The latest analysis from the Global Impact Investors Network (GIIN) shows that impact investment continues to grow, while investors plan to increase capital allocation to emerging markets and the energy sector, despite global macro event risks.
- Impact investors reported strong performance, with 79% having met or outperformed financial expectations, and 88% on impact expectations.
- The greatest progress has been made in skillsets, with 85% reporting some or significant progress on finding the right ones.
- On industry challenges, 75% of investors cited the inability to compare impact results to peers as either a moderate or significant challenge.
The Global Impact Investing Network (GIIN) has released the final report in its four-part 2023 GIINsight series. The report, Emerging Trends in Impact Investing, examines impact investors’ views on industry progress, current challenges and the effect of global events on impact investing strategies and performance.
Each report seeks to fill a gap in impact investing insights in the market, reflecting data and perspectives from a diverse sample of 308 impact investors globally who collectively manage $371 billion in impact investing assets. These reports also explore trends over time, by offering a five-year comparison among 88 repeat respondents of the 2018 Annual Impact Investor Survey and 2023 GIINsights.
This final 2023 report explores the regions and sectors where impact investors plan to invest over the next five years, as well as their plans to invest in targeted climate solutions related to mitigation, adaptation and resilience. A key finding is that investors plan to increase capital allocation to emerging markets and the energy sector despite global macro event risks.
“In the face of global challenges, it is inspiring to see that impact investors are actively prioritising strategies that address the basic needs of communities worldwide,” said Amit Bouri, chief executive and co-founder of the GIIN. “The trends in the data reveal impact investors are committed to channelling more capital into emerging markets and pursuing climate solutions across their portfolios, reinforcing their dedication to investing in a sustainable future.”
Overall, the majority of investors reported being pleased with their performance after all factors, including the influence of global macro events, were taken into account. Investors reported strong performance, with 79% indicating that they had outperformed or met their financial performance expectations and 88% indicating the same for their impact performance.
Impact investors remain interested in emerging markets
According to the analysis, impact investors plan to increase their capital allocations in emerging markets – with the top four regions for planned allocations being sub-Saharan Africa (56%), Latin America & the Caribbean, including Mexico (48%), Southeast Asia (42%) and South Asia (40%).
The most cited sectors impact investors plan to increase their allocations to over the next five years are energy (69%), food and agriculture (60%) and infrastructure (59%).
Within climate solutions, most investors reported investing in the energy sector (79%), followed by 70% in agriculture and land use and 57% in waste management.
While impact investment is increasing, macro challenges remain
The global challenges that investors reported as most significantly affecting their strategies include the climate crisis (45%) and the COVID-19 pandemic (42%), followed by rising interest rates (28%).
“Impact investors are navigating the effects of global macro challenges– such as the COVID-19 pandemic, Russia’s invasion of Ukraine, inflationary pressures and supply chain issues, among others – while still ensuring overall financial and impact performance remained strong in 2022,” said Dean Hand, chief research officer of the GIIN. “Remaining adaptable and finding opportunities in challenging times is what impact investors do best.”
Progress is being made in skills and standards
Perhaps what stood out most in the report is the improvement in the available skillsets that investors are reporting. 85% of the impact investors interviewed reporting improvements in the ease of finding professionals with the right skillsets even if only 27% said that the progress was significant.
Even more telling was the fact that 84% of investors reported either some or significant progress being made on the harmonisation of impact measurement frameworks.
According to the report, while 15% of developed market-focused investors perceived significant progress on the “harmonisation of impact measurement frameworks,” 25% of emerging market-focused investors felt the same. Interestingly, 22% of private market-focused investors noted significant progress in the “harmonization of impact measurement frameworks” compared to just 11% of public market-focused
With strong growth in impact assets allocated into public markets between 2017 and
2022, the GIIN says it is evident that investors are beginning to grapple with how to measure and manage impact outside of private markets.
Dean Hand, Chief Research Officer, GIIN said: “This year, investors show increasing diversification, strong growth and viability of their impact approaches – all healthy signs of a maturing impact investing market and the importance of capital being used to solve for the social and environmental challenges we face.“
Capital flow into impact investment continues to grow
Key findings from 2023 GIINsight: Impact Investor Demographics and 2023 GIINsight: Impact Investing Allocations, Activity & Performance announced at the GIIN annual meeting showed that impact investing assets under management (AUM) grew by a compound annual growth rate (CAGR) of 18% between 2017 and 2022.
Impact investors included in the sample collectively manage $213 billion, up from $95 billion in 2017.
The greatest proportion of capital was allocated through private equity (26%), with nearly seven in ten impact investors allocating at least some AUM through private equity (69%), followed by private debt (22% of AUM) and real assets (17%). Public debt was the fastest-growing asset class at 101% CAGR, followed by real assets at 27%.
Investors also reported greater diversity in sectors ripe for impact investments. The largest sectors, in terms of AUM allocated by impact investors, were energy, financial services, health care and microfinance. Over six in ten investors (61%) allocated at least some AUM to food & agriculture. About 55% of investors allocated capital toward energy and approximately half to healthcare (51%). The fastest growing sectors were housing at a CAGR of 44% followed by information & communication technologies,
which grew at 30% CAGR.
There has also been a significant growth in the sources and volume of capital allocated to impact. Pension funds accounted for the greatest proportion of investment managers’ capital at 20%, followed by family offices (15%), development finance
institutions (14%) and insurance companies (7%). Investment managers increased their sources of capital from all investor types between 2017 and 2022 – most prominently, pension funds and insurance companies by a CAGR of 32%.
The analysis shows growth in impact investor confidence and the rapid growth of climate solutions across all portfolios shows a growing understanding of the multiple impacts of addressing climate challenges. But perhaps the most interesting aspect to impact investing as understood by the GIIN is the growth in capital flow from asset managers and insurance companies.