How do impact investments perform financially?
Impact investors have diverse financial return expectations. Some intentionally invest for below-market-rate returns, in line with their strategic objectives. Others pursue market-competitive and market-beating returns, sometimes required by fiduciary responsibility. Most investors surveyed in the GIIN’s 2020 Annual Impact Investor Survey pursue competitive, market-rate returns.
Respondents also report that portfolio performance overwhelmingly meets or exceeds investor expectations for both social and environmental impact and financial return, in investments spanning emerging markets, developed markets, and the market as a whole.
Although very few investors report significant risk events in their impact investing portfolios, business model execution and management is by far the most often cited contributor to risk.
A comprehensive review of available research to date on the financial returns of impact investments are available in the GIIN’s report, GIIN Perspectives: Evidence on the Financial Performance of Impact Investments. The report evaluates over a dozen studies—produced by a wide range of organizations—on the financial performance of investments in three common asset classes in impact investing: private equity, private debt, and real assets, as well as individual investor portfolios allocated across asset classes.
More data on financial returns of impact investments are available in the 2015 Introducing the Impact Investing Benchmark study, which looks at financial performance of private equity and venture capital impact investments, as well as the second report in the financial performance series, published in May 2017, The Financial Performance of Real Assets Impact Investments. Both of the reports were produced in partnership with the global investment advisory firm Cambridge Associates.
How big is the impact investing market?
Impact investing is a relatively new term, used to describe investments made across many asset classes, sectors, and regions. In 2019 for the first time, the GIIN developed a rigorous methodology to estimate the total size of the market. Since this inaugural market sizing effort, the GIIN has strengthened its database and methodology to continually improve its approach and on June 11, 2020, the GIIN published the 2020 ANNUAL IMPACT INVESTOR SURVEY, which includes an updated market sizing analysis, which estimates the current market size at USD 715 billion.
This analysis examines the supply of capital allocated to impact investing as of the end of 2019, using impact investing AUM as the indicator of market size. The GIIN estimates that over 1,720 organizations manage USD 715 billion in impact investing AUM as of the end of 2019. The market comprises a range of investor types, in terms of characteristics like organization type, headquarters location, and investor size. Learn more about this pivotal market research here: 2020 Annual Impact Investor Survey.
What is the current state of the impact investing market?
While some investors have been making impact investments for decades, recently there has emerged a new collaborative international effort to accelerate the development of a high- functioning market that supports impact investing. While this market is still relatively new, investors are optimistic overall about its development and expect increased scale and efficiency in the future.