France’s impact investing sector has experienced high growth in the past two years, driven by new investments and new entrants identifying themselves as impact investors for the first time.
The French impact investment market grew 28% from €4.8bn in 2020 to €6.1bn in 2021, representing the highest rate of growth in both relative and absolute terms since 2017, according to Zoom 2022, a report published last week by the French impact investment association FAIR.
FAIR, which was established last year following the merger of Impact Invest Lab, the French National Advisory Board’s operational platform, with social finance association Finansol, surveyed 74 French impact investors, including the Caisse des Dépôts, members of the Impact Commission of France Invest and members of FAIR, to understand the size and trends shaping the French impact market.
The report found that in the last two years there has also been a substantial increase in new investment, which was up 67% from €558m in 2019 to €930m in 2020, with a further 69% increase to €1.6bn in 2021.
In 2021 this investment was fairly evenly split between equity (38%), debt (36%) and quasi-equity vehicles (26%), with France taking the lion’s share of the invested capital (83%), Europe excluding France accounting for 11% and just 6% invested in developing countries.
On average investors had also increased their impact assets under management by 28% from €64.7m in 2020 to 82.5m in 2021, with 24% of investors managing impact investments of more than €100m (compared to 19% in 2020) and 8% managing investments of €50m-€100m (compared to €7% in 2020).
At the lower end of the scale, 36% of investors managed impact investments of less than €5m in 2020, dropping slightly to 34% in 2021 and 14% managed investments of between €5m and €10m in 2020, halving to just 7% in 2021.
Sector concentration
The French impact investment market is also very concentrated, with just five investment managers managing 49% of assets under management. Banking groups dominate impact investment in France with 44% of the market, closely followed by generalist asset managers (40%), specialist impact investors (35%) and impact companies fundraising directly from consumers (20%), with some overlap between different categories of stakeholder.
Speaking to Impact Investor, Jon Sallé, head of the social impact finance observatory, the research arm of FAIR, and co-author of the report, said that before 2020, the annual impact investment market growth as well as the annual growth in new investment was less than 10%. He explained the sudden market growth of the past two years, although partly driven by new investment, was also the result of new entrants to the market identifying themselves as impact investors for the first time.
“There have been several different initiatives in France aimed at training stakeholders and at FAIR, we have been helping to structure the impact investment market, which has contributed to its growth. At the same time, we have seen new players entering the market and defining themselves and their products as impact for the first time. So, part of the perceived growth is actually from existing investments that are now defined as impact,” he explained.
Finansol label
In France, the Finansol label, which is overseen by FAIR, has been awarded by an independent committee since 1997 to social investment products open to the general public that are able to demonstrate high levels of transparency and social impact.
The report highlighted that, now in its 25th anniversary year, the Finansol label has been awarded to 16 new investment instruments and withdrawn from seven others, with an overall total of 178 products carrying the label today.
Newcomers in 2021 included a new share issuance from renewable energy provider Enercoop, Belgian microfinance fund ImpaktEU and a new solidarity-based savings product from regional credit bank Crédit Municipal de Lyon.
Retail solidarity-based savings on the rise
The report, which also looked at the retail market in solidarity-based finance, found that in 2021, investment in solidarity-based retail savings products increased 26% (€5.1bn) to €24.5bn, of which €3bn was invested in unlisted social enterprises. This represents the highest increase in any given year since 1996 and equates to 0.41% of French household savings, compared with 0.36% in 2020 and 0.29% in 2019.
According to the report, most of this growth has come from solidarity-based savings products offered by banks, which increased €2.6bn to €9.5bn in 2021, followed by employee savings schemes through the French 90/10 funds, which allocate 5-10% of their assets to unlisted social enterprises and which increased €2.4bn to €14.1bn, and lastly, from direct investments in social enterprises, which grew €119m to €909m over the year.
Sallé highlighted that with €3bn invested in solidarity-based savings products, retail investment made up 50% of impact assets under management in France today: “The French impact market is very dynamic and quite unique given its retail focus, with a growing number of individuals choosing to put their savings in products that channel some of their assets towards the impact economy. At the same time, it’s worth remembering that only a tiny proportion of French savings are being invested into the unlisted impact market, so there is certainly room for growth.”
The enactment of the PACTE corporate reform law in January this year, making social enterprise investment an obligatory option in all life insurance products, is expected to give the retail market in impact investing an additional boost in years to come.
Salle added: “Changes in regulations such as the PACTE law, will certainly generate additional capital investment into impact. What is interesting, is that it has forced the hand of insurance companies to start looking at unlisted investments, which they thought too risky in the past. So, there are a growing number of newcomers to the market who are learning about the benefits of impact investment for the first time.”
