With increased awareness about the need for impactful decision-making, business operations and investments (both on a personal and corporate level), it is unsurprising that the rise in impact investing continues.
The Global Impact Investing Network (GIIN) estimates that over 3,907 organizations currently manage $1.571 trillion USD in impact investing AUM worldwide, representing 21% compound annual growth of the total impact investing market since 2019. It’s expected that this will keep growing at a double-digit rate (compounded) annually until at least 2030.
Energy transition is a big focus area
There has been further growth in private equity and venture making investments of an impactful nature, with a view to capitalising on opportunities through innovation in green tech and the energy transition.
The improvement in global market standards has brought some consistency and transparency around measurement which has helped to fuel (pun intended) growth in the clean energy space, which was a little hampered in recent times by rising interest rates and supply chain issues.
Several large US GPs and investors have announced new energy transition funds (such as Blackstone and KKR) and it seems that this trend will only continue as we face increasing fall-out from the climate crisis and its devastating effects around the world.
Impact measurement and AI
The challenges of measuring impact (particularly for things like social impact and good governance) continues to hamper the impact investment space. There are a number of impact measurement providers who have seized the gap in the market, and this is certainly expected to continue to grow in coming years. It’s an area that we don’t expect DFIs or mature private impact funds of a certain size to need support with as they likely have long-established measurement metrics in place, but there will certainly be appetite for this type of measurement for those new to impact investing or for those who also operate multiple other non-impact funds.
Invariably, AI will have role to play. When supplied with accurate data, AI can evaluate and provide conclusions on large amounts of information in short timescales. This can drastically speed up processes whether through reducing the time to undertake pre-investment due diligence, set realistic environmental and social action plans for investees or carry out post-investment annual reviews.
Looking ahead
We expect that market standardisation and international regulations will start to harmonise somewhat over time, which will materially help to align practices and approach to streamline pre- and post-investment processes.
There will likely be a shift from businesses setting decarbonisation goals (which will become a given for most organisations, particularly those over a certain size) to a requirement for evidence-based implementation. Using science-based targets is an effective way to achieve this, but the first round(s) of implementation may highlight where some target setting has been too ambitious and so sensible adjustments and transition planning may be required.
Younger generations are also going to have increasing influence, not just with their voices, but with their investments too. According to The UK Impact Investing Market report 2024 a “Great Wealth Transfer” is underway which in the UK alone will lead to around £5.5 trillion passing between generations over the next 30 years.