The Global Impact Investing Network (GIIN) has published a report recommending ways in which the impact investment community can maximise its effectiveness.
Roadmap for the Future of Impact Investing: Reshaping Financial Markets, identifies six priority areas for impact investors. These include establishing “a set of common, mutually agreed principles that define what it means to be an impact investor”, and to “launch a broad, global campaign to reshape mindsets about the role of capital in society”. The report, compiled from the perspectives of investors, asset managers, investees, service providers and funders of field-building efforts, also advocates an expansion of products available in the market, such as blended-finance vehicles. These it says could introduce tools, services and training that make impact investment both more sophisticated and accessible.
“The report presents how we can have an impact on all investments and stimulate a systemic change in global financial markets, what are the necessary actions for impact investment to expand, advance and challenge the dominant model, and point the way towards a new future where impact is present in all investment decisions and the impact of investment is an option for all,” said Amit Bouri, co-founder and CEO of GIIN.
GIIN argues such changes should take place “immediately and with urgency”, warning that the social and environmental problems faced by millions worldwide “portend significant near-term challenges” if they are not recognised by those who manage the capital needed to meet them.
Robert Gertner, professor of strategy and finance at the school of business of the University of Chicago, is quoted in the report as saying: “Models of investor behaviour that incorporate more than risk and performance are becoming more common. I can see that this will become a chapter in finance books in the years to come.”
Many financial advisors still lack the requisite knowledge to advocate impact investment, and so often steer interested clients away from the them, the network says. It adds that more needs to be done by bodies such as the Chartered Financial Analyst (CFA) and the Chartered Alternative Investment Analyst Association (CAIA) to train wealth advisors on such topics. Such training could develop into customised workshops for asset managers to capture unmet demand.
The stakeholders whom GIIN consulted recommend that governments take a more decisive role. By introducing financial benefits for impact investments, such as reduced interest rate caps, governments can very effectively catalyse private capital towards areas where their is a clear need.
“These investors say that a lack of government involvement will probably not impede industry growth; in the medium term, some investors feel that policy changes, even if they were to occur, would have a limited effect on the market,” the report argues.
Investors in emerging markets in particular see governments’ main role as stabilising the sectors in which they invest, rather than regulating them.
“Moving forward in actions will be challenging and we will undoubtedly face obstacles. The success of the Roadmap requires a deep commitment and concerted action from each leader who believes in the potential of the impact investment. We will need to involve people far beyond the limits of the market as it currently exists,” added Bouri.