Impact investing endorsed by US State Dept
Impact investing has hit the headlines following its endorsement by the US State Department at the 71st Session of the UN General Assembly, held last week.
At the event, the State Department, along with Bretton Woods II, announced the introduction of the Trillion Dollar Challenge, which is aimed to help the UN achieve its 17 Sustainable Development Goals by 2030. Impact investing was referenced as one way in which these goals could be reached and the world's largest asset owners – including endowments, sovereign wealth funds and pension funds – are being called upon to inject some of their managed capital into this investment form.
Impact investing would see the capital invested in ways that help to mitigate global risk, as well as promoting development and good governance across the board. Impact investing can also help to boost environmental and social development too and, such is the power that the investment form can have, that US embassies have confirmed they will offer investors both regulatory and tax incentives linked to their host Governments in order to promote interest in the medium.
The renewed interest in impact investing from the US State Department is thought to be linked to the entering of the Paris agreement, which was done by China and the US recently. With a marked boost in global change, increased connectivity can open a host of new marketplaces as well as raising the possibility of new forms of cooperation between countries. Indeed, global Governments are now seeing that many of the challenges facing the world are shared and much needs to be done to tackle them.
In terms of monetary amounts, development assistance sits at $181 billion per year, of which the US chips in over $30 billion. Couple that with the $900 billion in yearly private financing from high-income to low-income nations and you end up with a startling amount of money that, if directed at solid efforts to stamp out poverty and boost well-being, could have a dramatic impact on the globe. Indeed, those considering impact investing have the potential to create positive social impact while at the same time ensuring strong stakeholder returns.
Last year, JPMorgan and the Global Impact Investing Network said in their 2015 Impact Investor Survey that more than 50 per cent of impact investments target returns at market, while almost 30 per cent target returns below market. The report also found that under 20 per cent target capital preservation on its own. This proved that, while impact investing remains largely profit-drive, there are also other elements at work, including self-preservation and wanting to boost the social good.
The largest sovereign wealth fund in the world is Norway, with $850 billion and control of one per cent of stock markets across the globe. It has made the most of its market power by channelling its capital into impact investments including green energy and clean water provision. By doing so, it has left environmentally unfriendly companies for dust, therefore making them far less appealing investments and therefore doing a social and environmental good, while retaining a healthy profit margin.