Assessment of the Impact Investment Sector and Opportunities to Engage Mainstream Investors: A report by the World Economic Forum Investors Industries
Investors have significant influence over the social, environmental and economic challenges of societies, yet continue to operate within a market infrastructure and investment ecosystem where the incentives do not generally balance social, environmental and economic impact.
Impact investing – an investment approach intentionally seeking to create both financial return and positive social impact that is actively measured – has been lauded as an emerging investment approach with the potential to reconcile key shortcomings in traditional financial markets. Yet with less than US$ 40 billion of capital committed cumulatively to impact investments out of the tens of trillions in global capital, it is no surprise that many have labelled impact investing “a hype.”
At its Annual Meeting in Davos in January 2012, the World Economic Forum brought together mainstream investors, impact investors and social entrepreneurs to discuss how to harness the potential of impact investing. What emerged was a list of constraints the sector faces, such as the perception that a social impact responsibility conflicts with a fiduciary duty, the fragmentation of the impact investing universe with small intermediaries and small deal sizes, and the lack of an established track record of exits for investors in double bottom line companies. While the list of reasons why impact investing would remain niche seemed overwhelming, bringing it into the mainstream was too important an opportunity not to pursue.
Impact Investing is a multistakeholder issue. It engages governments as impact investments offer opportunities for more efficient delivery of public services. It engages civil society, from the non-profits that design and implement projects to individual recipients of social programmes. And it involves businesses, ranging from entrepreneurs and lawyers to consultants and investors. Clearly, for impact investing to reach its potential, it must be considered from the perspective of all stakeholders. The focus of this report is the mainstream investor angle, which offers the biggest opportunity to scale the sector at this stage.
With this context in mind, the World Economic Forum launched the Mainstreaming Impact Investing initiative in 2012. This initiative builds on the Forum’s 2011 report Accelerating the Transition towards Sustainable Investing, which sought to stimulate the integration of environmental, social and governance (ESG) factors into mainstream investment analysis, as well as the 2011 Schwab Foundation for Social Entrepreneurship report, The Social Investment Manual, which sought to build absorptive capacity among prospective impact investees.
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