The headline result of the 2018 Annual Impact Investor Survey , the eighth from the Global Impact Investing Network, shows the size of a diverse and dynamic impact investing market. This level of return on investment was reported by the 82 respondents that completed the survey both five years ago and this year.
The report findings are based on survey responses from 229 of the world’s leading impact investing organisations, including: fund managers, banks, foundations, development finance institutions, pension funds, insurance companies, and family offices.
In total, respondents collectively manage over US$228 billion (AU$320 billion) in impact investing assets, a figure which serves as the latest best-available ‘floor’ for the size of the impact investing market. It is chiefly fund managers (59 per cent of investors) who are driving the trend.
Their investment choices are made not by ethics, but primarily by risk-adjusted, market-rate returns (64 per cent). All the same, two-thirds of respondents to the survey make only impact investments; the remaining third also make conventional investments. As to location, this is pretty much evenly split at present between emerging markets (45 per cent) and developed markets (42 per cent).
“From the smallest enterprise to the largest firm, innovators and investors are creating an unstoppable momentum that proves when it comes to climate change, business is not the problem but the solution.” Greg Clark, UK energy and industry minister said on Monday, launching the country’s Green GB Week.
But impact investing is not just about climate change but all of the Sustainable Development Goals. The GIIS puts the bill to reach all of the goals by 2030 at a staggering US$5-7 trillion (AU$7-10 trillion), which is the biggest investment challenge ever.
However, there is a plethora of different criteria and standards that often confuse investors.
“If we want impact management to become the norm for every enterprise and investor, as the SDGs demand, we need shared principles, reporting standards and benchmarking methods for impact,” says Clara Barby, who is the lead facilitator of the Impact Management Project.
What do impact investors choose?
The report found that that investors like a substantial spread of investments but energy tops the list at 14 per cent, followed by microfinance (lending to small borrowers – 9 per cent) and housing (8 per cent).
The 13 per cent growth was spread out across the majority of regions, sectors and instruments, but was particularly pronounced in the East and Southeast Asia, MENA, and Oceania regions, and the education and food and agriculture sectors. Public equities performed particularly well.
Different investors have a preference for social or environmental objectives for their investing, the survey reveals. Over half of investors target both, but a further 40 per cent primarily target social objectives, and just 6 per cent primarily target environmental ones. Over three quarters set impact targets to measure the success of their investments.
Barriers to the spread of impact investing were identified in the survey, but these are reducing year on year.
In particular there is a perceived lack of appropriate capital across the risk/return spectrum, and of a common understanding or definition and segmentation of the impact investing market. Also, the range and availability of exit options are sometimes less than in conventional markets.
The Global Impact Investing Network itself works to reduce barriers to impact investment so more investors can allocate capital to fund solutions to the world’s challenges.