Impact Investing Growing Among Institutional Investors

A new study from the US has found rapid growth in impact investing among institutional and individual investors.

 The report by global financial services company Greenwich Associates found that the growth was occurring despite a lack of consensus about how impact investing should be defined and treated within investment portfolios.

The report follows interviews with institutional investors, professional buyers at intermediary distribution platforms and financial advisors that work with high net worth and individual investors.

The results of the research were presented in two reports – Impact Investing: Individual Investors Seeking New Opportunities and Impact Investing: Institutions Awaken to New Possibilities.

One-third of the institutional investors said they planned to increase portfolio allocations to impact investing in the coming three years. One-quarter of those institutions said they planned to boost allocations by more than 10 per cent.

The report said three-quarters of decision makers for intermediary platforms and 80 per cent of financial advisors believed client allocations to impact investments would increase in the next three years.

“There is a clear – and growing – desire among institutional investors to use their investment pools to support both the financial and societal goals of participants, organisations and stakeholders,” Greenwich Associates consultant Andrew McCollum said.

“Even amid this growth, the study results reveal that attitudes and perceptions about impact investments vary widely, and that assets of pension funds, not-for-profit endowments and foundations, and individual investors are flowing into a category that is not yet well defined.

“Investors also vary in their levels of satisfaction with current impact investing efforts.”

McCollum said perhaps the most striking divergence in perceptions related to investors’ attitudes about returns.

“While the vast majority of study participants say they expect impact investments to deliver at least market-rate returns, 40 per cent of corporate pension funds and 44 per cent financial advisors say they would be willing to accept lower returns in order to achieve a positive social impact,” he said.

“Public pension funds and defined contribution plans see superior investment performance as a requirement for investment.”

He said the belief that investments should align with personal values and societal goals was being embraced by investors of all types, setting the stage for continued expansion of impact investing throughout global financial markets.

“Despite the rapid growth, impact investing in the US remains in its early stages. The definition and best practices of impact investing will take shape and solidify as the category attracts new participants and assets,” he said.

“During this maturation phase, investors will benefit by working with intermediaries and asset managers willing to help educate them about impact investing and define the proper role for the category within their portfolios.”

In Australia the impact investing market is also on a steady growth path.

The Benchmarking Impact: Australian Impact Investment Activity and Performance Report 2016 was launched in October at the Impact Investment Summit.

The analysis of the country’s impact investments, active at 30 June 2015, found a total product value of $1.2 billion, dominated by green bonds issued by major banks.

Debt finance to social enterprises represented the highest number of investment transactions.

In October 2015, Impact Investing Australia (IIA) launched a Blueprint for Impact Capital Australia (ICA), a new, independent financial institution to accelerate development and achieve scale for impact investing.

IIA invited government, major financial institutions and the community to help take ICA from a blueprint to a reality that benefits all Australians.

IIA chair Rosemary Addis said at the time: “Impact investing is growing in Australia and globally. It has gained interest from governments, not-for-profit organisations, philanthropists, communities as well as from investors, ranging from households to institutions.”

The blueprint document said: “The quality of what has been achieved through Australian transactions and leadership, and the potential for impact investing in Australia, is not yet matched by the volume of investment or rate of policy development.

“Financial intermediaries, such as Impact Investment Group and Australian Impact Investments, and enterprise incubators have also been steadily emerging in the landscape.

“Some institutional investors such as Christian Super have been active for some time, with impact investments now approaching 10 per cent of their portfolio.”

It said other examples highlighted larger institutions starting to explore more actively what the opportunities were, for example, HESTA recently made a cornerstone investment in the Social Impact Investment Trust established by Social Ventures Australia.