Impact investment is globally diverse, covering multiple sectors and asset classes across private and public markets. This module provides the details, explains the range of investors and investees and summarizes the other key market participants.
Impact investing has grown steadily over the past decade. In 2010 the Global Impact Investing Network’s (GIIN) annual survey had around 50 respondents, 75% of whom thought the market was in its infancy and who expected to invest an aggregate $4 billion the following year; in 2020, the GIIN’s report was based on feedback from close to 300 investors, 69% of whom regarded the market as growing steadily and who expected to invest $48 billion in 2021. The total market size was reckoned at around $715 billion.
In March 2022, the Impact Investing Institute, in partnership with EY and supported by the Department for Digital, Culture, Media and Sport, released “Estimating and describing the UK impact investing market”, a report containing the first estimate of the size of the impact investing market in the UK: £58 billion with a further £53 billion of impact-aligned investments.
How to use these resources
This section wraps up the key foundational work by providing information on where and in what form impact investing is happening, how the market has grown and is developing and who is involved.
The GIIN’s 2020 Annual Impact Investor Survey details the investment activity of 294 leading impact investors, collectively managing USD 404 billion, over 2019 and forecasted into 2020.
The survey has shown that impact investing has growth in depth and sophistication over 2010, with a rise in realised gross returns and assets over time and impact measurement and management practices.
What the reviewer found helpful: “The interactive charts were particularly useful for representing the impact investor survey data”
Chapter 2 presents a deep dive into some of the challenges facing the impact investing world, exploring financial returns, impact management and frameworks, and regulatory barriers.
Chapter 3 explores the scalability of the concept of impact investing and the importance of collective action and collaboration for the future.
What the reviewer found helpful: “A very detailed paper covering impact measurement theories and frameworks and using helpful diagrams to aid explanation.”
Impact investing across asset classes and public/private markets
This is a list of all the available types of impact investments, explaining how they fit into the mainstream assets classes, cash, fixed income, investment funds, equity, real estate etc. and helping readers get a grasp of the impact investment landscape.
A spotlight on social impact bonds is included as these do not sit within a mainstream asset class.
It also explains why some asset types, (e.g. commodities, hedge funds) are not available as impact investments.
What the reviewer found helpful: "I found the real examples of actual impact investments brought the information to life and deepened my understanding."
The report maps the Impact Investment market in a framework that resonates with investors by mapping the impact investment sector case studies along the traditional asset classes, resulting in an Impact Investment Asset Allocation Framework (AAF).
All asset classes have shown development of impact investment themes and clarity is emerging around the returns that the sector can generate.
The AAF is organised along two key dimensions: investor motivation in connection with returns (Financial First or Impact First) and the asset class (as per traditional asset allocation) distribution.
What the reviewer found helpful: "The layered structures across asset classes and how the use of layered structures is helping to drive money into new impact areas."
The article looks at a variety of investor types as well as the role of sponsors and placement agents in marketing an impact product.
Acts as a useful guide to the different investor profiles who may invest in impact investments, their specific nuances and what to consider when marketing an impact investment to them.
The reading also has a wide range of additional resources for those who require more in-depth information on specific sections.
What the reviewer found helpful: “A high level overview on what to consider when marketing an impact product”
This chapter of the report sets out the Impact Capital Chain, which is the flow of capital from the asset owners, passing through various intermediaries, the investable enterprises and eventually down to their customers or beneficiaries.
It then describes the role of each of the players in the chain and touches on the evolution of fiduciary duty with regard to ESG integration. There is a link to an interesting video on this featuring Al Gore.
What the reviewer found helpful: "I liked the diagrams which helpfully illustrated the wording."
The report outlines findings from research undertaken on investor motivations for impact investing.
Highlights the vital importance of continued education and knowledge sharing and developing narratives around the specific themes that impact investments address in increasing investor engagement.
The report notes a shift in perception as investors would expect close to, or above, market returns from an impact investment and construe the shift as being indicative of of a maturing sector, and a growing understanding of the case for impact amongst investors.
What the reviewer found helpful: "The detailed analysis of investor motivations for impact and the behavioural finance perspective on investor motivations."
This report provides comprehensive analysis of DFID’s investigation into how UK individuals want their pensions and savings to be managed; whether they want the impact on people and the planet to be considered, in junction with financial indicators. Overall, 68% of UK savers would choose to have investments which consider impact alongside financial performance.
The survey results indicate that the industry needs to improve accessibility to impactful forms of saving by addressing misconceptions, sharing information, and raising standards on sustainability and impact.
What the reviewer found helpful: “Quite a dense document, but provides a good overview on the strategies to increase sustainable investment within the UK”
This guide explains how to take practical steps towards implementing your first impact investment.
It talks through three stages of developing an impact investing strategy: prepare, build and refine.
Case studies throughout provide helpful examples to support the content.
What the reviewer found helpful: “Comprehensive resource that explores how to set up an impact investing strategy that includes some useful case studies, is written in accessible language and includes helpful resources at the back for further research”
The article is a useful introduction to the IMP’s framework for classifying investments according to three types of impact (avoid harm, benefit stakeholders, contribute to solutions).
The reading covers why investors seek to manage impact, how investors set impact goals, the data required to understand the impact of investments and lastly how to classify the impact of a portfolio.
Matrixes and flow charts help the reader understand the theory in a more simplistic way.
What the reviewer found helpful: “The matrix and investment examples to contextualise the framework was very helpful”
This is a practical guide to building, analysing and managing impact investment portfolios for the professional investor.
- how different investor types approach setting up an impact portfolio and their various organisational structures.
- how to define a framework for impact, risk and return and map the target characteristics onto these 3 dimensions.
- how to manage the financial and impact risks within the portfolio, including a discussion on diversification.
What the reviewer found helpful: “I enjoyed the 3D risk, return, and impact graphs. Incorporating impact into traditional financial analysis certainly adds another dimension!”
Market participants: Investors, investees, intermediaries, policy-makers and standard setters
Examines the role of government in the impact investment ecosystem and highlights how policy making can be catalytic based on an analysis of selected countries.
Identifies 15 key policy tools that governments use in order to catalyse the impact ecosystem.
Provides examples of successful implementation policy tools to catalyse the impact ecosystem in selected countries.
What the reviewer found helpful: "Insights on the phases of policy making to steer the growth/evolution of the impact ecosystem and the country by country toolboxes."
The World Economic Forum outlines the actions required by various agents within the impact ecosystem to mainstream impact investing.
It gives detailed suggestions across all aspects of the ecosystem; from capital providers, Development Finance Institutions (DFIs), foundations, pension funds and insurance companies, university endowments, sovereign wealth funds, and investment funds.
This chapter also outlines the actions financial intermediaries should take to create liquidity, reduce risk, and lower transaction costs, to facilitate a more fluent payment mechanism.
What the reviewer found helpful: “The flow charts help to visualise where improvements can be made along payment mechanisms within the sector to mainstream impact investing”
Summarises the regulatory landscape for ESG and impact investing.
Mentions various international and EU regulatory frameworks that companies must follow.
Encourages regulators to further consider impact investment, so that social impact is better embedded in regulatory frameworks.
What the reviewer found helpful: “A helpful summary of the regulatory landscape for ESG and impact investing.”
United Nations Principles for Responsible Investment
Reading time: 50 minutes
The report showcases the PRIs Market Map, which was designed to help investors identify mainstream impact and thematic investments.
The SDGs and PRI reporting framework were used to identify 10 themes which are linked to the SDGs.
An introduction to the Market Map and how it was designed is provided and then each theme is explored in detail in the Market Map which provides a definition of the theme, thematic and financials conditions required to identify investments aligned to the theme and KPIs that can be used to track performance of a theme.
What the reviewer found helpful: “Most helpful was the identification of sub-themes and the resulting company types that meet the definition, alongside those which would not meet the criteria ”
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