All eyes on impact investing

The outlook for impact investing — whose impact transcends financial returns — in 2012 seems optimistic, with up to $4 billion new investments expected in the year.

Industry players from across the world told a survey conducted jointly by JP Morgan and the Global Impact Investing Network (GIIN) that they expect such investments to make up between five and 10 per cent of their portfolios over the next ten years.

These are among findings of the survey dubbed Insight into the Impact Investment Market, which highlights 52 impact investors’ perspectives on the state of the industry, as well as data analysis on over 2,200 of their portfolio investments.

In recent times, there has been a major growth in impact investing across the world, including the East African region, as investors seek to make social and environmental impact in addition to financial returns. In fact, impact investing has been described as the “emerging asset class of the decade.”

In September, B Lab, an American non-profit, with a group of 15 investors, drawn from private equity, global financial institutions, foundations, among others launched the Global Impact Investment Rating System (GIIRS), a rating and analytical platform indicating that they would prefer rated companies.

The launch followed a successful test globally, with over 200 companies across 30 countries from 25 impact investing funds.
According to the new report by GIIN and JP Morgan, the majority of impact investors surveyed, who have a positive outlook for the industry, believe that impact investing industry is “‘in its infancy and growing.”

“This research underscores the long-term potential of impact investments while recognising that the market is in an early stage of development,” said Amit Bouri, the director of strategy and development at the GIIN.

The report also found out that investors’ use of third party systems for measuring impact has increased by 10 per cent since 2010; and that 65 per cent of respondents are already aligned with the GIIN’s Impact Reporting and Investment Standards (IRIS).

The IRIS system provides a mechanism for investors to track and report the social and environmental impact of their investments.
The impact investors cited lack of track record of successful investments as the main challenge to the industry’s growth; with illiquidity and uncertainty around financial returns being the biggest risks.

However, it was noted that increased government activity and infrastructure development are helping to address these challenges, improving market information and promoting growth.
A similar survey was conducted in 2010.

In both instances, impact investors’ expectations for financial returns range from concessionary to market-beating. This, the report’s authors said showed that there is room for a wide range of performance.

The director of research JP Morgan Social Finance and co-author of the report, Yasemin Saltuk, said the new findings would encourage more investors to enter the market.