Beats | June 5, 2018

“Conventional” investors – like Blackrock – boost impact investing’s annual tally

Dennis Price
ImpactAlpha Editor

Dennis Price

ImpactAlpha, June 5 – The arrival of “conventional” investors has long been anticipated as a marker that impact investing had gone “mainstream.” Now they’re here.

The Global Impact Investing Network found $228 billion in impact assets among 229 investors in this year’s investor survey. Last year, 209 survey respondents reported $114 billion in managed impact assets. A big chunk of the increase looks to come from what the GIIN calls “conventional” investors, who reported $88 billion in impact assets.

Who’s who? The GIIN lists most survey participants but anonymizes its results, so it’s hard to know just who’s counting what. Among the investors on this year’s list are BlackRock, JP Morgan, UBS, Credit Suisse, the California Endowment and TPG’s Rise Fund. Not named in this year’s report: Bain Capital, Bank of America, Morgan Stanley.

Such investors make both impact and “non-impact” investments. As impact investment assets within traditional investment firms grow, so will questions about impact. The GIIN defines impact investments as “investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.” The GIIN and other organizations are pledging to get more serious about data transparency, third-party certification and the development of shared principles.

Intriguingly, assets of just two survey respondents account for 38%, or $87 billion, of the GIIN’s new tally. The GIIN declined to share the names of the investors. It’s a good bet that one of them is BlackRock, the world’s largest asset manager with $6.3 trillion under management, which is on the list for the first time. BlackRock CEO Larry Fink, in his annual letter, put companies across its funds on notice about the need to consider their “social purpose.”

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In 2015, BlackRock brought on a dedicated team to manage what was then a $225 billion portfolio of sustainable investments. Of that, however, all but $11 billion was part of the firm’s “values-based” portfolio, which screen holdings by various criteria, including fossil fuels, tobacco and weapons. The remainder was in ESG funds (for environmental, social and governance factors), green bonds and low-carbon indices. It’s not clear what assets BlackRock or the GIIN are now counting toward the annual tally. BlackRock did not respond to requests for comments about the survey.

The parade of “mainstream” investors, including the big private-equity players, all the major banks and even large pension and sovereign funds, into impact investments is not new. But their increasing allocations mean impact investments are now drawing from larger pools of capital.

Abhilash Mudaliar, the GIIN’s research director, told ImpactAlpha, “A higher proportion of investors that have begun to make impact investments in recent years make conventional and impact investments than make only impact investments.” Compared to three years ago, 84% of “conventional” investors in the GIIN data set say they’re making more impact investments and that they’re more committed to measuring and managing their impact.

Beyond the growth in assets, says Mudaliar, this year’s survey data “portends a shift in the broader financial markets where it is becoming increasingly unacceptable to invest without regard for the social and environmental impacts of one’s investment choices.”

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Steady growth. All told, the investors surveyed have invested $447 billion in 333,687 deals since their funds’ inceptions.

Because the survey samples differ, comparisons to earlier years are difficult. Still, it appears this year’s total of $228 billion in impact assets under management represents significant growth. Last year’s survey of 208 investors found $114 billion, while 158 investors reported $77 billion in total assets in 2015. In 2014, 146 investors reported $60 billion in assets.

Another sign of growth: the 82 investors diligent enough to respond to the GIIN’s survey for each of the past five years have notched a 13% compound annual growth rate since 2013. The investors grew their impact investment assets under management from $30.8 billion in 2013 to $50.8 billion in 2017.

The 37 fund managers that responded in 2013 and again in 2017 grew impact investment assets at a 15% compound annual growth rate. Endowments and retail investors provided the biggest lift in capital, at 37% and 20%, respectively.

Caveats. Because the survey includes both asset owners and asset managers, it’s likely that at least some impact assets have been counted twice. The survey found about 20% of the capital was invested indirectly, through funds or other intermediaries, meaning both could have reported the assets. Nearly 80% of total capital was invested directly into companies, projects or real assets.

Another potential asterisk: skewed data. With the median respondent managing only $92 million, there’s a chance the few big investors could skew the sample. Mudaliar said responses were generally aligned.

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Difficult fundraising. Of fund managers that also responded to last year’s survey, slightly more than half raised at least 5% more capital in 2017 than in 2016, but nearly half raised at least 5% less. The total haul for 84 fund managers that had forecast they would raise $15.7 billion last year came to only $11.1 billion.

Metrics myth. The biggest gap in the survey of impact investors is….impact. What makes the absence of impact performance data even more remarkable is that a full 99% of the survey’s respondents claim to be measuring impact.

One in five impact investment assets are in financial services, one in seven are in energy, one in 11 in microfinance and one in 12 in housing. More than a third of the respondents listed food and agriculture among the top three sectors to which they deployed capital in 2017.

Unlike the financial returns of impact investments, which are increasingly accessible, collecting data on impact performance is still largely a work in progress. Instead, the GIIN survey offers insight into investor perceptions of impact performance. In this case, impact investors are pleased. Just 3% of respondents say their investments have not met their impact expectations.

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“Assessing the aggregate impact of a group of impact investors is challenging for a variety of reasons, not least because of the diverse range of ways in which investors measure their impact,” the GIIN’s Mudaliar tells ImpactAlpha. He says the GIIN is beginning to test the feasibility of analyzing the aggregate impact of impact investors in affordable housing and clean energy access.

In last year’s survey respondents expressed concerns about mission drift and ‘impact dilution’ with the entry of large, conventional investors. This year, they were asked to share their views on ways to mitigate the risk of “impact washing.” Eight in 10 impact investors checked the box for, “‘Greater transparency from impact investors on their impact strategy and results.”