Impact investing has gained significant momentum in recent years as more investors seek to align their capital with social and environmental objectives. Total assets committed to impact investing strategies now exceed $715 billion globally. However, there are still challenges around implementation, measurement and scaling of impact that the industry must address. This article will examine the latest trends, growth statistics, investor motivations, challenges and future outlook for impact investing.
Rapid growth in assets committed to impact investing
Impact investing assets under management (AUM) have seen tremendous growth this past decade, rising from $502 billion in 2019 to over $715 billion in 2020 globally according to the latest Global Impact Investing Network (GIIN) survey. The report found that 88% of impact investors plan to maintain or increase their allocations over the next year. The fastest growth is occurring in public equities, private debt and real assets like infrastructure and real estate.
Increasing demand from limited partners
Another major driver of growth in impact investing is rising demand from institutional investors and high-net-worth individuals. According to the GIIN, limited partners now represent 25% of all impact investor respondents compared to just 7% in 2017. Pensions, endowments, family offices and development finance institutions are all increasing their allocations to private markets impact strategies across private equity, venture capital, real assets and beyond.
Focus on measurable impact alongside financial returns
Unlike traditional investing, impact investors seek to optimize risk, return and impact. This requires identifying impact objectives upfront and monitoring progress through metrics like jobs created, greenhouse gas emissions reduced and people given access to clean water. Leading impact investors are developing advanced measurement and management systems to better quantify social and ecological performance.
Lack of quality impact investment opportunities
While investor appetite for impact investing is growing exponentially, the pipeline of investment opportunities is not keeping pace. Many investors cite a lack of viable deals with track records as a key limitation. Much of the capital flowing into the sector is concentrated in a handful of more established funds and deals.
Need for more transparency and credibility around impact claims
There is also a pressing need for greater transparency and accountability around the impact different investments actually deliver. This requires moving away from anecdotal claims toward rigorous measurement and reporting of impact using consistent metrics. Standards like the Impact Management Project can help bring more credibility to the impact being measured.
Impact investing has seen tremendous growth recently but still faces challenges around pipeline, transparency, metrics and credibility. However, the field is innovating quickly and momentum continues to build as more investors recognize the power of aligning financial performance with positive social and environmental change.