According to Vontobel’s latest survey, the majority of European institutional investors are already investing in impact strategies.
The 2023 Impact Investing Survey by asset manager Vontobel, has found that 71% of institutional and professional investors globally are planning to increase their allocations to impact investing solutions in public markets and 70% in private markets over the next three years.
The survey of nearly 200 institutional and professional investors across the globe, found that 70% of European investors already invest in impact, compared to 57% in Asia-Pacific and 56% in North America. However, Asia-Pacific is set to gain on Europe in the near future, with a proportionately higher number of investors (92% versus 67% in Europe) planning to increase allocations via public markets and 79% via private markets versus 72% in Europe.
Some 67% of investors are currently allocating to or planning to allocate to listed equity making it the most popular impact investment asset class, and a further 49% said they had implemented or would likely implement impact investing strategies in private equity. Other popular asset classes included listed debt (31%), private debt (21%), infrastructure (39%), real estate (26%) and commodities (7%).
A small majority of investors (57%) also demonstrated a preference for mostly or entirely active strategies when investing for impact, with 40% saying they preferred a mix of both passive and active strategies for managing their impact investment portfolios.
Commenting on the survey’s findings, Pascal Dudle, head of listed impact at Vontobel, said: “The challenging market conditions that we have experienced over the last 18 months have had ramifications for asset classes across both public and private markets, including those with a sustainable lens. Despite this more difficult time, our study shows that investors remain committed to impact investing and are even planning to increase their allocations over the next few years.”
Dudle said that investor interest across a wide range of asset classes across both public and private markets was a sign of a maturing market.
“We see this as a very positive indicator that the concept of impact investing has grown sufficiently in stature to be viewed as a specific and distinct way of investing, rather than a niche area of sustainability,” he added.
Energy transition front of mind
The study also looked at the driving forces influencing impact investing and found that 81% of investors see decarbonisation as a current or future goal for their impact investments, whilst 77% see the transition to net zero as important. Equal opportunities and/or diversity are also a top priority for 58% of investors, closely followed by biodiversity, highlighting the importance of impact investments that promote biodiversity goals.
In terms of the areas investors consider to be the most pressing and say should be addressed by impact investing, renewable energy came top (68%), followed by energy efficiency (58%), water (43%) and sustainable agriculture (31%), although 30% of investors thought a broad impact across a range of environmental and social themes is needed.
Risk and reward
Impact risk (60%), reputational risk (54%) and execution and management risk (46%) feature at the top of the list of risks investors perceive to be most significant to impact strategies over the next three years, however, political and legal risk (35%) was also perceived to be significant.
In terms of reward, investor satisfaction with the financial performance of their existing investment is high with 62% saying they were either satisfied or very satisfied. From a non-financial performance perspective, 61% of investors were satisfied or very satisfied with the social performance of their impact investment holdings, rising to 67% for those investors satisfied or very satisfied with the environmental impact of their investments.
Robust measurement and reporting practices
Of the investors surveyed, 54% believe that non-financial performance measurement challenges hinder impact investing and 46% agree that clearer evidence for positive non-financial return encourages impact investment.
The survey also found that investors continue to grapple with greenwashing when incorporating impact investing into their portfolios with the top three concerns including misleading or exaggerated impact claims (60%), no clear industry standard/definition for impact managers (49%) and inadequate transparency in reporting (44%).
Furthermore, asked which were the most important factors in selecting an impact investment manager, the top answer chosen by 82% of respondents was the transparency and measurability of impact results.
“While we see a clear demonstration of commitment to impact by investors, it is also true that many are still fairly early on their impact journeys. One of the key barriers they face, and a common challenge cited wherever they are based, is a lack of transparency and therefore the ability to measure and report on the impact their own portfolios have had. Greater transparency is key to building investor trust and confidence,” added Dudle.
