What Is Impact Investing?
The term “impact investing” was first coined in 2007 in the context of a global discussion about how to drive more capital towards social change solutions. The concept indicates an investment approach that aims to achieve both financial and positive social or environmental impact, which needs to be measurable. Current focus impact investment areas of focus include renewable energy, sustainable agriculture and “cleantech”.
Impact Investing In The Australian Landscape: “Impact Investing Australia” Survey 2016
Nowadays there are hundreds of impact funds which focuses on different areas of interest and investment philosophies.
But what is the role of impact investing in the Australian investing context?
According to the results of a survey conducted in 2016 by “Impact Investing Australia”, this kind of investment is growing interest in among the investor community. The survey has surveyed 123 Australian investors who account for more than A$333 billion of Australia’s funds under management. Respondents included both participants and non-participants of impact investing, and consisted of institutional investors, trusts, foundations, not-for-profit organisations and individual investors.
The first insight that emerged is that 41% of the investors interviewed are already active impact investors. Most of them (52%) have less than 10% of their total assets under management allocated to impact investments and they usually invest in only a couple of businesses, although a smaller amount have a greater spread of 3 to 5 investments. The funds that have allocated more than 50% of their portfolio in impact investments were all institutional investors. The primary motivation that brings them to invest in these kinds of deals is the mission alignment, followed by other reasons such as client demand, financial returns, diversification benefits and corporate social responsibility.
The impact areas that they are aiming to bring a positive impact towards include child and youth issues, clean energy and housing and homelessness. The measurement of the social impact of their investments is a very important factor and 50% of them expect well-documented and reported information about their social impact.
Another important trend shown in the report is that investors that do not currently have an asset allocation in social impact investment are getting more interested in the topic. Two thirds of the non-active impact investors show a certain level of awareness about the topic, with 82% of this group being particularly curious and interested about impact investment. They also showed a primary interest in child and youth issues, followed by indigenous Australian related issues, education and health.
A Growing Future For Impact Investing
The growing importance and interest in impact investments is clear from the above data, with over 70% of respondents believing that impact investment will continue to increase in prevalence and importance over the next five years within Australia. Active impact investors also expressed a will to increase their allocation in impact investments by three times over the next five years. The factors that they identified that would lead them to invest more in these projects would be a higher availability of investable deals, the greater measurability of social impact and financial performance.
As for those that have not yet made impact investments, 78% of them stated that their organisations are highly likely to consider social, cultural and environmental impact as a metric for their investments in the next five years. What has held them back is a lack of reliable research, information and benchmarking about these types of investments, a lack of a well-recognised investment framework and, for 33% of them, the fact that there are not enough deals to invest in.
Impact investing was born as a way to utilise private sector capital towards social and environmental problems, issues that international governments have failed to address. Investors are increasingly interested in projects which are aligned with their mission and values. This new approach is changing the way capital can be used and, if the issues of a lack of reliable information, research and accepted investment framework can be effectively solved, impact investment may gain mainstream recognition as a valuable way to bring social and environmental benefits to the global economy while generating profits for investors.