Impact Investing Continues to Attract Investors Despite COVID-19 Turmoil
WASHINGTON, June 5th, 2020—The impact investing industry is continuing to attract investors in spite of the global recession caused by the COVID-19 pandemic, according to IFC, a member of the World Bank Group.
Impact investing remains relatively small, with a market size of up to $2.1 trillion, according to a new report, Growing Impact—New Insights into the Practice of Impact Investing. This means that the market is meeting only about 10 percent of the demand, estimated by IFC a year ago at $26 trillion if the right opportunities were available.
“There is increasing demand for more responsible capitalism. The current crisis is casting a harsh lens on inequalities and the importance of sustainability and could accelerate the demand for investments in jobs, gender equality, and environmental protection. These core values can ensure continued long-term financial performance,” said Philippe Le Houérou, Chief Executive Officer of IFC.
In the years ahead, impact investing will face strong headwinds in the shape of tighter liquidity conditions, an aversion for risk and widespread economic disruption, all of which will threaten the viability of many impactful firms.
Coming close to 100 signatories
One year after the introduction of the Operating Principles for Impact Management – which provide a distinct line between impact investing and other forms of sustainable and responsible investing - the report also provides an update on signatories to the initiative. In total, 97 investors have signed up to the Operating Principles, with 19 investors coming on board this year, for a total of 39 new signatories since the initiative was launched in April 2019.
The signatories are diverse, coming from 26 different countries across 5 continents, with recent endorsements from investors in countries such as Mexico, Japan, and the United Arab Emirates. Newcomers also include large asset managers such as BlackRock.
Significantly, according to the Growing Impact report, impact funds seem to have a greater focus on investing in emerging markets than other funds: 30 percent of the volume of impact funds was raised for projects in emerging markets, compared with 20 percent for conventional funds. The largest percentage invests in financial inclusion, followed by green or sustainable technology and products, energy or energy efficiency, and agriculture and food processing.
Deepening and widening the movement
The signatories are working to align impact measurement systems into a common core of metrics that will improve the ability of investors to compare impact performance across funds and institutions. Their work over the past six months has aligned more than 90 percent of the indicators in the leading measurement frameworks, a key step towards expanding the industry.
Signatories must annually disclose the alignment of their impact management systems with the Operating Principles and pursue regular independent verification. Many investors are disclosing their impact assets under management for the first time in 2020.
They have become a self-organized community of practice, sharing experiences to develop best practices and industry standards, and working to further catalyze interest and move the discipline into the mainstream.
The report calls on a wider range of asset managers and development finance institutions to manage funds for impact in a disciplined way, recommends the creation of further opportunities to invest for impact at scale, and encourages investors to continue to deepen their work on impact metrics.
IFC—a sister organization of the World Bank and member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In fiscal year 2019, we invested more than $19 billion in private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity. For more information, visit www.ifc.org.
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