Innovation

Impact Investing Aspiration vs. Reality

October 22, 2019

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There is a growing investing trend as pensions move towards a sustainable investment strategy. According to a recent survey by Phenix Capital, about 80 percent of respondents expect to increase their target allocation to impact investing over the next three years.

A recent report from the International Finance Corporation (IFC) indicates that as much as 10 percent of the $269 trillion of investable financial assets around the world could be tapped for social impact. The IFC estimates that appetite for impact investing could be up to $21 trillion in public markets with an additional $5 trillion in private equity, debt and venture capital. Currently, $700 billion is deployed through DFIs and $400 billion through green and social bonds.

The Global Impact Investing Network (GIIN) estimates the size of the global impact investing market to be $502 billion, deployed by 1,340 organizations. The Global Sustainable Investment Alliance sizes the impact investing market at $444 billion. And the IFC estimates $71 billion is currently invested in private impact funds.

$71 billion – $21 trillion is wide range. So what is the real size of the private impact investing market? In order to answer this, we first have to define what is impact investing. Most of these lofty figures are describing environmental, social and governance (ESG) criteria. It’s a set of standards for a company’s operations that socially conscious investors use to negatively screen potential investments. The estimates do not translate into greenfield projects that are actually implementing SDGs. It’s simply a filter to screen out investments.

The careless use of the impact investing lexicon is forcing organizations such as the GIIN to establish core characteristics of impact investing to safeguard against the effects of disingenuous and mistaken marketing that could jeopardize the integrity of the industry.

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