The Frontier of Impact Investing

Investors are going farther, faster and deeper into impact, while meeting their targeted financial and impact returns, according to a new report.

T100: Powered Ascent, released by the Toniic Institute, found that 100 per cent impact portfolios are getting easier to build, the pioneers behind them are accelerating their shift to deeper impact, and investors are meeting their goals for both financial and impact returns.

It marks the second report in a longitudinal study of Toniic 100% Impact Network members and compiles data from 76 private portfolios totaling $2.8 billion in committed capital – a near 50 per cent increase in participation compared with the 2016 Launch report.

The report quotes Annie Chen saying: “Why commit to 100 per cent impact investments? To invest in the future we want to create. To protect the commons upon which all life depends. To demonstrate that capital can be deployed with a higher purpose beyond financial return.”

Adam Bendell, CEO of Toniic, the global action community for impact investors, said the latest report suggested 100 per cent impact was the “new standard”.

“When the term impact investing was coined 10 years ago, it typically meant early-stage investments in social enterprises,” Bendell said.

“This report reinforces that the state of the art in impact investing is a portfolio approach, in which investors seek positive impact in all asset classes across a portfolio.

“It also shows the increasing discernment of these investors in balancing impact and financial goals in different parts of their portfolios.”

This report also mapped participants’ investment themes to the United Nations Sustainable Development Goals, providing a first look at how deep impact portfolios are addressing the SDGs.

Among the key findings, the report revealed that on average, the portfolios in the report were 75 per cent invested for impact, with as many as 41 per cent completely or almost completely (90 per cent or more) invested in impact, compared with 33 per cent in the previous report.

It also found investors were meeting financial goals while deepening impact performance, with 82 per cent of T100 participants saying their impact portfolios had met or exceeded their financial expectations.

A majority believed that impact investments yielded returns on par with traditional investments, whether they were held for the short term (one to three years) or the long term (over seven years).

In their search for deep impact, impact investors were found to be resolving portfolio targets on an investment by investment basis with a spectrum of capital from grants to capital expecting commercial returns.

As a result, respondents were actively exploring “appropriate returns” for deeper impact in their portfolio strategy.

Bendell said the findings showed impact investors “tune their financial and impact return expectations to their unique constraints”.

“Most are not monolithic across a portfolio but rather seek to achieve different impact and financial targets with different investments in different asset classes,” he said.

“This is no different than how careful traditional investors construct a portfolio, with the notable exception that impact investors take into account non-financial impact as an additional factor to balance.”

The report found while 73 per cent targeted commercial returns at the portfolio level, 85 per cent made at least some subcommercial investments to achieve deeper impact.

Meanwhile,82 per cent of respondents were actively coordinating their philanthropy with their impact investment strategy to support innovative solutions to big challenges.

The report used the example of Australian husband and wife team Danny Almagor and Berry Liberman, who have sought to tackle the nation’s gambling problem by targeting “a strategic real estate investment with the hopes of making a much bigger impact”.

“After their Melbourne-based impact investment group purchased the Byron Bay Beach Hotel, home to an iconic Australian pub, they removed the slot machines,” the report said.

The report also provided evidence of a maturing impact marketplace that was enabling depth, diversification and measurement.

It found participant portfolios were highly diversified across the spectrum of asset classes and returns.

Respondents were moving measurably into deep impact (thematic) product, with 40 per cent of aggregated portfolios characterised in thematic, 23 per cent in sustainable, 12 per cent in responsible, and the remaining 25 per cent in non-impact investments.

While finding deep-impact public equities, hedge fund and cash-equivalent options remained challenging, many investors had made progress in these asset classes as well as in real assets.

Lisa Kleissner, co-founder of Toniic and the 100 per cent Impact Network and editor-in-chief of the report, said there was “a heightened sense of urgency and responsibility”.

“[This] is leading many impact investors to invest across a spectrum of newly defined risk and return parameters, leveraging different types of capital with different return expectations in order to achieve more challenging impact targets,” Kleissner said.

The portion of respondents engaged in measuring the impact of their investments had also jumped since the launch report, from 38 per cent to 60 per cent, with as many as 98 per cent wanting to be measuring by 2020.

It found the UN Sustainable Development Goals had been adopted by some as a common tool for analysing impact, making it possible to define, benchmark and compare impact goals.

The report also included some early results and related academic research, as well as a comparison to Global Impact Investing Network research findings.

GIIN director of research Abhilash Mudaliar said the impact investing market was “dynamic and gaining momentum, enjoying unprecedented growth and interest from investors of all types”.

“The T100 report provides important insight into the yearly activities and perceptions of the Toniic 100% Impact Network members,” Mudaliar said.

“In doing so, the report increases the evidence base for impact investing, providing transparency on practice and trends amongst a group of the most committed impact investors in the market.”

The T100: Powered Ascent report is available here.