Impact investing is growing rapidly. But what kind of future does it have?

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Impact investing is growing rapidly worldwide. In 2018, members of the Global Impact Investment Network (GIIN) managed about $ 230 billion in investments. The amount doubled from the previous year. And not everyone in the industry is a GIIN member. According to a report published by the network (4/2019), more than 1,300 impact investors around the world manage a total of more than $ 500 billion of assets. Investors from North America have more that 50 % of this in their portfolios. For example, the world’s largest asset manager BlackRock, Wall Street giant Goldman Sachs and Ford Foundation are making impact investments. European investors account for about 20%. The portfolios of mostly state-owned development finance institutions make up around a quarter.

There is a great need for an impact investment to address current global development and environmental challenges. In addition to financial performance, all business operations produce social and environmental impacts. They can be negative, such as pollution and erosion of human rights, or positive, such as jobs and improved transport links. So called responsible investing aims to ensure that the funded activities do not cause any harm to the environment or society. Impact investing is a type of responsible investing but goes further. It is a strategic goal for the investor to achieve good impact. The investment is expected to have both yield and created impacts. Some of the impact investors are clearly satisfied with lower-than-market returns, while others believe that impact and return can be combined. They require almost or full market return on the investment.

According to GIIN, more than 50% of the impact investments are made through various asset managers (banks, venture capital funds, etc.). Investors obviously need intermediaries who know the market, finance and companies, but also what it means to create impact. This is good, both for individual investors and for achieving impact. However, there would still be plenty of room for clarification, especially regarding how the impacts are measured, and how the impact information is used during the investment cycle.

Impact investors are mainly from wealthy Western countries. According to GIIN, approximately 80% of the impact investors are registered in North America or Europe. (The financed projects or businesses are likely to be more evenly distributed, as many development finance institutions, for example, focus on financing companies in poorer countries.) According to the survey, only 2% of these actors registered their headquarters in East Asia. The share is very small, considering for example the size of the Chinese capital market and the amounts invested abroad by Chinese financial institutions. It does not, of course, mean that Chinese investors do not set other goals for their funding, in addition to the return.

Impact investing as way to respond to global challenges through financial means is still a Western phenomenon. What happens, when the economic weight and financial power increasingly move to the East?

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