Impact investing is a central part of a worldwide movement toward investing according to values. At the Global Impact Investing Network (GIIN), we are often encouraged by the results of our Annual Impact Investor Survey findings, pleased to see indicators that the dynamic and evolving impact investing market will realize the potential we envisioned for it years ago.
This year, once again, the data attest to the industry’s momentum. We received submissions from 209 impact investing organizations, the largest number of survey responses ever, and captured evidence for a rising pool of impact investing assets—nearly $114 billion in assets under management, a data point often used as a “floor” for the size of the impact investing market. Perhaps most encouraging, investors continue to be overwhelmingly satisfied with the performance of their investments—both in terms of financial return and the impact they generate.
Ten years into the creation of a formal impact investing industry, we are digging even deeper into the data and exploring important issues about the market’s development. To map the way forward from here, we are gathering insights from a diverse global selection of industry stakeholders—including fund managers, institutional investors, and foundations, as well as field-building organizations, advisors, and others in the impact investing ecosystem—to assess the progress the impact industry has made, and identify what is needed to exponentially enhance its scale and effectiveness over the next decade. Here are some of the insights we gleaned from the survey on topics at the forefront of industry conversations:
- There isn’t one single way to be an impact investor. There are many different types of investors pursuing a variety of impact objectives and financial return targets. Although much attention is paid to impact investing’s ability to generate market-rate returns, about one-third of impact investors deliberately target below-market-rate investments. These investors have a variety of motivations for doing so, including pursuing a specific type of impact or a desire to play a catalytic role in the market. Further, nearly all investors who responded to the survey noted that below-market-rate capital plays a valuable role in the market, whether through taking on more risk, investing in untested models or regions, or, in some cases, preparing businesses for scale investors. We will need to further explore the roles these different types of investors play in the market and how we can fully tap the collaborative potential of our diversity, such as by using blended capital structures to simultaneously bring in more capital and enhance impact.
- The bar is high for large firms entering the industry. It is thrilling to see investors of all types enter the market, especially when their entry enhances the profile of the industry, as is the case with many well-known asset managers and other financial firms. But it is prudent to withhold judgement on any new entrant until the investor has demonstrated a rigorous commitment to impact—the core ethos of the practice. While survey respondents feel that the entry of large-scale firms will help professionalize and bring credibility to the market, as well as bring in much-needed capital, they also have concerns that this trend could lead to mission drift or “impact dilution.” It is possible these investors may not be as intentional about generating impact, may prioritize returns over impact, or may not sustain their commitment to impact for the long term. We will need to explore approaches to protect the integrity of the industry and keep impact intentionality at the forefront, while also being welcoming of new market entrants. The GIIN’s vision of the market is not to integrate impact into traditional capital markets, but to integrate the capital markets into the broad-scale, global pursuit of social and environmental progress.
- Multi-national initiatives are building demand for impact investments. Approximately 60 percent of investors reported that they actively track the financial performance of their investments with respect to the Sustainable Development Goals (SDGs) or that they plan to do so soon. Examples of investors who are aligning investments with the SDGs include Cordaid, LGT Impact Ventures, and Triodos. The SDGs and the COP21 agreement have effectively highlighted the scale and urgency of the issues the global community faces. The initiatives provide a cohesive framework for how to address these challenges, particularly the urgent need for private capital to step up and fill the funding gap. The world is looking to impact investing to fulfill this role, and clients and companies are increasingly seeking out impact strategies, inspired by the role their money can play in building a brighter future.
These topics present opportunities for collaboration and collective action for the GIIN and the impact investing community at large. For example, the community can come together to test new product structures that will leverage the market’s diversity (see recent research on guarantees), and share learnings and offer support to new market entrants. At the current stage in the market’s development, it is important for us to reflect on market progress and refocus our attention on our final target. We have the tremendous opportunity to not just keep pace with the traditional capital markets, but to reinvent them entirely. The decisions we make today have the potential to shift attitudes, transform systems, and build the sustainable economy of the future.