Over a year into the pandemic, people everywhere raise the question: how can we build back better? With that, more and more investors have embraced investing in impact as a way to make a positive change whilst also making a profit. The Global Impact Investing Network (GIIN) estimated that in 2020 the market size of impact investing was USD 715 billion, increasing from USD 502 billion as of the end of 2018.
Despite the global economic consequences of the pandemic, impact investing has thrived. In this article, we take a look at 4 key trends in impact investing and identify in what ways you can effectively embrace them.
1) ESG is here to stay
In times of crisis, short-term views are often prioritized over long-term endeavors. Therefore, in impact investing, where a long-term perspective is often fundamental, the pandemic has tested the resilience and resolve of many investors. But despite the pandemic, Environmental, Social and Governance (ESG) investing remains in high demand.
Between 2018 and 2020, ESG-related assets grew by 42%, reaching a total of USD $17 trillion. This now represents 33% of the total U.S. assets under management. Last year, ESG strategies outperformed their non-ESG counterparts.
As markets declined last spring, investors remained firm in one sector: sustainable investing. Long been viewed as a niche, 2020 was the year ESG came of age and surged ahead. Based on MSCI trends data, those classified in the top third of companies by ESG ratings have outperformed the bottom third by 2.56% per year in the period of 2013-2020.
As ESG becomes mainstream, the potential for greenwashing becomes high. Consequently, regulatory requirements have been strengthened to make asset managers disclose evidence for their ESG claims.
Investing in impact is growing steadily, but it can be challenging to understand and measure true impact. NewForesight supports investors in creating long-term impact, developing sustainability-focused interventions within an investable business case, with a clear return to all parties, as well as the mechanisms to prove it. We also help to effectively manage the investment portfolio by providing customized portfolio and risk management solutions through our tools and strategies.
2) A Changing Climate
In May 2019, the UK became the first parliament in the world to declare a climate emergency. Many other countries and trading blocs followed suit, with the EU declaring it in October 2019, along with the statement that the EU should cut emissions by 55% by 2030 to become climate neutral by 2050.
From a recent survey, around 64% believe the climate crisis is a tipping point for ESG strategies. A changing climate threatens more than just supply chains and physical infrastructure. It endangers growth by exacerbating systems-level disruption for consumers, investors, employees, and communities. Investors increasingly expect companies to behave responsibly and make a positive contribution to their stakeholders and wider society through reducing CO2 emissions or standing up for human rights.
How do ensure the impact is sustainable and transformational? At NewForesight, we have expertise in how to mitigate the climate crisis. We maximize impact by finding the best solutions that tackle the root causes. Such as through regenerative agriculture, landscape approach, and living income. We work with investors, donors, asset/fund managers, and other like-minded institutions around the world who want to tackle sustainability.
3) A Call From Society
The pandemic has transformed societal norms and heightened the demand for companies to be accountable to their stakeholders.
As increasingly more Millennials and Gen Z’ers enter the investing marketplace, these generations are becoming new influential stakeholders. Insights from EY highlight that the next decade will be shaped by the maturation of Gen Z who are generally more progressive on social issues than preceding generations and share a commitment to global sustainability. As consumers, investors and employees, this generation will bring different perspectives and expectations related to sustainability, society, ethics, and the role of private companies in providing goods and services.
To achieve long-term impact, sustainability-focused interventions need to have a transparent business case with a clear return to all parties, and the mechanisms to prove it. We design and implement innovative strategies for impact investing.
4) Gender Equality
The COVID-19 pandemic has deepened and exacerbated inequalities worldwide. Especially with regards to gender equality, this period has led to major setbacks to decades of progress. This only makes it more imperative that investments apply a gender-lens to all aspects of the COVID-19 response and recovery.
In 2019, a total of 138 private equity and venture capital firms have raised a cumulative $4.8 billion in funds that invest in gender-diverse teams and generate a positive impact on women (Wharton Social Impact Initiative). This figure is expected to increase as investors see and understand that applying a gender-lens is fundamental to the COVID-19 recovery, which will in turn mainstream gender into existing vehicles for impact investing.
Understanding how to identify potential risks and returns on investment is challenging. We conduct thorough impact due diligence and risk assessments that have a gender-lens. We developed a gender-driven toolkit for country-level strategy development as well as providing insights that contributed to gender-driven strategies, reflected in the Optimizing farming systems through gender inclusion report.
NewForesight: Making sustainability interventions investment and impact-ready
At NewForesight, we are dedicated to driving sustainable change. We design and implement strategies for impact investing with an innovative approach. To achieve long-term impact, sustainability-focused interventions need to have a transparent business case with a clear return to all parties, and the mechanisms to prove it. We maximize impact by finding the best solutions. We partner with investors, donors, asset/fund managers, and other like-minded institutions around the world who want to tackle sustainability. Curious about how we can support you in impact investing and drive sustainable change? Contact our impact investing expert Andrea Viviers or our impact investing principal Silvana Paniagua!