Vienna, June 20, 2018 - The impact investing market shows a strong trend towards diversity and dynamism, but some challenges also still remain – this is the main conclusion to be drawn from the Annual Impact Investor Survey 2018 published by the Global Impact Investing Network (GIIN) on June 6, 2018. The survey is based on responses from 229 of the world’s leading impact investing organizations.
The spectrum of investors that participated in the survey is broad – ranging from fund managers, banks, foundations, development finance institutions, to pension funds, insurance companies, and family offices. Together, they manage the impressive sum of over USD 228 billion in impact investing assets. By far the largest investor group are fund managers, accounting for for 59 % of all survey respondents. Foundations range second, at a comparatively modest 13 %, and the remaining percentage is divided up between banks (6%), family offices (4%), and pension funds/insurance companies (4%).
The investments made mostly aim at generating risk-adjusted, market-rate returns (64%). Notable is also the geographical distribution: while most investors are based in the U.S. and Canada (47%) as well as Western, Northern and Southern Europe (30%), over half of the assets under management (AUM) were invested in emerging markets (56%) and the remainder in developed markets. Two thirds of survey respondents do impact investing exclusively, only one third also engages in conventional investing. As regards asset class, private equity and private debt are the most frequently chosen investment forms for approximately half of investors.
The most popular investment sectors are financial services (19%), energy (14%), microfinance (9%) and housing (8%).
The survey shows that over 50 % of companies, institutions and individuals that responded to the survey, joined the impact investing movement fairly recently – some time in the last decade. This indicates a steady growth in the impact investing market, with new players continuing to join the impact investing community. And the investment volume is increasing as well: impact investors are planning to increase both the amount of capital invested (by 8%) and the number of investments (by 5%) in 2018 in comparison to the previous year.
Interestingly, of those survey respondents that engage in both impact and conventional investments, 84% reported a tendency to increase scope of the impact investing activities in their organizations, while only 6% noted a dwindling commitment among key decision makers in their companies and organization to pursue impact investing projects.
Measuring Impact along SDGs
About half of the participants in the survey targeted both social and environmental investment objectives. However, the emphasis was clearly on the social aspect - about 40 percent focus mainly on social objectives, while only 6% pursue primarily environmental objectives. To ensure their objectives are being met, approximately 76 % of survey respondents set impact benchmarks – to monitor impact, inform investors and ensure accountability. While most tools used to monitor impact are still traditional methods or frameworks not aligned to external methodologies, there is also a growing trend to measure impact performance according to the UN Sustainable Development Goals (SDGs). 37% of investors said all of their investments were SDG-aligned, 18% claimed this for at least part of their investments, while 21% at least intended to do this in the future. Only about a quarter of respondents rejected the idea of using SDGs to monitor impact.
Impact investors that do track their performance to the SDGs cited a number of reasons for doing so (Figure 37). Ninety percent of these respondents indicated that the SDGs are a useful way to communicate impact externally, and 73% noted it is important to integrate into the global development paradigm. More than half of respondents (53%) indicated that alignment to the SDGs helps attract investors.
Applying Different Lenses
Gender issues and climate change are two of the most important lenses investors use when selecting investment opportunities. About 70 % of survey respondents focussed on these two parameters, seeking investees that supported equal treatment of men and women, reduced greenhouse gas emissions and implemented measures to counteract climate change.
Doing Good and Making Profit
On the whole, investors were very satisfied with both the impact and the financial performance of their impact investment products. 82% approval of impact and 76% of financial return. Another 15% reported outperformance in both these dimensions. In contrast, only 3% were dissatisfied with the impact performance of their investments, and 9% claimed the financial return was below their expectations.
Big Challenges Remain
The survey respondents identified as the biggest challenges to the growth of the impact investing industry on the one hand, a ‘lack of appropriate capital across the risk/return spectrum’ - only 8% of respondents said progress had been made, while 42%, see need for improvement in this area. On the other hand, a ‘lack of common understanding of the definitions and segments of the market’ was identified as a problem by 40% of respondents, while only 11% saw improvement in this area.
Another challenge for the diverse and rapidly growing impact investment market is the prevention of possible mission drift or impact dilution, especially with ever more large-scale players joining the game and the market growing rapidly. Here, the solution seems to be greater transparency from impact investors regarding their impact strategy and results, with 80% of respondents agreeing that this would help mitigate the risk of mission drift. 41 percent were of the opinion that third-party certification of what qualifies as an impact investment would reduce the of risk impact dilution, and 31% and 26%, respectively, agreed that shared principles or a code of conduct were potential approaches.
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