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Impact investing: J.P. Morgan and GIIN show the positive growth of impact investments

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sailJ.P. Morgan and the GIIN release study showing the impact of impact investments on fund managers and client investors

Sailing into the future, we can no longer tilt at windmills

96 per cent of participants measure social and/or environmental impact and 75 per cent of fund managers say the impact measurement factor is important in raising capital

In 2012, impact investors moved forward gaining attention and assets.

J.P. Morgan and the Global Impact Investing Network (GIIN) conducted a study confirming the growth of impact investing. It’s difficult to understand what “portion of the market” the study has captured, but the survey sample has “almost doubled” from the previous year, and so, offers a “rich data set”.

Here are some of the highlights of the study:

  • $8 billion U.S. went to impact investments in 2012
  • $9 billion U.S. is expected for 2013 (an increase of almost 12 per cent)
  • 96 per cent of participants measured their social and/or environmental impact
  • 75 per cent of fund managers highlighted the importance of impact measurement for raising capital

Considering 96 per cent of participants measured social and/or environmental impact and 75 per cent of fund managers said the impact measurement factor is important in raising capital, the investing landscape looks to have changed. While participants who are already managing a significant amount of impact investments were chosen, participants weren’t exclusively impact investors, but they did see the benefit in impact investments.

Are these participants simply new impact investors? No.

  • 42 per cent were making impact investments over a decade ago

Where were they located?

  • 56 per cent of respondents were in the U.S. and Canada

How many were fund managers?

  • More than 50 per cent were fund managers

Did these investors have a narrow focus when it came to sectoral investments? No.

  • 86 per cent of investors focus on multiple sectors (top three respectively)
  1. Food and agriculture
  2. Healthcare
  3. Financial services (excluding microfinance)

Was social/environmental impact important? Yes.

  • 50 per cent focus on social impact
  • 45 per cent focus on social and environmental impact

Did participants use private equity/debt?

  • 83 per cent use private equity and 66 per cent use private debt

Respondents identified the top challenges to the growth of the impact investment industry today as being:

  • “lack of appropriate capital across the risk/return spectrum”

and

  • “shortage of high quality investment opportunities with track record”

Government impact

… there is a crucial role for governments in facilitating the transition to an economy that is much more efficient, much more fair and much less damaging … Countries that lag behind will inevitably face increasing competitive disadvantage and lost opportunity.*

When it comes to the role of government in impact investing, respondents cited the following as “very helpful”:

  • 35 per cent said “technical assistance for investees”
  • 32 per cent said “tax credits or subsidies”
  • 27 per cent said “government-backed guarantees”

Without doubt, government continues to be important to impact investing.

How did impact and financial performance do?

According to respondents:

Impact Performance

  • 84 per cent reported their portfolio’s impact performance was “in line with their expectations”
  • 14 per cent reported their portfolio’s impact is “outperforming expectations”
  • Only 2 per cent said they were underperforming

Financial performance

  • 68 per cent said they were performing “in-line”
  • 21 per cent reported outperforming

and,

  • 11 per cent underperformed

Product providers and the degree of interest by investor clients for impact investments

Obviously, product providers and investor clients play an active role in present and future impact investments.

  • 86 per cent felt “many” or “some” investors are starting to consider the impact investment market

Eighty-six per cent is a large number. One that further illustrates growing transparency and volume of information is affecting investors as much as other stakeholders.

Sailing into the future

The bottom line: A wind blowing at a 12 per cent growth trajectory

The investors in the survey:

  • Committed  $8 billion U.S. to impact investments in 2012

and,

  • Plan to commit $9 billion in 2013

… approximately a 12 per cent increase year-over-year.

Since 96 per cent  of respondents measure their social and/or environmental impact, and several studies are confirming CSR as a growing business function (find one here),  there is change in the scope of and business case for impact, CSR/sustainability investing.

What may have seemed like an exercise in tilting at windmills two or three decades ago is now a growing data set showing that the investing world is changing.

If the only thing we can count on is change, forecasting the future will include the impact of investments and their ability to focus the positive power of enterprise.

You can find the study here.

* Steven Peck and Robert Gibson, “Pushing the Revolution,” in Alternatives Journal, Vol. 26, No. 1 (Winter 2000).

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  1. […] Also known as socially responsible investing, or green investing, the underlying purpose is for investors to consider both financial and social good in their investment strategies.  Increasingly, the public are supporting companies that conduct business according to the triple bottom line, i.e., considering people, planet and profits.  As a growing sector of the public becomes aware of environmental issues and worker safety concerns, increasingly they are demanding more of corporate america, but investing in those companies that align with their ethical values.  The global market for impact or socially responsible investing is estimated at $13.6 trillion.   In the U.S., in 2012, $8 billion was used for impact investment, and the growth will continue, with ….   […]


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