are witnessing substantial increases in capital inflows from major institutional investors, including pension funds and insurance companies,” concludes Bouri.

    Image courtesy of Jordan McDonald on Unsplash
    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.

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