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Report Home

<Previous Next>
  • Preface
  • 1. Introduction to the Mainstreaming Impact Investing Initiative
    • 1.1 Executive Summary
    • 1.2 Motivation
    • 1.3 Focus and Scope
  • 2. Definitional Alignment
    • 2.1 Clarifying the Taxonomy
    • 2.2 Areas of Definitional Confusion
  • 3. Impact Investment Sector Assessment
    • 3.1 Harnessing the Hype
    • 3.2 Impact Investment Ecosystem: The Landscape Today
    • 3.3 Case Studies: Examples of Mainstream Investors in Impact Investing
    • 3.4 Impact Investing Across Asset Classes
    • 3.5 Voice of the Mainstream Institutional Investor
  • 4. Challenges that Institutional Investors Face
    • 4.1 Early-stage Ecosystem
    • 4.2 Small Average Deal Size
    • 4.3 Fit within Asset Allocation Framework
    • 4.4. Double Bottom Line
  • 5. Recommendations
    • 5.1 Role of Impact Investment Funds
    • 5.2 Role of Impact Enterprises
    • 5.3 Role of Philanthropists and Foundations
    • 5.4 Role of Governments
    • 5.5 Role of Intermediaries
  • 6. Conclusion
  • Appendix: Institutional Investors Interested in Getting Started
  • References and Further Reading
  • Acknowledgements
From the Margins to the Mainstream: Assessment of the Impact Investment Sector and Opportunities to Engage Mainstream Investors Home Previous Next
  • Report Home
  • Preface
  • 1. Introduction to the Mainstreaming Impact Investing Initiative

    • 1.1 Executive Summary
    • 1.2 Motivation
    • 1.3 Focus and Scope
  • 2. Definitional Alignment
    • 2.1 Clarifying the Taxonomy
    • 2.2 Areas of Definitional Confusion
  • 3. Impact Investment Sector Assessment
    • 3.1 Harnessing the Hype
    • 3.2 Impact Investment Ecosystem: The Landscape Today
    • 3.3 Case Studies: Examples of Mainstream Investors in Impact Investing
    • 3.4 Impact Investing Across Asset Classes
    • 3.5 Voice of the Mainstream Institutional Investor
  • 4. Challenges that Institutional Investors Face
    • 4.1 Early-stage Ecosystem
    • 4.2 Small Average Deal Size
    • 4.3 Fit within Asset Allocation Framework
    • 4.4. Double Bottom Line
  • 5. Recommendations
    • 5.1 Role of Impact Investment Funds
    • 5.2 Role of Impact Enterprises
    • 5.3 Role of Philanthropists and Foundations
    • 5.4 Role of Governments
    • 5.5 Role of Intermediaries
  • 6. Conclusion
  • Appendix: Institutional Investors Interested in Getting Started
  • References and Further Reading
  • Acknowledgements

3.1 Harnessing the Hype

3.1 Harnessing the Hype

 Since the term was firm coined in 2007, many leading proponents of impact investing have estimated the potential size of the sector. In 2009, the Monitor Institute estimated that the impact investment market could potentially reach US$ 500 billion by 2020 (or 1% of total managed assets, estimated at US$ 50 trillion).16 In 2010, JP Morgan and Rockefeller Foundation sized the bottom-of-the-pyramid market opportunity across five sectors and estimated that the impact investment sector could reach US$ 400 billion to US$ 1 trillion by 202017. And in 2012, the Calvert Foundation formed an estimate through a representative survey of investment managers, applying prospective adoption rates to a global investment management industry of US$ 26 trillion, and reached a market potential of US$ 650 billion.18

At a present conservative market size of approximately US$ 25 billion,19 the impact investment sector will need to grow by approximately 53% annually to reach US$ 500 billion or 69% annually to reach US$ 1 trillion by the year 2020 – a potentially difficult feat given that the sustainable investing market in the United States grew by 11% per year since 1995 (see Figure 5).20

Although sustainable investing is not the same as impact investing and the growth dynamics could be very different, few sectors have sustained growth rates above 50% per year.21 In order for the impact investment sector to realize its potential, mainstream asset owners and asset managers will need to begin to allocate a portion of their portfolios to the sector.

There seems to be powerful but latent demand among retail investors for impact investments. But many investors are waiting for their clients to ask for it. My guess is if you build it, they will come.

 

Elizabeth Littlefield, President and Chief Executive Officer,
Overseas Private Investment Corporation (OPIC), USA

Along with aggressive growth expectations, interest in socially conscious investment strategies is indeed growing. The US SIF Foundation’s 2012 Report on Sustainable and Responsible Investing Trends revealed that client demand is the number one reason why more money managers are incorporating ESG criteria into their investments (see Figure 6). According to the same report, 11.3% of assets under management in the US were engaged in sustainable and responsible investing practices in 2012.22 Similarly, the United Nations Principles for Responsible Investment (UNPRI) initiative reports that its signatories hold approximately 15% of the world’s investable assets.23 Although as Section 2.2 described, sustainable investing and responsible investing are not the same as impact investing, trends in these markets can provide indications of the potential trends for impact investing.  

Figure 5: Sustainable Investing in the United States, 1995-2012

Source: US SIF Foundation’s 2012 Report on Sustainable and Responsible Investing Trends

Figure 6: Reasons for Incorporating ESG Criteria into Investments, % of Money Managers Surveyed

Source: US SIF 2012 Trends Report, n = 129

16
16 Jessica Freireich and Katherine Fulton (2009): Investing for Social and Environmental Impact, Monitor Institute.
17
17 Nick O’Donohoe, Christina Leijonhufvud, Yasemin Saltuk, Antony Bugg-Levine, and Margot Brandenburg (2010): Impact Investments: An Emerging Asset Class, J.P. Morgan, Rockefeller Foundation, and the Global Impact Investing Network.
18
18 Calvert Foundation (2012), Gateways to Impact.
19
19 According to Perspectives on Progress: The Impact Investor Survey (J.P. Morgan and the Global Impact Investing Network), 51 impact investment funds each expect to raise an average of US$ 112 million in 2013 (median of $US 60 million); given there are approximately 250 global impact investing funds, a crude estimate of the market size is likely between US$ 15 and US $28 billion. This is likely a low estimate given it only includes certain asset classes (e.g. venture capital, private equity, etc.) and excludes others (e.g. green bonds, infrastructure, etc.). Furthermore, CGAP estimates that in 2011 cross-border funders committed at least US$ 25 billion to microfinance and financial services to the poor (see: Current Trends in Cross-Border Funding for Microfinance (December 2012), CGAP). Although not all of these investments would be considering impact investments, it confirms that an existing market size of US$ 25 billion may be understated.
20
20 The impact investment sector is starting from a smaller base so it may be possible for it to achieve the implied growth rate.
21
21 Since 2003, social network game development grew by 134% per year; e-book publishing by 88% per year; social networking sites by 74% per year; and online fashion sample sales by 56% per year. Source: Top 10 Fastest Growing Industries (April 2013): IBISWorld.
22
22 US SIF Foundation (2012): Report on Sustainable and Responsible Investing Trends in the United States.
23
23 UN Principles for Responsible Investment (UNPRI) (April, 2013): PRI Fact Sheet – Key Achievements, http://www.unpri.org/news/pri-fact-sheet.
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