Impact Investing Shows Growth as Interest Rises: Report

This past April, CI held a webinar on Impact Investing – a growing concept within the broader investment ecosystem.

Sectors of investment frequently include Green investments and sometimes social issues like housing or underserved communities. If you want to invest via public markets, Fintech Betterment offers bespoke portfolios like “Climate Impact” or “Broad Impact.”

In a recent report issued by the  Global Impact Investing Network (GIIN), the assets under management (AUM) has grown by 18% CAGR from 2017 to 2022, now topping $213 billion.

Globally, the US and Canada lead the space, followed by Europe.

The top sector is energy related (55%), followed by healthcare (51%), and then financial services like microfinance.

Private equity is the top asset sector (26%), followed by private debt (22%)

Pension funds represent the largest segment of market-rate investors, while below-market-rate investors are largely high-net-worth individuals.

Most investors are committing capital to mature firms (34%), with growth stage firms second (30%). Larger public companies are said to play a growing role as these firms capture a CAGR of 53% over five years.

Only 2% of funds are allocated to seed or startup firms.

High-net-worth individuals accounted for 23% of capital raised by below-market investment managers compared to just 2% among market-rate managers. This may help inform investment managers of the types of asset allocators they can target for future fundraising.

The research shares:

“Among those investors seeking market-rate returns, private equity saw the highest gross realized returns over a three-year period, at 25% on average and 15% at the median (Figure 13). Interestingly, realized average returns in private equity exceeded the average target returns by 4%, highlighting outperformance in particular amongst private equity investments. Meanwhile, public debt and deposits & cash equivalents saw the lowest returns, both realizing 2% on average.”

Impact investing is frequently construed with ESG or Environment, Social, and Governance investing. While there is clearly overlap, not everyone views Impact and ESG as completely aligned. ESG is typically seen as more affiliated with mandated or political ambitions. Currently, the Securities and Exchange Commission (SEC) is seeking to mandate ESG disclosures – starting with climate impact. This policy goal has created a battle in Congress as there is concern that ESG mandates will increase the cost for public firms to an excessive degree. At the same time, fewer firms will want to become public, and there will be a spillover effect into private firms as public firms attempt to assess their “impact,” a subjective term.

CI interviewed three participants in the Impact Investing sector, including one of the first platforms in the world, Abundance based in the UK; Rialto Markets – a broker-dealer helping a large carbon marketplace to operate and Justly, a platform that is transitioning to an EV investment platform. The video of the discussion is available below.



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