The latest GIIN report shows impact-related investments in public debt, real assets and public equity, in particular, have grown strongly over the last five years, reflecting a move into more sophisticated asset classes.
The impact investing market has expanded at a compound annual growth rate (CAGR) of 14% over the last five years, growth that reflects the resilience of a maturing sector in the face of economic headwinds, according to a new report from the Global Impact Investing Network (GIIN).
In its State of the Market 2024 survey, the GIIN said that data from a subset of respondents that also provided data for the GIIN’s 2019 Impact Investor Survey showed a rise in total impact assets undermanagement to $249bn (€224.8bn) in 2024 from $129bn in 2019 – representing a 14% CAGR.
The GIIN said 86% of investors reported satisfaction with their financial performance, while 90% reported satisfaction with their impact performance. Those high satisfaction levels were recorded despite a high proportion respondents citing inflation and rising interest rates as key factors affecting their impact strategies.
Amit Bouri, the GIIN’s co-founder and CEO said the report demonstrated the progress made by impact investing strategies and their performance.
“Since launching the GIIN in September of 2009, 15 years ago this month, impact investing has made great strides toward creating a world where financial markets play a key role in addressing global social and environmental challenges,” he said.
The GIIN reported that impact measurement and management was becoming increasingly sophisticated. Of the investors polled, 70% now use some form of generally accepted impact metric, and more than two-thirds said they incorporated impact criteria into their investment governance documents.
Some 40% of impact investors also use a third-party specialist verification agency to verify their impact measurement and management processes, but only 27% use third parties to verify their impact results.
Dean Hand. the GIIN’s chief research officer, said the survey showed investors were turning to more complex strategies. Investments in public debt, real assets and public equity have grown over the last five years, at a CAGR of 32%, 27% and 19%, respectively.
“This year, investors have made the impact investing industry ever more innovative through a focus on the increasing use of more sophisticated asset classes and their portfolio company stage of business,” she said.
The report also shows that impact investors are becoming more confident about investing in regions once seen by some as too risky, with 43% of investors planning to increase their allocations to emerging markets in 2024. There is interest in expanding future allocations in sub-Saharan Africa, Southeast Asia, and Latin America and the Caribbean, as well as Europe.
Fragmented impact frameworks
However, challenges remain. In particular, investors have a growing appetite for improved ways to assess their performance in order to make more informed decisions on what actions to take next across their portfolios, according to the GIIN. Of those polled, 92% cited significant, moderate or slight challenges in dealing with fragmentation among impact frameworks, while 87% reported difficulties in comparing impact results to those of their peers and 84% said verifying impact data received from investees remained challenging.
The reports also notes that, despite the high satisfaction of respondents on financial performance, actual performance against targets often falls short, except for investments in public equity and real assets.
“These seemingly contradictory findings are not incongruent. Investors can be satisfied with financial performance even if it does not meet targets,” the report said.
The organisation says the performance context is crucial, as expectations are often adjusted in response to global events such as rising interest rates and inflation pressures. It also notes that, as public equity and real assets are the fastest growing asset classes over a five-year period for an impact investing strategy, investors are chasing stronger returns where they can. Around three-quarters of investors surveyed said they were targeting market-rate returns.
Likewise, while satisfaction with impact performance is also high, it remains unclear if actual impact performance meets targets, the GIIN said.
“Given the pattern in financial performance, it is reasonable to hypothesize that impact performance may also be falling short,” the report said. The authors noted that in a 2023 GIIN report covered by Impact Investor, 18% of investors indicated that they did not set quantitative targets for impact performance.
“Investors are also often reluctant to share their impact performance data, which hinders both the setting of relevant quantitative impact performance targets and the tracking of actual performance. The lack of verified and audited performance data is a significant infrastructure gap in the impact investing ecosystem,” the report said.
The survey took place in early 2024 and covered the period to the end of 2023. It was ultimately based on replies from 305 respondents after data cleaning of a larger set of responses.
The GIIN said it would publish a report on the total size of the impact investing market, as well as further reports covering gender investing and impact investing in Asia in coming weeks.
