Only a couple of figures are actually needed to measure the success of any financial investment. Ideally, the investment will climb steadily upwards – and one tick better than the relevant benchmark. More and more investors, though, are indicating that they are no longer satisfied with achieving the highest possible risk-optimised financial return. Instead, they want their capital to also improve the world a little. This is exactly where impact investing comes in. The term refers to the allocation of capital with the aim of generating a positive, measurable social and environmental impact alongside a financial return. “The growing impact investment market provides capital to address the world’s most pressing challenges in sectors,” the Global Impact Investing Network (GIIN) states. The representative body lists the following key areas: sustainable agriculture, renewable energy, conservation, microfinance, and affordable and accessible basic services including housing, healthcare, and education.
The history of impact investing goes back to philanthropy, i.e. the wish of people to do good. On the initiative of the Rockefeller Foundation, philanthropists, investors and entrepreneurs met together shortly after the turn of the millennium. They coined the term “impact investing” and called the GIIN into being. Today this non-profit organisation is active all over the world and is supported by governments and businesses. One of the things the GIIN has done is define four points that are to be characteristic of impact investing. These include the intention to contribute to social and environmental solutions through investment. The positive impact cannot be a sort of side-effect. The network cites as a second core element the goal of achieving a financial return from impact investing. “This definition differs from philanthropy”, the GIIN explains. According to the experts, another characteristic is that this form of investment can be applied across different asset classes. The GIIN gives transparency as a fourth point: “A hallmark of impact investing is the commitment of the investor to measure and report the social and environmental performance and progress of underlying investments and to report on them.”
For more than a decade the GIIN has been conducting global surveys to estimate the size of the market for impact investing. In 2010 just 24 members of the network responded to the questionnaire. For the current report, the market researchers were able to put the figures from more than 3,000 public and private institutions and investors under the microscope. At the end of 2021 they estimated assets under management (AuM) which can be directly attributed to an impact investment at a total USDtn 1.164. That means assets under management have more than doubled within the space of three years (see graph). “Impact investing strategies are showing significant momentum despite disruptions from COVID-19,” states Amit Bouri, co-founder and CEO of the GIIN. This form of investment is particularly widespread in Europe, with more than half of global AuM coming from the west, north and south of the old continent (see graph).
Despite all the progress, Bouri warns against complacency. “The work to scale the market with integrity is crucial if the world hopes to reverse the tide of climate change and address social inequity head on,” he added. It is possible that the GIIN representative is also bothered by the negative headlines of the past years, as the sector is constantly accused of greenwashing. This refers to the suspicion that businesses and investors are not taking impact investing seriously, but are instead simply putting on a green veneer in order to profit from this social trend. That makes it all the more important for interested investors to take a close look at the solutions from this sector. It is vital that the desired social and environmental impact is both plausible and easily demonstrable. Of course, the effort to achieve a financial return must not be neglected either. Swissquote has recently sought to manage this balancing act in its well-known “Themes Trading” portal, on which the direct broker picks up the theme of impact investing with a simple yet highly promising index concept.
Source: Global Impact Investing Network; as at: March 2023. Past performance is not a reliable indicator of future performance.