Impact Investing: 2017 in Review

Impact Alpha, 22 Dec 2017:

How much capital was pointed toward impact in 2017?

The 2016 number of $114 billion, tallied by the Global Impact Investing Network, or GIIN, from 208 investors, remained a rounding error in the global financial markets. Optimists can point to the growth (from $77 billion in 2015), major new entrants and increasing maturity. A broader set of “sustainable” and “responsible” assets, including negatively and positively screened public equities and green bonds, hit $23 trillion. That total, rolled up by the Global Sustainable Investment Alliance, is up 25% in two years.

Who will move money in 2018?

Some are betting on family offices, which are moving to reflect the values of their clients, particularly those of the next-generation of wealth holders. Others say huge pension and sovereign-wealth funds, once laggards, are poised to lead the global capital shift. And still others are counting on the more than 50 million small but mighty retail investors in the U.S. alone.

What we know about financial performance.

Of course there’s a spectrum, and of course “concessionary” returns are at one end. But the other end of the spectrum is not “market-rate.” The leading edge of investors are looking to impact megatrends as a source of outperformance. Dare we call it “impact alpha”? (Playing along with the podcast’s drinking game? Have one on us.) Takeaways from recent research: market-rate returns are achievable. Small funds can perform in-line with their large peers. Opportunities exist for all risk-return appetites.

Measurement matters.

2017 is the year impact measurement went from an overhead cost to a strategic imperative. More than 60% of 168 impact investors surveyed measure impact because of its business value. “The increasingly sophisticated practice of impact measurement and management is enabling impact investors to manage their impact performance with the same data-driven approach they apply to financial performance,” writes the GIIN’s Amit Bouri on ImpactAlpha.

Practical solutions to impact management.

ImpactAlpha’s Operation Impact series, produced with the Case Foundation, highlighted ways to add “impact” (to risk and return) in investment decision-making. The series explored the new culture of transparency around impact financing and performance; how to collect high-value, low-cost data; and managing impact with crisp, comparable data.

People to watch in 2018.

In 2017, we kept an eye on impact champions “in the belly of the beast,” including Andy Sieg, head of Merrill Lynch Wealth Management, and Audrey Choi, now Morgan Stanley’s chief marketing officer. “Outside agitators” included Caprock’s Matthew Weatherley-White and Cornerstone’s Erika Karp, as well as industry conscience Andrea Armeni of Transform Finance. Among the “billion-dollar babies” are Andrew Kuper of Leapfrog Investments, Nancy Pfund of DBL Partners and Dave Chen of Equilibrium Capital. Who will make news in 2018?

And the winners are…

The GSG (short for the Global Impact Investing Steering Group) asked ImpactAlpha to help identify the year’s standouts as Entrepreneur (Rajeev Kher of 3S India), Asset Owner (Christian Super in Australia), Asset Manager (the Reinvestment Fund) and Market-Builders (Intellecap and IIX). B Lab, meanwhile, identified 28 Best for the World impact funds, based on the GIIRS Impact Rating system. Among companies, 846 best “B Corps” “prove that there is a viable alternative to business as usual,”B-Lab co-founder Jay Coen Gilbert wrote on ImpactAlpha.

After the tax bill, all eyes on impact investors. made “complicit” the word of the year, even before Republicans passed a tax cut that transferred wealth to the rich. Impact-oriented advisors and money managers can pat themselves on the back for moving billions; the tax code is set to move trillions.

Engage communities. Don’t be extractive. Balance risk and return fairly.

Getting back to that naughty or nice question, Morgan Simon lays out three principles for impact investors in “Real Impact: The New Economics of Social Change,” her new book. “There are a lot of impact investments that are better, but that doesn’t mean they’re fair,” Simon said in a podcast interview with ImpactAlpha’s David Bank. For impact investors, engagement with on-the-ground communities and grassroots activists is essential for driving real impact and avoiding unintended consequences. To social-justice activists who may have a reflexive antipathy to Wall Street, she says, “The opportunity is so massive if we’re able to change the way the global economy functions.”

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