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<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

3.5 Voice of the Mainstream Institutional Investor

3.5 Voice of the Mainstream Institutional Investor

A survey was conducted of US-based pension funds in an effort to understand why certain investors are more active than others in the impact investment sector. Although further assessment should be conducted of other types of investors (e.g. insurance companies, sovereign wealth funds, university endowments, etc.), US-based pension funds hold approximately US$ 17 trillion in assets, or ~60% of global pension assets65, and therefore represent a significant pool of global capital.66 Of the total respondents,67 68% are pension funds for public sector employees, 18% for private-sector employees, 10% are faith-based pension funds and 4% are other types of pension funds.68 The survey results indicate that US-based pension funds are generally unfamiliar and confused by the term “impact investing”.

Almost all (81%) of the respondents have heard of the term before, but most feel that it is another term for responsible or sustainable investing (36%) or that it is a noble way to lose money (32%). Only 9% felt that impact investing is a viable investment approach. As such, only 6% of respondents are currently making impact investments today (see Figure 15).69 Many of the reasons are described in Section 4, but one reason relates to investors’ perception about financial returns. Mainstream investors and impact investors have varying expectations about the financial return that impact investments achieve; 60% of survey respondents expect the rate of return of an impact investment to be market-rates, despite 79% of impact investment funds targeting market rates of return (see Figure 16).

As the expected financial returns become more certain, and the challenges described in Section 4 are addressed, investors will likely begin to allocate more capital to impact investments. Indeed, 64% of survey respondents anticipate that in the future pension funds will more intentionally invest in organizations or funds that intentionally seek to achieve social or environmental objectives in addition to financial returns (see Figure 15).

Figure 14: US-Based Pension Funds Perception of Impact Investing

Note: Figure 14 visually represents respondents answer to the question: “Please provide the first two or three words that come to mind when you hear the term ‘impact investing’.”

Figure 15: Pension Funds Expectations Regarding Allocation of Capital to Impact Investments

Source: Deloitte

Note: *Respondents were asked if they anticipate pension funds to invest in impact investments in the future

Figure 16: Pension Funds Expectations Regarding Financial Return of Impact Investments

Source: Deloitte, GIIN, ImpactBase

Note: *Data is self-reported

65
65 Figure only includes countries reporting retirement asset values to the OECD.
66
66 Organisation for Economic Co-operation and Development (OECD), assessed August, 2013; figure includes total of all pension funds in the United States for 2011 (latest available data).
67
67 50 pension funds responded to the survey with assets under management (AUM) totaling US$ 800 billion.
68
68 80% of the total AUM of respondents is held by pension funds for public-sector employees, 6% by Pension funds for private-sector employees, 5% by faith-based pension funds and 9% by other pension funds.
69
69 Respondents were asked the following question: Which of the following statements most closely captures how social or environmental factors are incorporated into the investment decision of your pension fund? Answer choices were: (1) Social and environmental factors are not considered, (2) The investment decision applies a negative screen (i.e. screens out certain companies or industries given the nature of their business), (3) The investment decision applies a positive screen (i.e. intentionally invests in certain companies or industries for social, environmental, or governance reasons) BUT ONLY if the investment does not sacrifice expected financial returns , and (4) The investment decision applies a positive screen (i.e. intentionally invests in certain companies or industries for social, environmental, or governance reasons) AND is willing to sacrifice expected financial returns in exchange for social or environmental outcomes on a select allocation of the portfolio. Respondents who selected either #3 or #4 (19% of total respondents) were then asked: Do you actively measure and report your social and/or environmental performance? Those respondents who answered “Yes” are considered to be actively making impact investments (6% of respondents).
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