News & Insights

The unfulfilled potential of impact investing

News & Insights

The unfulfilled potential of impact investing

Impact investing is a developing approach to investment that is attracting the interest of not only individuals, not-for-profit organisations and charitable foundations, but institutional investors as well.

Impact investing is defined as an investment approach that intentionally seeks to create both a financial return and positive social or environmental impact that is actively measured. As such, green and social benefit bonds fall within the definition, and while the former has attracted the most funds to date, interest in the latter is considerable and opportunities to invest are eagerly awaited.

A global institutional framework has been established to guide the development of impact investing and Australia is a part of this.

Australia joins global effort to drive impact investing

Impact Investing Australia was established in 2014 and formed the Australian Advisory Board on Impact Investing to participate - along with other national advisory boards - in the Global Social Impact Investment Steering Group. The global steering group is focused on how to drive impact investing to take off, locally and as part of the global market.

Impact Investing Australia's investor survey

Impact Investing Australia recently released its inaugural annual investor survey. The survey covers 123 Australian investors active in the sector.

By number, individuals account for 8% of the respondents, not-for-profit organisation (28%), charitable foundations (28%), and institutional investors (36%). By funds under management, the institutions accounted for A$331 billion of the A$333 billion that the respondents represented in total.

If nothing else, the institutional interest indicates the potential of the sector. Among the key findings of the survey are the following points:

More than two thirds of all investors expect impact investing to become a more significant part of the investment landscape in the coming years.

Active impact investors invest mostly in the impact areas relating to children and/or issues affecting young people and clean energy. They are also interested in opportunities to address housing and homelessness.

Most investors expect competitive market rates of return from their impact investments but some are open to below market rates of return.

Active impact investors expect well-documented evidence of social impact; many also want third-party verification of impact and/or reporting that aligns with global standards.

The last point highlights a key area of development that has yet to occur and until it does, is a constraint on the development of the sector.

Investors and potential investors have an unmet need for financial services and advice that incorporate social and environmental impact. To be precise, there is a lack of reliable research, information and benchmarks and no recognised investment framework for impact investing.

Read Impact Investing Australia – 2013 Investor Report.

Philip Bayley

Philip is the Principal of ADCM Services, publisher of The DCM Review an independent online commentary, analysis and data on Australia & New Zealand's debt capital markets. He is also a contributing editor to Banking Day and a director at Australia Ratings.