Impact investing has seen tremendous growth in recent years as investors seek to generate positive social and environmental impact alongside financial returns. Major impact investing firms are leading the way in developing this emerging asset class. Some key players driving the growth of impact investing include big names like TPG, Bain Capital and KKR, which have all launched dedicated impact funds in the billions of dollars range. Asset owners like pension funds and sovereign wealth funds are also boosting impact allocations. Industry data shows impact assets under management surpassed $715 billion in 2019. The rise of B Corps and benefit corporations are further expanding the universe of impact-focused companies. As the impact ecosystem matures, best practices and impact measurement methodologies are improving. However, challenges remain around lack of quality deal flow and exit opportunities. Overall, top impact investing firms are bringing more capital and credibility to the space while demonstrating that market-rate returns are achievable alongside intentional impact.
Large private equity firms launching multi-billion dollar impact funds
Some of the world’s largest private equity firms like TPG, Bain Capital and KKR have made a major push into impact investing in recent years. In 2017, TPG raised $2 billion for The Rise Fund, touted as the largest global impact investing fund at the time. Bain Capital launched a $390 million Double Impact fund in 2018 targeting health, education, sustainable consumer products and financial inclusion. The same year, KKR closed on $711 million for its Global Impact Fund focused on essential services like healthcare, education, housing and financial inclusion. These prominent firms launching multi-billion dollar impact vehicles lend significant credibility and signal impact investing’s growth potential. Their large networks and deal sourcing capabilities can potentially direct substantial capital to addressing social and environmental issues.
Pension funds and sovereign wealth funds boosting impact allocations
Large institutional asset owners like pension funds and sovereign wealth funds are also playing an instrumental role in driving impact investing growth. Per Willis Tower Watson’s 2021 ESG survey, 36% of global investors have an impact investing policy. Influential limited partners like The California Public Employees’ Retirement System and The Teacher Retirement System of Texas have made multi-billion dollar impact commitments. The Gulf region is also emerging as an impact hub with The Qatar Investment Authority and Investment Corporation of Dubai among recent adopters. Asset owners bring significant capital that can be deployed into impact strategies. Their commitments also give confidence to impact fund managers about future fundraising prospects. With leading institutions onboard, this validates impact investing as an important allocation for long-term diversified portfolios.
Rise of purpose-driven companies expanding the universe
The emergence of B Corps and benefit corporations is rapidly expanding the universe of companies aligned with impact goals. B Corps are certified by B Lab to meet rigorous social and environmental standards. The number of B Corps has surged from 1,204 in 2016 to 5,696 today. Benefit corporations are a related corporate form mandated to consider stakeholder impact. More than 5,000 benefit corporations such as King Arthur Baking now exist across 38 U.S. states.This proliferation of purpose-driven companies gives impact investors a broader range of target investments. Additionally, impact-focused companies are more likely to track impact metrics which makes the deal pipeline more measurable.
Advancing best practices and impact measurement
A key priority for top impact investing firms is developing industry best practices and standardized metrics. The Impact Management Project (IMP) has emerged as a forum to build consensus on evaluating impact performance. IMP has defined five dimensions of impact used by many investors: What, Who, How Much, Contribution and Risk. Leading impact indicators like the IRIS catalog provide metrics tailored to sectors like microfinance and sustainable agriculture. However, not all impact is straightforward to quantify, so qualitative factors matter too. Overall, a shared language around impact is emerging even if work remains to refine methodologies. Documenting evidence of financial returns and impact will ultimately attract more mainstream capital.
In summary, major players like private equity giants and pension funds are steering impact investing into the mainstream and demonstrating promising returns. The ecosystem’s development of standards and evidence-based practices will further accelerate adoption. Though still an early-stage field, top impact investing firms are steadily proving that capital can do well and do good.