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).