Yesterday, the Global Impact Investing Network (GIIN) and J.P. Morgan released their third annual survey of the impact investing market.
The study was conducted to shed insight on the progress of impact investing in 2012, and surveyed 99 organizations between November 26 and December 7 of 2012. While the sample size has almost doubled that of 2011, it represents only a portion of the market captured, but does include organizations across sectors and regions for purposes of diversification.
Investment by dollars and sectors
Respondents reported that they committed $8 billion USD to impact investments in 2012, and plan to commit $9 billion USD in 2013. They also plan to increase the number of transactions from seven in 2012 to ten in 2013.
With regards to investment by sector, 86% of respondents focused on multiple sectors, while 14% focused on single-sector opportunities including food and agriculture, financial services, microfinance, and energy.
Challenges to impact investing
Respondents identified the two top challenges to the growth of the impact investment industry today as being “lack of appropriate capital across the risk/return spectrum” and “shortage of high quality investment opportunities with track record”.
In 2011, the third biggest challenge was “inadequate impact measurement practice” but that has since fallen to sixth spot and been replaced by “difficulty exiting investments”.
Respondents also say government policies can help them make impact investments. “Technical assistance for investees” was the highest ranked policy, followed by “tax credits or subsidies” and “government-backed guarantees”.
Financial returns and social impact
Financial returns are important to impact investors, with 65% of respondents principally targeting “market rate returns” while 35% target returns “below market rate”.
Respondents reported impact and financial performance to be in line with their expectations. In terms of their portfolio’s impact performance, 84% reported that it was in line with their expectations, and 14% reported that it was outperforming their expectations. In terms of financial performance, 68% reported it was in line with their expectations, and 21% said it was outperforming.
The top three contributors to risk in their impact investment portfolios are “business model execution & management risk”, “country & currency risks”, and “macroeconomic risk.”
What’s motivating traditional investors for making impact investments is the commitment to being a responsible investor, efficiency in meeting impact goals, and financial attractiveness.
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