Report Analyzes Impact Investing Funds

March 09, 2015

Report Analyzes Impact Investing Funds
by Robert Kropp

The Global Impact Investing Network reports on more than 300 impact investment funds that direct investments by foundations and high net worth individuals to social and environmental opportunities in North America and emerging markets.

SocialFunds.com — Early in 2011, a report from the Rockefeller Foundation and the Global Impact Investment Network (GIIN) described impact investing as “emerging as an alternative asset class.” The report also predicted that impact investing “offers the potential over the next 10 years for invested capital of $400bn–$1 trillion and profit of $183– $667bn.”

More than four years later, impact investing has not yet grown at the scale envisioned in the report. In fact, in a 2014 survey of sustainable investment in Europe, Eurosif described impact investing as “a peripheral strategy within SRI (sustainable and responsible investment) that has not yet realized its full potential.”

Eurosif also described the positioning of impact investment as a new asset class as “misleading,” a view shared by the recently published Global Sustainable Investment Alliance (GSIA) study. GSIA—a consortium of regional sustainable investment forums that includes both Eurosif and US SIF – The Forum for Sustainable and Responsible Investment—described impact investing as “as targeted investments, typically made in private markets, aimed at solving social or environmental problems.”

What is impact investing? I agree with GSIA’s description of it as a subset of community investment, albeit one that features a unique group of sustainable investment practitioners, primarily foundations and high net worth individuals. That it is generally perceived to be an alternative to outright philanthropy seems to be supported by the fact that in many cases the investors are willing to settle for below market returns.

GIIN has established an online database of impact investment funds and products. In a recently published report, GIIN analyzes the 342 finds currently included in the ImpactBase database, and projects that funds allocated to impact investing will have reached $12.7 billion in 2014. Half of the funds analyzed that settle for below market retunrs are fixed income, GIIN found.

The allocation of assets by impact investors differs from the portfolios of other sustainable investors practicing community investment, who primarily invest in fixed income products. Private equity and venture capital make up nearly half of the funds analyzed by GIIN, and only about 20% of the funds are fixed income. “Most funds listed on ImpactBase have been incepted in recent years,” GIIN reports. “Nearly 70% were launched after 2009,” most of which are PE and VC funds.

Any question that impact investing is a subset of community investment should be put to rest by the impact themes reported by fund managers. Access to finance was reported by 55% of fund manager followed by access to basic services; employment generation; green technology and cleantech; environmental markets and sustainable real assets; and sustainable consumer products.

At this point in the development of impact investing, “Over 25% of funds on ImpactBase invest only in North America,” GIIN reports. “Forty-two funds invest only in Africa, 37 target only Asia, while 52 invest across multiple emerging market continents. There are also 42 funds that invest across a range of both emerging and developed markets.”

Nearly half the funds on ImpactBase have a social focus,” GIIN states, “while 42 funds have an environmental focus.”

In 2011, Amy Domini, the founder of Domini Social Investments, wrote to the then nascent impact investing community, “Don’t just presume that you are doing more than we all have for the last 30+ years. If you want to have a high social impact in the world, join us.” Despite a somewhat confusing nomenclature—which may or may not have its origins in marketing purposes—the findings of GIIN’s report strongly suggest that by their allocations the assets of impact investors have done just that.

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