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ESG Focus: Impact Investing Emerges From The Shadows

ESG Focus | Apr 04 2019

Two new reports aim to pull impact investing into mainstream finance acceptance.

-Landmark report sets benchmark for industry size
-Second report spells out four tenets of credible impact investing, to assist investors
-Next four years seen as critical for what still is fringe segment of ESG investing

By Sarah Mills

Impact investing in global markets has just breached the $500bn mark, according to a landmark report published in early April by the Global Impact Investing Network (GIIN), double previous estimates.

Impact investing, also known as core investing, is a relatively small but fast growing segment of the ESG market – for which 2018 figures ranged from $12trn in 2018, according the Forum for Sustainable and Responsible Investment, and $76trn, according to the Boston Consulting Group, depending on the criteria used.

Unlike ESG integration investing, which focuses on investing in the best-in-class companies, impact investing cuts to the chase and invests only in projects that will yield a benefit to the environment or society.

It usually pioneers ways to use resources or improve equality in areas such as water, energy, materials, food and health, and is closely linked to the UN Sustainable Development Goals.

To date, no clear estimates have been provided on the primarily private market’s size due to a lack of data and the speed of the industry’s development.

To remedy this, the GIIN Sizing the Impact Investing Market report has collated the assets under management of more than 1,340 impact investors, including asset managers, foundations, banks, development finance institutions, family offices, pension funds, insurance companies and others.

The report shows that more than 50% of impact investing assets worldwide held by about 860 asset managers in venture capital, private equity, fixed income, real estates and public stocks.

The report also reveals 31 economic development financial institutions hold 27%; foundations hold 2%; and family holdings less than 1%. Wealthy high-net individuals were not included in the study.

Assets reported included green bonds and stocks.

More than half of all assets are managed within the United States and Canada, and about 21% in Europe.

GIIN CEO and co-founder Amit Bouri says the survey provides an important baseline for not only assessing the current state of the market but for developing more sophisticated benchmarks.

“It will also lead to deeper conversations about the market’s future potential,” says Bouri, who told Reuters the figures reflect shifting sentiment about the role of capital in society.

Bouri says the initiative is important to ensure the market continues to scale with integrity, particularly in light of high-profile scandals such as the US college admissions scandal.

Organisations such as the World Bank and the Organisation for Economic Co-operation have expressed concerns about the lack of industry standards and the growing trend of “impact washing” and “green washing”.

Report: Core Characteristics of Impact Investing

Fresh from the press, The Global Impact Investing Network (GIIN) has published its Core Characteristics of Impact Investing report to help financial markets and investors navigate the growing and complex array of investments, and to help them distinguish impact investing from other approaches.

Given the rapid growth of the industry and a few high-profile scandals, the report also attempts to set basic standards that will help “scale up integrity” and provide a foil to the growing trend of “impact washing” and “green washing”.

The report lays down four tenets of credible impact investing to help investors understand the key elements of impact investing, define the credibility of their practices and consider the quality of the practices of potential investment partners.

We are launching these Core Characteristics at a critical time in impact investing; the next couple of years will either see it remain on the fringe of the financial markets or press forward into the mainstream,” GIIN CEO and co-founder Amit Bouri, said in a press release

To tackle issues on the scale of the Sustainable Development Goals and global climate targets, we must think much bigger and engage a much broader set of investors.

“Scale is essential. But it must be scale with integrity, to ensure we are achieving impact at scale, not just capital at scale.”

The four tenets include:

Intentionality: Projects should display clear impact objectives and thorough strategies ahead of execution.  This is what distinguishes impact investing from  approaches that simply focus on avoiding harm or mitigating risk.

Evidence-based investment design: Empirical evidence must form the basis of any impact investing strategy.

Impact management: Measurement of progress towards objectives is critical. The report recommends using feedback loops to increase the positive impacts over the life of the investment and decrease risks, or unintended negative consequences.

Contribution to industry growth: Impact investment requires that participants share conventions and standards for describing goals, strategies and performance, including non-proprietary and non-private positive and negative learnings, evidence and data.

Bouri says the central aim of the Core Characteristics is to provide clear reference points and practical actions to establish the baseline expectations for impact investing. 

The current impact investing market is estimated to be $502 billion, which means trillions of dollars in the capital markets are still sitting on the sidelines, that could be put to work for people and the planet,” Bouri says.

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