Impact investing, which seeks both a financial return and a social or environmental payoff, is facing double-digit growth this year, according to a new report from J.P. Morgan and the Global Impact Investing Network (GIIN).
Their latest survey of 125 of the world’s largest impact investors, including fund managers, banks, foundations, and pension funds, finds that investors in the sector expect to devote 19% more capital to impact investments in 2014 compared to 2013. The survey finds that this market niche is continuing its growth amid greater government support, new product and fund launches, and widespread efforts to properly measure impact.
The survey finds that investors expect to commit $12.7 billion to the sector in 2014, up from $10.6 billion in 2013. It also says investors foresee a 31% increase in the number of deals. Collectively, survey respondents manage $46 billion in impact investments, it says, with 70% of the total invested in emerging markets, and 30% in developed markets.
Microfinance and other financial services each account for about 20% of impact investment assets, followed by energy (11%) and housing (8%). Allocations are primarily in private markets, the survey found; with 44% of assets invested through private debt, and 24% through private equity.
Looking ahead, investors plan to increase the percentage of their portfolios allocated to food & agriculture investments, followed by healthcare, and financial services (excluding microfinance), it says. Investors also report that responsibility, efficiency and client demand are among their top reasons for making impact investments; while, a shortage of quality deals, and a lack of appropriate capital remain the top challenges.
The survey also found that 91% of investors report that their financial returns have been above, or in line with, their expectations, and that 99% report that the social and/or environmental impact of their investments have met, or exceeded, expectations. And, it notes that over two-thirds of respondents indicated that standardized impact metrics are important to the growth of impact investing.
“From the results, we see the rise of a vibrant impact investing marketplace, where investors are targeting a wide variety of social, environmental and financial objectives and finding themselves satisfied with the results. As collaboration between investors, governments and other key participants continues in 2014, we remain optimistic about the growth and development of the practice,” said Yasemin Saltuk, director of research for J.P. Morgan Social Finance and co-author of the report.
“The survey demonstrates increased capital commitments and diversity as many investors are making allocations across investment instruments, sectors, and regions. Overall, we see an increasingly sophisticated global impact investing market, supported by growing investment track records and high-level collaboration among governments and major investment institutions,” added Amit Bouri, managing director at the GIIN and the other co-author of the report.