Regions such as Asia are pushing into the impact investing story, which shows few signs of fading, a global study highlights.

A global study of 229 impact investors around the world, together holding more than $228 billion of assets, shows that over half of them jumped into the market for the first time last year, suggesting the rapid increase in interest, and plan to hike investment by 8 per cent in 2018.

The figures come in the Global Impact Investing Network, aka GIIN, which has published the eighth edition of its Annual Impact Investor Survey. For the first time, its results were issued in Asia, and the organisation partnered with Credit Suisse to examine trends in the region.

Some 56 per cent of all money is being invested into emerging markets, the data showed.

“In order to address many of the world’s most pressing challenges, we need more investors entering the market and more capital flowing into impact deals,” Abhilash Mudaliar, director of research at the GIIN, said.

The term “impact investing” relates to the model of putting money to work to achieve financial returns while also hitting targets such as cleaning up the environment, cutting criminal re-offending rates and reducing illiteracy. The field has grown rapidly, generating considerable interest in the wealth management industry. The sector is not without some controversy – there has been concern that fashion-conscious asset managers might flood the sector with money, leading to “mission drift” and corrupt the meaning of the original concept.

Another potential challenge is that the concept hasn’t yet been challenged by a global or regional recession, although proponents claim impact investing actually diversifies portfolios and reduces certain risks, making it a sensible way to handle investments anyway.

Last year, authors of the GIIN report said, respondents invested more than $35 billion into more than 11,000 deals. In Asia, respondents said they plan to hike allocations in Asia, with more investors (44 per cent) saying they want to hike allocations to Southeast Asia than to any other region. South and East Asia were also noted as regions of interest.

Geography
The US and Canada - reflecting the countries in which impact investing got going initially - are the top centres for impact investing, followed by Latin America, the Caribbean, and sub-Saharan Africa. Top sectors to which respondents allocated capital in 2017 are financial services, energy and microfinance.

Among other details, 59 per cent of respondents are fund managers; 13 per cent are foundations. Some 47 per cent of all respondents are headquartered in the US and Canada, with 30 per cent in western and northern Europe.

Investors have grown their allocations to impact investing at a 13 per cent annual clip over the past five years, with the fastest growth seen in Oceania (45 per cent compound annual growth rate) and east and southeast Asia (28 per cent CAGR).

A majority of respondents said their investments have matched or beaten what they hoped would be the result for impact (97 per cent) and financial results (91 per cent).

A raft of financial institutions, such as Credit Suisse, Barclays, Bank of America, Goldman Sachs, Societe Generale, BNP Paribas and UBS have made a point of doing business in the impact investing space, seeing it as a good way to engage with future clients and burnish their image at a time when financial institutions are still seeking to restore trust post-2008. (To take just one example, see an offering by Societe Generale, here.)

A report about two years ago by Boston Consulting Group and MITSloan Management Review found that investments that deliver financial results are closely correlated with those that are deemed sustainable (Investing For A Sustainable Future, 11 May 2016). Separately, a study by Barclays found that investment-grade bonds with higher ESG scores outperformed those with low ESG scores between 2007 and 2015 (source: MSCI).

Credit Suisse, for example, says it has been an impact for investor for more than 15 years, and at present, it has more than $3.3 billion of assets under administration and almost 5,000 clients with money in this area. Last year, the bank set up a new department to set up, grow and direct all impact investing activity across the bank. Its Asia-focused impact investing solution that it set up in conjunction with UOB Venture Management in 2015 has invested in six deals to date.

An important issue has been measuring the effectiveness of impact investing – also vital to guard against “mission drift” and dilution of returns. The survey showed that 69 per cent of respondents use proprietary metrics/frameworks not aligned to external methodologies. This suggests the industry has a way to go in harmonising approaches across the board.