WORLD ECONOMIC JOURNAL
In the GIIN ’ s latest market sizing report ( 2022 ), the size of the worldwide impact investing market is estimated to be $ 1.164 trillion in assets under management with over 3,300 organisations . And although the impact investing market is still maturing , efforts to accelerate the development , scale and effectiveness of the industry are gaining significant momentum .
Impact investors ’ headquarter locations
DEFINITION AND CORE CHARACTERISTICS
The GIIN defines impact investing as “ investments made with the intention to generate positive , measurable social and / or environmental impact alongside a financial return .”
• Intention : While all investments have an “ impact ”— both short and long-term , positive and negative — impact investing implies the explicit aim of accomplishing specific goals that are beneficial for society , to finance solutions to problems . Without the intent to be impactful , it ’ s just investing . This commitment includes articulating a clear impact thesis , transparent impact goals , and strategies for achieving the impact .
• Measurability : Translating this intent into action , and then committing to measure , manage , and report on the social and / or environmental performance of portfolio companies is integral . Impact measurement and management ( IMM ), hailed as the “ hallmark of impact investing ,” is arguably the biggest challenge for participants 1 . Impact data must not only be measured , but leveraged for investment decision-making , identifying risks and mitigating negative consequences . Lastly , actual impact performance must be disclosed in a comparable and actionable manner to stakeholders .
The Core Characteristics of Impact Investing , as defined by the GIIN , complement the above definition and provide clarity on the terms of participating in credible impact investing . These include the “ use of evidence and impact data in investment design ,” and the “ contribution to the growth of the impact investing industry .”
Impact investing and ESG investing are not to be confused . ESG ( environmental , social and governance ) encompasses the criteria used to assess corporate behaviour and screen investments . In essence , it highlights the potential financial losses a company may face by neglecting ESG risks and the financial gains achievable by capitalising on ESG opportunities .
ESG investing is more about how these factors affect the company and less about their effect on the world . By seeking to avoid harm and potentially benefit stakeholders , the primary objective of ESG investing remains financial returns , which may not always result in net-positive outcomes . Impact investors go beyond avoiding harm and make conscious decisions to use capital to contribute to solutions .
Some respondents had multiple offices in an effort to better reach investees in disparate markets . Source : Unlocking the Potential of Frontier Finance , GIIN , 2019
Asset allocations by geographic region
Total AUM : $ 198 billion . Excludes five outlier organisations based on AUM . Respondents may allocate to multiple regions Source : Impact Investing Allocations , Activity & Performance , GIIN , 2023
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There are a variety of fragmented methods and resources available , which are organised into principles , frameworks and standards to guide impact strategies . Recently , the industry has united around a handful of frameworks . According to the 2023 GIINSight Series on IMM , the most used were the UN Sustainable Development Goals ( SDGs ) ( 76 %) and the Impact Management Norms ( 52 %). To describe , implement and measure impact investment activities , credible impact investors rely on shared terminology , generally accepted tools and standardised metrics , most commonly the IRIS + metrics ( 78 %).
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