Impact investing growth continues as industry begins tracking to SDGs

Devex
By Adva Saldinger

Photo by: CafeCredit / CC BY

If you’ve heard that impact investing is growing and that investors are mapping their investments to the Sustainable Development Goals, but wondered if that’s true, now there’s evidence.

The Global Impact Investing Network released its annual impact investing report this week and several of its findings point to continued growth of the sector.

This year the survey included about 209 impact investing organizations from around the world — up from the 158 that participated last year. In total they manage about $114 billion in impact investment assets. Of that group 57 percent made their first investment in the past 10 years, according to the survey.

“It demonstrates a growing momentum and interest in new investments,” Abilash Mudaliar, GIIN director of research, told Devex.

The investors surveyed are diverse in size, the types of investments they make and how they invest. About half of the current investments — or assets under management — are in developed economies and the other half are in emerging markets. The sectors that have the most investment are housing, energy, financial services, food and agriculture and health care.

The report also showed a fairly optimistic view of the sector and future growth. About 91 percent of investors said that the financial performance of their investments met or exceeded their expectations, while 98 percent felt the same way about the impact of their investments. Investors are also planning to increase the amount of money they commit to impact investments by 17 percent in 2017.

This year one new line of questioning in the survey was about the SDGs. About 26 percent of respondents reported that they track some or all of their investments against the SDGs. Of those that do, many target SDG 8 about good jobs and economic growth, with SDG 7 on energy, SDG 1 on eliminating poverty and SDG 5 on gender equality also getting attention.

In addition to those already tracking their investments against the SDGs, 33 percent of others surveyed said that they plan to do so in the future.

“I think this is providing good evidence that impact investors are seeing the SDGs as an important organizing framework,” Mudaliar said.

The report also explores several key issues in the industry — the entry of large financial firms and whether impact investing should seek market-rate or concessional returns. In the past four to five years, some of big asset managers have entered the space and the majority of survey respondents said that it was generally a positive move, Mudaliar said.

“The majority felt their entry will lead to professionalizing the market, bringing greater credibility and would bring an influx of new capital to the industry,” he said, adding that some were concerned that it would lead to “impact dilution” or a move away from an impact-focused set of investment priorities.

Many of those firms are looking to get market-rate returns on their investments, and in fact the majority — 66 percent — of those surveyed said that they seek risk-adjusted market-rate returns, while the rest target below market-rate returns. The survey asked some questions about the role of those concessional, or below market-rate investments, which 98 percent of those surveyed said they either agreed or strongly agreed plays an important role in the market.

Those investments were sometimes seen as a bridge from philanthropy to market-rate investments, can be used to derisk investments, or can support ventures that might not result in market-based returns, Mudaliar said.

There are challenges that remain for the industry — from finding the appropriate capital for specific deals, to having the ability to exit investments. While those surveyed continued to identify those among the persistent issues, the majority also said that there has been progress on addressing those issues.

Those are also areas where the GIIN is working to help the sector by looking at how to best combine different types of capital, and at investments that seek market-rate returns or are willing to accept lower returns in exchange for greater impact, as well as looking at how to create different types of products or financial mechanisms that would allow investors to exit, Mudaliar said.