1.2 Motivation

The intended audience of this report will be investors interested in clarifying what impact investing is and what it is not, what the current sector landscape looks like and what is required for the sector to progress into the mainstream. The impetus for the World Economic Forum’s Mainstreaming Impact Investing initiative and publishing of this report is four-fold:

First, private investment to address social challenges can create tremendous societal change. Social issues continually present significant fiscal challenges for governments of developed, emerging and frontier economies; these challenges are particularly difficult when government budgets are declining as a result of burgeoning debt and fiscal austerity.³ Philanthropic organizations – while noble and needed – will not be able to solve the most pressing social problems alone due to their limited resources. Given the nature of how resources are distributed in the world, private investors have a potential role to play in addressing social challenges, including development of impact enterprises, economic development more broadly, and adjustment to major challenges such as climate change, urbanization and wealth inequality. Impact investing offers an opportunity to creatively fund projects that may otherwise go unfunded, while also helping to scale organizations with viable business models that meet pressing social or environmental challenges.  

Second, asset management is in a state of flux. Over the next 40 years, Generation X and the Millennial Generation will potentially inherit an estimated US$ 41 trillion from the Baby Boomer Generation.⁴ These generations have grown up in a culture that calls on business to play a more active role in society. In fact, in a recent study of 5,000 Millennials⁵ across 18 countries, respondents ranked “to improve society” as the number one priority of business (see Figure 1). This does not imply that the next generation of investors will not seek market returns. Indeed, the investment industry thrives as a result of the pursuit of investment returns, and businesses are not sustained without a profitable revenue model. However, the emerging generation of investors is also likely to seek achievement of social objectives in addition to financial returns.

Impact investing is part of our multifaceted commitment to responsible investment; it serves as a brand distinction as well as fulfils our participants’ demand for both financial and social outcomes.

 

Amy O’Brien, Managing Director, Teachers Insurance
and Annuity Association College Retirement
Equities Fund (TIAA-CREF), USA

Third, impact investing offers an opportunity to carve out a distinct competitive advantage. As part of this initiative, the research team interviewed a number of different institutional investors who explained that their active participation in the impact investing sector has helped to engage and motivate investment teams, signal to shareholders an emphasis on long-term value creation, and most importantly, drive higher investor commitments as a result of their knowledge of the organization’s investment approach. Although more work needs to be done to understand the direct and indirect benefits that impact investing achieves for the investor, mainstream investors agree that impact investing has the potential to drive a distinct competitive advantage. 

Fourth, there is widespread confusion regarding what impact investing is. Since JP Morgan and Rockefeller Foundation collaborated on the seminal report in 2010 which claimed that the impact investment sector could reach US$ 1 trillion by 2020,⁶ a tremendous amount of buzz has been generated around the term “impact investing”. It was a topic on the public panel for the first time at the World Economic Forum Annual Meeting 2013 in Davos, Switzerland, was a key area of focus by David Cameron, Prime Minister of the United Kingdom, at the G8 meetings in June 2013, and was a leading topic among the Giving Pledge’s 2012 convening.⁷ Furthermore, according to a survey by First Affirmative Financial Network, impact investing was cited as the aspect of responsible investing that will grow the fastest over the next 12 months.⁸ Yet despite this buzz, the term “impact investing” elicits mixed, and often inconsistent, responses from different participants. In fact, in a survey conducted by the CFA institute, 66% of financial advisers claimed to be unaware of impact investing.⁹ There is an obvious need for defined clarity about the term itself.

To the extent that there is demand from my investors, we would participate in this market.

 

Colin Teichholtz, Senior Portfolio Manager,
Pine River Capital Management, USA