The International Finance Corporation (IFC), the private sector arm of the World Bank Group, also asserts that the Covid pandemic, rather than hindering impact investment flows, played a role in promoting them.
“Impact investing has seen a boost in popularity during the COVID-19 pandemic due to increased awareness of climate change and social challenges such as unequal access to healthcare and racial and gender inequality,” the IFC says in the report, Investing for Impact: The Global Impact Investing Market 2020.
However, assets with ‘measured impact’ managed by privately managed funds and institutions still account for just 4% of total private capital sector assets, estimated to be worth $7trn.
This provides considerable scope for private institutions to boost impact investments, especially at a time when the Covid pandemic is prompting companies to reassess their values, according to John Gandolfo, IFC's Acting Vice President, Economics and Private Sector Development and Treasurer.
“Impact investing allows the opportunity to align assets with convictions, and we encourage more investors to become impact investors,” he said in a press release.
Despite the needs of the developing world, most measured impact capital was still committed to developed economies in 2020. Some 57% is allocated to developed market funds, 31% to emerging markets funds and 12% to global funds. North America, Europe and Central Asia alone account for 48% of capital committed to measured impact funds, according to the report.
Just over one thousand impact investment funds
The report identifies $636bn of assets with ‘measured impact’ in 2020, up 26% from $505bn in 2019. The 2020 figure comprises $286bn of privately managed assets and $349bn of publicly managed assets. The number of funds with ‘measured impact’ has also grown to 1,001 funds in 2020 from 887 in 2019, an 11% increase.
The IFC classified a further $1.6trn of assets as being managed with the “intent of positive impact” – that is, investments intended to make a positive impact, but where there is not yet reliable measurement of that impact. This figure was split between $308bn of privately managed assets and $1.34trn of publicly managed assets.
The combined total of $2.3trn of assets meets the IFC’s definition of impact investments as those made “with the intent to contribute to measurable positive social or environmental impact, alongside financial return.”
At $14.2 billion, Washington DC-based RockCreek is the investment firm with the largest amount of assets privately managed in alignment with the ‘Impact Principles’, the IFC said.
Fast growth GSS bond market
Investments by measured impact funds in green, social and sustainability (GSS) bonds is also on the rise. Because the types of spending eligible to be financed with the proceeds from these bonds are identified, these are instruments that can be used for impact investing.
The GSS market is expanding fast both in volume and range of investment structures. It represented $1.294trn in outstanding value by the end of 2020, an 87% increase over 2019, the IFC said. Social bond issuances increased eightfold over 2019, sustainability bond issuances rose threefold, and the cumulative issuance of green bonds rose to more than $1trn.
The IFC says data indicating the impact investment sector was becoming more transparent reflects “growing discipline” in the market.
As of the end of May 2021, 97 signatories to the Operating Principles for Impact Management, also known as the Impact Principles, had published disclosure statements, out of a total 135 signatories from 33 countries. In addition, 64 independent verification summaries had been published, indicating alignment of impact systems with the Impact Principles.
The Impact Principles stem from an industry-led initiative to develop a framework for investors to design and implement their impact management systems, so that impact considerations are integrated throughout the investment lifecycle.