Impact Investing to 'Bump up' to $9 Billion in 2013

In a world in which corporate citizenship and ethics have come under increasing scrutiny, money managers are leaning toward a strategy they call “impact investing”—which is, quite simply, a form of “investment karma.” While they have a fiduciary responsibility to ensure that their investments “do well,”  they also want to place their capital with companies and initiatives that will “do good” for the world.

In fact, 99 investors who responded to a survey between November 26 and December 7, 2012, said that they had committed US$8 billion to impact investments in 2012; and that they plan to commit 12.5 percent more in 2013, for a total of US$9 billion.

The Perspectives on Progress report–conducted on behalf of JP Morgan (News - Alert) and the nonprofit Global Impact Investing Network, both based in New York City— reveals that 96 percent of investors who manage at least $10 million or more of impact investment capital, measure their social and/or environmental impact. Four out of five fund managers highlighted the importance of impact measurement for raising capital, according to the report.

Respondent organizations were mostly headquartered in developed markets (DM), with the United States and Canada representing 56 percent of the sample; and Western, Northern and Southern Europe representing 27 percent. Fourteen percent of respondent organizations were based in emerging markets (EM).

In this year’s report—the third in the annual series—investors indicated a growing focus on sectors outside of microfinance and other financial services, with multiple investments in other segments. Specifically, they spread their funds among the following: food and agriculture (57 percent), healthcare (51 percent), financial services (47 percent), microfinance 46 percent), education (45 percent), housing (44 percent), energy (43 percent), water and sanitation (35 percent), and information and communications technologies (31 percent).

In terms of the impact objective with which these investors allocate capital, 50 percent of the respondent group primarily focuses on social impact and a remaining 45 percent target both social and environmental impact. Only five percent—all of them, fund managers—indicated a principal focus on the environment.

Asked to reveal at what stage of a company’s development they prefer to invest, both those investing directly into companies and those investing through intermediariesshowed an overwhelming preference for growth-stage businesses (78 percent); followed by venture stage (51 percent); and mature, private companies (33 percent).

Respondents identified business model execution and management as the top risk to their portfolios, and believe the market continues to be challenged by a lack of appropriate capital across the risk/return spectrum as well as a shortage of high-quality investment opportunities. However, they indicated progress was being made “evenly” across these and other indicators of market growth during 2012.

Additionally, the UN Global Compact and the Rockefeller Foundation launched A Framework for Action: Social Enterprise and Impact Investing at the Rio+20 Earth Summit in June. The two groups said a number of large corporations and pioneering impact investors have begun investing more actively in the social enterprise sector in recent years. These include companies such as Cemex, Cisco (News - Alert), Intel, International Finance Corporation, Nestle, SK Telecom and Starbucks as well as investors including Acumen Fund, Bamboo Finance Daiwa Securities, ECOM, HSBC, Mahindra Finance, Sequoia Capital (News - Alert), SNS Asset Management and TIAA-CRE