Paula Goldman offers her take on what's in store for impact investing in 2016.
2015 was an unprecedented momentum-building year for impact investing, and we expect the excitement to continue in 2016. Here are our five predictions for what’s to come.
Assets under management will multiply significantly.
While interest in impact investing is at an all-time high, the amount of impact investing capital being deployed to date is relatively small. Yet the recent Chan Zuckerberg Initiative is just one indication of the changes to come. Twelve years ago, Omidyar Network was extremely unconventional with its “problem first, tool second” approach.” Functionally, this meant creating a hybrid model—both a traditional foundation and an LLC—to support the right changemakers, regardless of whether they were for-profit or nonprofit. Now, other prominent philanthropists are following suit and pursuing market-based complements to nonprofit social change approaches.
New waves of business investment and innovation will be home-grown in emerging markets.
Impact investing will not just flow into emerging markets, but will grow from within. For example, Unitus Capital, an impact investment-focused investment bank, expects impact equity investments in India to grow 30 percent this year. And almost half of all assets under investment in three of Africa’s most significant economies—South Africa, Kenya, and Nigeria—are being invested for good in some way, according to new research from the UCT Graduate School of Business.
Pension fund and foundation engagement will spike.
The trillions of dollars currently being managed by pension funds will begin to flow into impact investing thanks to the Department of Labor’s amended ERISA guidelines that allow investors to take social and environmental considerations into account in their investment decisions. Similarly, in 2015, the U.S. Treasury department issued new guidelines that make it permissible for endowment managers to consider mission and values as legitimate factors in their investment decisions—breaking down historical walls between program and investment teams at charitable organizations.
We will move beyond finance first, impact first divisiveness.
There used to be a widespread assumption that impact investing cannot achieve market-rate financial performance. Recent studies, including one we supported from Wharton, and another from the Global Impact Investors Network (GIIN) and Cambridge Associates, show that doing well while doing good is a viable investment strategy. While these studies are not exhaustive, they signal that it is time to move past the finance first versus impact first mentality. It is limiting and misleading to try to frame impact investing in traditional finance terms, which assume that financial returns and social impact are mutually exclusive or necessarily separate. Instead, new impact investing frameworks will be born based on an understanding that one size does not fit all and that impact investors may have varying priorities based on risk, return, and impact.
Next-gens will push impact investing more mainstream.
The statistics bode well for younger investors to help make impact investing more mainstream. Nearly twice as many millennials view investment decisions as a way to express social, political, or environmental values compared to baby boomers—67 percent versus 36 percent. The impending $41 trillion wealth transfer to next-gens means that they will not only be advocating for impact investing, but they will have increasing clout to demand it from major investment firms.
Combined, these five forecasts add up to exponentially more capital available to be deployed to impact investing, suggesting that 2016 will be a banner year in a rapidly growing field.