Impact investing refers to investments made with the intention to generate positive social and environmental impact alongside financial returns. Over the past decade, impact investing has gained increasing attention globally. The impact investing market has experienced explosive growth in terms of the number of impact investors and assets under management. However, the market also faces some problems and challenges for future development.
The definition and scope of impact investing market
Impact investing aims to solve social or environmental challenges while generating financial profit for investors. The capital is invested into companies, organizations and funds that yield social and environmental benefits as well as financial returns. Impact investing can occur in both emerging markets and developed markets, targeting returns ranging from below market rate to market rate based on investors’ specific objectives. The areas that impact investing involves include clean energy, sustainable transportation, waste management, sustainable consumption, inclusive healthcare and elderly care etc.
The trends and growth prospects of impact investing
Over the past decade, the size of the global impact investing market has experienced explosive growth. According to the Global Impact Investing Network (GIIN), the total assets under management in the impact investing market have already exceeded $700 billion globally, with over 1000 participating institutional investors. Moreover, 9 out of the top 10 private equity firms in the world have set up dedicated funds specialized for impact investing.
The main challenges impact investing market faces
There are still some problems in the current impact investing market. Many business investors have difficulties in understanding the ideas of social entrepreneurs and why they do not invest in conventional business startups. The value identification between social business and mainstream business needs to be strengthened. In addition, impact investing often requires investors to accept relatively low returns compared to commercial investments. Balancing financial returns and social impact has always been an issue of impact investing.
The future trends of impact investing market
Looking ahead, with the increasing concerns on sustainability globally, more capital is expected to flow into the impact investing space. Giant pension funds have started to pivot towards sustainable investments given considerations of their beneficiaries. If only a slight fraction of the $47 trillion pension assets globally switches to sustainable investments, that will stimulate tremendous growth in the impact investing industry. With the booming development of financial technologies, various innovative impact investing platforms and mechanisms can be expected to emerge to channel more funds into resolving social and environmental issues.
In summary, impact investing refers to investments aiming for positive social and environmental impact alongside financial returns. Over the past decade, the global impact investing market has experienced exponential growth in terms of size and number of participants. However, there remain some problems and challenges facing the long-term prosperity of this market. With the megatrends of sustainability and technology development, the prospects of the impact investing industry look promising.