A market study published by SpainNAB and the Esade Centre for Social Impact also revealed that direct impact investments in Spain grew by 26% in 2023 to over €1.52bn.
The Spanish impact investment market grew to €3.34bn at the end of 2023 according to the latest market study published by SpainNAB, the GSG’s national partner in Spain, and Esade Center for Social Impact (Esade).
This figure includes bank financing and investments, including €1.74bn in financing through eight loan portfolios provided through the country’s ethical, social and cooperative banks, and €84m of indirect impact investing. The latter relates to investments held in funds or third party investment vehicles managed from abroad.
The report highlights the growing appetite for impact investing among companies and investors, which has seen direct impact investing grow by 26% over 2023 to €1.52bn. This has been driven by 45 investors managing 64 impact investment vehicles. The main contributors to this growth have been private equity funds, a trend seen since the previous year, which have seen their assets under management increase 32% driven by new players entering the market as well as new funds being launched by existing investors.
Growth potential
The study draws attention to the large potential for market growth with the market entry of public sector players such as COFIDES, the Spanish state-owned commercial company and development finance institution, which launched a €400m social impact fund earlier this year.
SpainNAB said these public resources would help to diversify Spain’s impact capital offering in terms of financing terms, cost, risk and guarantees and encourage more private capital into the impact sector.
Marta González Labián, head of impact and sustainable investing at SpainNAB, told Impact Investor that public sector involvement in impact investing was very important.
“It not only brings important capital flows, becoming an increasingly important actor in the Spanish impact investing market but also provides trust and volume to the impact investment vehicles, both characteristics needed to attract other private investors,” she said.
“However, in order to unlock its catalytic potential and attract private investors, it is crucial that [the public sector offers] concessional capital, assume higher risks and provide guarantees, etc.”
Foundations steam ahead
The 2023 study also demonstrates a growing interest in impact investing among foundations, with the number of foundation-run investment vehicles that invest into impact increasing from 17 to 27 over the year. Despite accounting for just €260m of the total market, their assets under management grew 10% over the year.
“An interesting aspect of the data collected is the increase in the number of foundations that are doing impact investing,” said González Labián. “Although in terms of assets under management they are still a minority part of the sector, [accounting for] €260m, they have grown by 10% in 2023, and their example and experience could trigger the attraction of bigger amounts and players in coming years.”
SpainNAB said that foundations also stood out due to their willingness to accept lower returns on investment than private sector funds, with an average rate of return of 0.4%. In addition, 70% of investors within the foundations sector were found to value social impact over financial return, with nonprofits and entities bound by restrictions on paying dividends accounting for 43% of their investees. Foundations also lean towards investment into early-stage companies.
“They play a key role because their investments tend to have different characteristics compared to those of impact private equity or venture capital funds, meaning they could reach more additionality and therefore could be more transformative,” added González Labián.
Barriers to growth
The study found that the biggest barriers to growth in the impact investment sector were the risk of greenwashing and impact washing as well as a lack of knowledge among asset owners in relation to return expectations and a range of issues relating to impact management and measurement, including the absence of clear industry-wide standards.
“Impact investing refers to investments made with the intention of generating positive social and environmental outcomes alongside financial returns and therefore it implies not only financial returns but also social and/or environmental returns. The main problem we observe is that asset owners do not always understand these triple return expectations,” said González Labián.
On the flip side, the study’s authors identify three drivers of growth for the sector. These include greater collaboration between actors within the sector, the need for better regulation to facilitate access to impact investing, and improved knowledge of impact investing among the investor community.
“Although we already have sustainable finance regulation at the European level and of course many knowledge resources and efforts on impact investing, both are still insufficient. This is why impact investing associations such as SpainNAB and its peers in other European countries, are working to improve knowledge by harmonising the definition, criteria and data, not only at a national but also at the European level”, said González Labián, who explained that SpainNAB was working with other national partners to promote change in the European Sustainable Finance Regulation to recognise the specificities of impact investing and the need for a dedicated disclosure regime.
“Beyond that, Spanish domestic regulation is not well fitted for impact investing, lacking both incentives and specific regulation and this is why we also work at national level with the same purpose.”
Best practice code for impact investing
In response to the threat of impact washing, SpainNAB has also published a best practice code for impact investing.
“Impact washing appears repeatedly in our annual surveys as one of the biggest challenges to impact investing,” said González Labián, adding that a key focus for the organisation has been bringing integrity to the market by “working on harmonisation efforts both at the national and European level to put an end to blurry definitions that lead to confusion and impact washing”.
Outlook for Spanish impact investing
Looking ahead, González Labián said that based on several factors, including historic growth of the Spanish impact investment market, which has increased by 135% since 2020, the high growth expectations of the study’s respondents year-on-year and the market entry of new investors, including public sector institutions, “the growth expectations for Spain in the next decade could be exponential, scaling impact investing to the next level.”
However, she said that interest in impact from institutional investors was still lagging behind other European countries.
“Both the UK and the Netherlands have great amounts coming from institutional investors, which have the potential to scale the market and that are still poorly represented in the Spanish impact investing ecosystem. SpainNAB will try to work on how to unlock this capital in the coming years.”
