Stockholm (NordSIP) – On 29 August, the Global Impact Investing Network (GIIN) released the fourth and final part of the 2023 GIInsights series, Emerging Trends in Impact Investing. The survey seeks to fill a gap in impact investing insights by drawing upon data and perspectives from a diverse sample of 308 impact investors globally who collectively manage USD 371 billion in impact investing assets. The first three instalments in the series have already covered a lot of ground, diving into impact investor demographics (Part 1), allocations, activity and performance (Part 2) and measurement and management practice (Part 3).
This time, the authors focus on identifying impact investing market trends and exploring the perceived areas of progress and the challenges the industry faces. Looking at the regions, sectors, and specific solutions where impact investors plan to invest over the next five years, the survey finds that despite global macro event risks, investors seem willing to increase capital allocation to emerging markets and the energy sector. “Remaining adaptable and finding opportunities in challenging times is what impact investors do best,” comments Dean Hand, Chief Research Officer of the GIIN, summarising the optimistic stance of the report.
Significant evolution
Starting by examining the views of impact investors on industry progress, the authors note that investors cite the availability of professionals with relevant skills as the greatest improvement area in the industry, with 27% indicating significant progress has been made in this area and 86% noting at least some progress. Nearly a third of the surveyed investors report that finding qualified colleagues is not a challenge, as more professionals develop skillsets related to impact measurement and management, deal structuring and sectoral knowledge and other relevant areas.
On another positive note, as many as 84% of investors perceive that things are moving forward with regard to the harmonisation of impact measurement frameworks. That said, 75% of investors still cite the inability to compare impact results to peers as either a moderate or significant challenge. “Fragmentation across impact measurement frameworks” is highlighted as a problem by 36% of the surveyed experts.
Navigating a challenging environment
A variety of macro events have affected impact investors’ strategies significantly for the past couple of years. According to the survey, the most challenging among those across the industry include the climate crisis (45%) and the COVID-19 pandemic (42%), followed by rising interest rates (28%). Other events, such as political insecurity and armed conflict, had a more significant influence on emerging market-focused investors’ impact investing strategies than those of developed market-focused investors.
Recent global events have exacerbated challenges at each stage of the investment process, notably during due diligence at the start of an investment cycle and when searching for suitable exit opportunities toward the end.
Redirecting capital
Although the greatest proportion of impact assets today are allocated to the developed world, with the US, Canada and Europe leading the pack, most impact investors are aware that it is imperative to focus on emerging markets. Fortunately, investors’ future allocation plans toward emerging markets reflect this need.
According to the survey, impact investors plan to increase their capital allocations in emerging markets overall. The top four regions for planned allocations are sub-Saharan Africa, Latin America & the Caribbean, and South and Southeast Asia.
“Directing allocations towards emerging markets is critical in the face of global macro events such as the COVID-19 pandemic as well as continuing, worsening inequality – issues that leave people in certain parts of the world particularly vulnerable,” conclude the report’s authors. “A well-informed and strategic approach relative to the risk and return profile of each investor type can help investors capitalise on the opportunities despite the inherent challenges of investing in emerging markets.”
Investing in climate solutions
It is also promising to see that impact investors increasingly apply climate as a strategy guiding all investment choices across their portfolios. The survey indicates that managers are finding impact investment opportunities that address the underlying climate change mitigation, adaptation and resilience challenges across different sectors.
Encouragingly, impact investors plan to increase their allocations to sectors such as energy, food and agriculture, and infrastructure over the next five years.
“In the face of global challenges, it is inspiring to see that impact investors are actively prioritising strategies that address the basic needs of communities worldwide,” comments Amit Bouri, CEO & co-founder of the GIIN. “The trends in the data reveal impact investors are committed to channelling more capital into emerging markets and pursuing climate solutions across their portfolios, reinforcing their dedication to investing in a sustainable future.”
