With the world now in the throes of a deep recession, one thing is clear: helping countries recover from COVID-19 will require billions of dollars to revive jobs and value chains, tackle systemic inequalities and promote a greener reconstruction. This will present significant opportunities for investors to innovate and finance projects that contribute to sustainable and inclusive long-term growth.
Many investors are interested in doing just that, as evidenced by the movement that is taking root around us. A year ago, a coalition of 60 asset managers and institutional investors adopted the Operating Principles for Impact Management: a set of clear market standards for how to manage investments aiming to achieve positive impact alongside financial returns. One year later, that number has grown to 94. That includes 16 organisations that signed on since January, when the COVID-19 outbreak began to hit the global economy.
By summer, we expect to reach consensus on how to measure and report on key impact themes including climate change, gender equality and job creation
In the process, we have gained unparalleled insights into the impact investing world. Importantly, what used to be the terrain of smaller, specialised impact investors now attracts larger and more diverse private equity funds: we estimate that a total of over $300bn in impact assets are managed collectively by our signatories in alignment with the principles.
Significantly, some of the world’s largest asset managers have chosen to adopt the Principles when launching impact funds on a scale we haven’t seen before. These include the recent closing by KKR of a new Global Impact Fund and the launch of Blackrock’s Global SDG Impact Fund. But that also applies to long-standing impact fund managers, including LeapFrog Investments which raised record-breaking amounts for investments in Africa and South Asia.
Development Finance Institutions (DFIs) continue to be the largest impact investors. Among the signatories, we count eight multilateral and 17 bilateral DFIs. IFC manages the largest pool of impact investments, with $83bn in impact assets under management.
We also see a broadening base of impact funds across the world, with signatories coming from 26 different countries across five continents. While most signatories are headquartered in North America (33%) and Western Europe (56%), we see growing interest from other regions. The Japan International Cooperation Agency signed the principles, reflecting growing interest in Japan in impact investing. Emerging markets comprise eight signatories managing about $6bn in total. I strongly believe that the movement will continue to diversify as it forges ahead.
Significantly, impact funds have a greater focus on investing in emerging markets than other funds: We estimate that 30% of the volume of impact funds was raised for projects in emerging markets, as compared with 20% of the volume of conventional funds.