You may have missed it in the avalanche of news about the Ontario election, the G7 preview of Love Actually 2, and the US-North Korea Summit. But the global impact investing market is achieving tremendous momentum, market adoption, and scale.
According to the Annual Impact Investor Survey from the Global Impact Investing Network, the identified size of the global impact investing market effectively doubled, from $114 billion in assets in 2017 to $228 billion in 2018. For those of you who like oversized fractions, that’s just about a quarter of a trillion dollars. It goes without saying that people are really into impact investing.
The $228 billion in impact investing assets is not just an abstract number.
It reflects real money with an interest (and hopefully a genuine intention) to deliver financial returns alongside positive social and/or environmental impact. According to the survey, the top 200+ major investors around the world reported over 11,000 deals in the past year and over $35 billion in new investments, with plans to invest another eight (8) percent over 2018.
It also reflects real action and announcements that have taken place just in the past month or so:
- Major private equity firms see the opportunity in impact investing. Following Bain Capital, TPG, and others, private equity market leader KKR is creating a $1 billion global impact fund.
- Major governments are making sustainable finance a political priority. The European Union continued its longstanding commitment to the market with new legislative proposalsto support green finance, and the UK government is gearing up its impact investing strategy.
- Leading foundations continue to invest and lead in impact investing at a community level. The Philadelphia Foundation is working with the Reinvestment Fund to create the $30 million PhilaImpact Fund, and the Atlanta Foundation has seeded the $10 million GoATL Fund. These funds follow initiatives like Benefit Chicago and longstanding approaches like the Partnership of New York, which just celebrated 20 years of operations.
So why does it matter?
Momentum encourages more investors to re-align their approaches toward impact
Capital can have gravity. The greater the amount of capital that is placed with impact, the greater the amount of capital that can seek to follow it. In finance, it seems some critics are silenced by billions, while others are convinced by big brands. We are seeing both.
We must recognize that Canada could fall behind
Canada is well-positioned to lead in impact investing. With the pending release of Canada’s Social Innovation and Social Finance Strategy report, we will soon see signals of where the federal government will land in all of this — no pressure. However, we must be cognizant that our financial institutions, financial services firms, governments, and intermediaries could quickly fall behind in this fast-growing market if they don’t take advantage of the momentum. We will need to see major institutions, advisors, and investors in the country to assume leadership by making impact investing a priority through investments, options, and public action. There will be an opportunity for Canada to come together at the Social Finance Forum this November 7–9 at MaRS Discovery District to assess progress, announce major milestones, and discuss collectively how we can lead in this sector.
We need to manage and monitor growth carefully
Impact investing demands a great deal. It must achieve genuine, measurable impact in tackling challenges like climate change or inequality andachieve positive financial returns. So, it is not just about the money. It is about how we are steering and tracking that capital, and how those billions perform over time in impact and financial return. And as leaders like Morgan of Transform Finance have asked: are we scaling the right model?
More assets may also place a bigger target on the backs of the impact investing movement
It will be necessary to be ready for a tide that pushes back, particularly when this approach may be perceived to both change and threaten a longstanding way of doing business.
Although the criticisms are not new, there may be more articles and research papers that seek to disprove the thesis that better management of financial, social, and environmental value can create greater long-term financial returns and can help to more effectively manage risk. The US Department of Labor also modified its guidance for plan fiduciaries to create more challenges for those seeking to invest responsibly. The debate has already begun on that front.
Fortunately, there is a path to leadership, managing growth while maintaining mission, and proving ourselves in debate. We have the resources, talent, proven models, opportunities, and facts to maintain, manage, and grow the impact investing market. If we combine that with a growing constituency that supports this approach, from the largest financial institutions to our fellow citizens, that $228 billion is only going to be the beginning.