The vast majority of impact investors have gotten the financial returns they wanted—in addition to the social or environmental benefits—says a new survey from a nonprofit that supports investors in the category.
According to the New York-based Global Impact Investing Network, or GIIN, 79% of investors surveyed globally said the performance of their investments met or exceeded their financial targets, while 88% said they met or exceeded their impact targets. The GIIN surveyed 308 investors that manage US$371 billion in impact assets.
The GIIN also found in a report released on Tuesday that impact assets under management of a subset of investors surveyed in 2017 and again last year grew by a compound annual growth rate, or CAGR, of 18%. This group of 88 investors managed US$213 billion as of the end of last year, up from US$95 billion five years earlier.
By definition, impact investing is intended to realize positive, measurable social or environment impacts in tandem with financial returns. Most impact investors—including 74% of those surveyed—expect “risk-adjusted market-rate returns,” while the rest target below-market rate returns.
Over three years, the median realized returns for investors surveyed fell within 2% of their financial targets, the GIIN said. Private-equity investments—which currently get the most impact investing dollars—outperformed their financial targets by 4% over three years, the survey found.
According to Dean Hand, the GIIN’s chief research officer, the data is good news for investors, “especially because these strategies are solving for our most intractable challenges.”
Still, the survey—which the group last conducted in 2020—noted that not enough investors are willing to share performance data to provide the kind of comprehensive impact and financial analysis that’s really needed. “The lack of available data—importantly, verified and audited performance data—is a significant infrastructure gap in the ecosystem,” the report said.
The Rise of Public Market Impact
Among the most striking findings in the report was a rise in impact assets allocated to public markets. The amount of assets invested in public debt—such as green bonds—climbed at a 101% CAGR to US$17.8 billion last year from US$547 million five years earlier, the GIIN reported. Public stock allocations to impact meanwhile rose by a 14% CAGR to US$10.6 billion from US$5.5 billion.
Still, private markets by far grab most impact assets. According to the survey, 26% of US$198 billion in assets from a subset of 303 investors are allocated to private equity, while 22% are invested in private debt, and 17% are in so-called real assets such as real estate.
Investors allocated another 14% each to public bonds and stocks.
Across sectors, investors put 17% of their assets in energy, 13% in financial services, and 9% in healthcare, although 61% of investors allocate at least a portion of their assets to the food and agriculture sector.
The fastest-growing sector allocations among investors who responded in both 2017 and 2022 are in housing and information and communication technologies, “likely serving those most vulnerable stakeholders,” Hand said. Assets devoted to housing rose by a 44% CAGR to US$14.1 billion from five years earlier and to information and communication tech by a 30% CAGR to US$7.9 billion.
Aiming for Impact First
Among pension funds, insurance companies and other institutional investors, 90% seek market-rate returns, while that’s true for only 38% of foundations and 40% of endowments. For investment managers, 80% seek market rates of return, the GIIN results showed.
Interestingly, wealthy individuals investing with these managers account for 23% of the capital they raised that is focused on below-market rates of returns. That’s far more than any other source of investment capital; family offices, for instance, was the second largest contributor to these catalytic investments, but still only accounted for 9%, while foundations accounted for only 4%.
Capital that investors allow to earn below-market rates of return is considered catalytic, because it often draws in other, market-rate investors, particularly in sectors or for products that don’t easily get funded by institutional investors.
Despite the gain in impact investing in recent years, the GIIN survey shows investors overall expected to slow their volume of investments next year. An exception is with the family offices surveyed, which plan to boost their investments from US$218 million to US$1.26 billion next year.
Read the full article here
