Barron's, 22 Feb 2018: https://goo.gl/t3P9F2
Impact investing has accelerated rapidly in the last several years as more investors—both big institutional firms as well as wealthy families—seek to put capital into enterprises that make a difference for people and the planet while still generating a financial return.
Investors who view impact investing as a path to achieving real change, can take heart in the real improvements their capital has provided, from cutting carbon emissions and boosting sustainable agriculture, to improving access to affordable housing and health care.
Still, global problems, from climate change to inequality continue to loom large and require a greater response than the impact investing community can make by itself, in the view of the Global Impact Investing Network, or GIIN, a U.S. nonprofit.
What’s needed, according to Amit Bouri, the GIIN’s CEO and co-founder, is to move impact investing beyond the existing community of impact investors into the broader world of investing.
“We’ve now gotten to a point where arguably we can be playing at an entirely different level, which is not just having a global network of investors who are making great investments but starting to influence the overall system and having a systemic impact,” Bouri says.
To figure out how to get to this next level, the GIIN consulted some 450 “stakeholders,” investors, asset managers and other industry professions, both those in the impact investing community as well as those outside it, to figure out a “roadmap” for the market to guide the GIIN and others into the future. The nonprofit is working with Deloitte Consulting to undertake this effort, which will officially be revealed later this month.
Since the term “impact investing” was coined in 2007 to define “investments made into companies, organisations and funds with the intention to generate social and environmental impact alongside a financial return,” the market for these investments has surged, growing at an annual rate in the high teens, Bouri says, sitting down for a break during an Economist conference in Manhattan last week.
At least $114 billion in private capital was funnelled into impact in 2016, according to the GIIN’s latest figures. The size of the market reflects growing interest on the part of asset managers to create investment vehicles for investors, initially wealthy individuals and families, and later institutional investors, who are seeking investment vehicles that can allow them to do good and still earn a financial return.
In the last few years, interest in impact investing has attracted big, mainstream investors, from Bain Capital, to TPG to TIAA's Nuveen to UBS.
“We’re getting major capital holders from around the world—they’re actively engaged, interested, and they are putting capital to work,” Bouri says. Critically, this interest has grown out of niche business units within institutions to the executive suite. It’s a phenomenon evident “just in the last two years,” he says.
Zurich Insurance Group in Switzerland, for example, expanded an initial goal of investing $2 billion in “green” bonds to fund environmental projects (a goal that it met), to say it would invest an additional $5 billion in a portfolio of impact investments in various asset classes and geographies. Zurich also said in a news release last fall that it would work to prevent 5 million tons of CO2-equivalent emissions annually and to improve the lives of five million people a year through its investments.
Boosting the amount of capital into investments that address the world’s problems will require looking at how to motivate new investors, how to bring in policymakers, and how to build investment products that can bridge the gap between the capital available for investment “and the problems that we’re trying to address,” Bouri says.
The hope is that the collective learning of impact investors who have built new models for investing, “challenging long-held assumptions and ways of doing things,” as Bouri puts it, can be harnessed to draw in a wider net of investors who see the value in addressing global problems as well as earning money.
“The problems we are addressing are so massive, we need every sector of society to bring their A-game to this effort,” Bouri says.