Impact investing, which aims to generate positive social and environmental impact alongside financial returns, has seen steady growth in recent years. According to the Global Impact Investing Network (GIIN), the global impact investing market size was $715 billion in 2020 and is expected to reach $1.47 trillion by 2025. As we enter 2023, several trends in impact investing are emerging that involve stocks and align with ESG (environmental, social, governance) principles.
More public equities adopting impact strategies
An increasing number of public companies are incorporating impact objectives into their business strategies. BlackRock’s research shows that from 2018 to 2020, the number of public companies with impact-aligned business models grew 60%. More companies are setting impact targets related to issues like renewable energy, sustainable agriculture, financial inclusion, and accessible healthcare. As this trend continues, impact-driven investors can expect more options in public equities, including stocks.
Growing focus on measuring and reporting impact
In 2023, impact measurement and management will likely remain a key focus in public markets. Companies will be challenged to demonstrate how their products and services contribute solutions to social or environmental issues. Robust impact metrics and reporting allows companies and investors to track performance against impact goals. Third-party ratings focused on impact measurement will also continue growing in importance for investment decision-making.
Responsible stewardship practices expanding
Leading asset managers are increasingly expected to engage as active owners and steer their portfolio companies toward sustainable and inclusive practices. BlackRock, Vanguard, and State Street now consider environmental and social issues in proxy voting decisions. More asset managers are likely to follow suit in 2023. Workforce diversity, climate risk mitigation, and alignment with UN Sustainable Development Goals will likely be key areas of focus.
The growth of impact investing aligned with stocks and ESG principles is likely to accelerate over 2023, driven by increasing impact options in public markets, better measurement approaches, and active ownership by large asset managers.