Fashion forward: impact investing enters a new era
“Style is knowing who you are, what you want to say, and not giving a damn.”
Impact investing is à la mode. Assets are growing by more than 15% year on year, as the world’s leading asset managers hurry to sign up to impact initiatives from the World Bank and the UN. These trends are set to continue, with increasing numbers of investors looking to align their investments with their values, enabled by new investment solutions. 2020 may thus mark the moment when impact investing becomes the new normal. As we enter this age though, what can we expect to see in the next twelve months and beyond?
- The Sustainable Development Goals, from concept to consequences. Starting with the obvious, expect to hear much ruminating on the SDGs, a set of goals created under the auspices of the UN targeting prosperity, peace and justice for all. Five years after they were signed in 2015, at first glance the SDGs have been a triumph, with the little logos ubiquitous across websites and corporate reports. Yet we are only ten years away from their 2030 deadline, and many countries remain far from their targets. Meeting them will require colossal investment, boosting impact investing products, for whom demonstrating SDG alignment is now standard.
- Climate dominates the discussion, especially in election season. The urgency and the implications of the climate crisis are clear, making climate finance an obvious target for anyone aiming to create a positive impact with their money. Even so, 2020 may yet increase its prominence in the minds of many investors, as climate issues dominate politics and the news cycles, especially with the concept of a Green New Deal gaining momentum. In the same way that the gender-lens approach has increasingly been applied, impact investing products across all topics – not just those labelled green or climate-friendly – may have to apply a “green-lens”, showing how they boost mitigation or adaptation.
- Impact funds are happy to be boring; but innovation opens new horizons. With some of the biggest impact investing funds approaching their third decade, the track record for some products is well-established, increasing their attractiveness for pension funds and other long-term investors. At the same time, the industry’s capacity for innovation will continue to flourish in 2020. Blended products have made a variety of sectors and business models more accessible to private investors, another trend set to continue in 2020. This may also be the year that securitization moves beyond green bonds in a meaningful way, as bonds targeting financial exclusion or sustainable agriculture pop up more often.
- Industry standards are set. 2020 could well be the year when a decisive step is taken towards standardization. Analysis from the Global Impact Investing Network (GIIN) recently showed that beyond the SDGs, several initiatives relating to impact management and measurement (notably the Impact Management Project, IRIS+ and the IFC Operating Principles) have been rapidly gaining ground. In the long run, this move towards greater harmonization will add to the credibility of the industry and make it easier for investors to compare impact performance.
The rise in impact investing is the logical result of consumer activism. If you care about the impact of your three-euro coffee, or a ten-dollar t-shirt, it makes sense to ask about the impact of your life savings. At the start of a new decade, impact investing is ideally placed to respond to this demand, to the benefit of inclusive businesses, the customers they serve and the broader community.
Paul Hailey is Head of Impact at responsAbility Investments and the author of various publications and articles. Previous roles at the company include Senior Research Analyst for the financial sector. He has an MBA from École des Hautes Études Commerciales de Paris (HEC Paris), where he is also a lecturer, and a B.A. (Hons) from Pembroke College, University of Cambridge.