The “Core Characteristics of Impact Investing” have been unveiled to help family offices interested in creating positive change navigate the growing $502 billion impact market.
Intentionality, Evidence-Based Investment Design, Impact Management and Contribution to Industry Growth were declared as the core characteristics to provide reference points and practical actions to establish the baseline expectations for impact investing.
The Global Impact Investing Network (GIIN) launched its four tenets last week after consultation with industry leaders. Their aim was to help investors understand the essential elements of impact investing, define the credibility of their practices and consider the quality of the practices of potential investment partners.
The Core Characteristics of Impact Investing, according to GIIN, are:
Intentionality: Impact investing actively sets out to positively contribute to social or environmental solutions by establishing clear impact objectives and thorough strategies to achieve these goals ahead of execution. This intentionality is at the heart of what differentiates impact investing from other complementary practices that focus on avoiding harm or mitigating risk
Evidence-Based Investment Design: Impact investing utilises evidence and impact data in the design of the impact strategies. Empirical data and research from finance and other industries and disciplines, including social and environmental sciences, provide the basis and support to establish impact objectives and validate results
Impact Management: Impact investing requires commitment to impact measurement and management of an investment towards meeting intended objectives and delivering impact. This means using feedback loops whenever possible, to increase positive impacts over the life of the investment, and decrease risks or unintended negative consequences
Contribution to Industry Growth: Impact investing necessitates a practice that is grounded in shared conventions and standards for describing impact goals, strategies, and performance. Impact investors share non-proprietary and non-private positive and negative learnings, evidence, and data, so others can benefit from their experience
According to the GIIN’s Market Sizing Report, the impact investing market size sits at an estimated $502 billion and was rapidly growing. The new Global Sustainable Investment Review last week announced sustainable investment assets had rocketed by more than a third in value in two years to $30 trillion worldwide.
The number of family offices making impact investments increased from one quarter in 2016 to one third in 2017, according to The Global Family Office Report 2018 by Campden Wealth with UBS. The most common areas of investment for families were education; housing and community development; agriculture and food.
Nearly half (45%) planned to increased their sustainable investments over the next 12 months while 39% of family offices projected that when the next generation took control of their families’ wealth, they would increase their allocation to sustainable investing.
Amit Bouri (pictured), chief executive and co-founder of the GIIN, said the next couple of years will either see impact remain on the fringe of the financial markets or press forward into the mainstream.
Sapna Shah (pictured), director of strategy at the GIIN, told CampdenFB that every family has values which matter to them, and many family offices already align investments with values in some way.
“For the family that wants to take a step further—using investment to create positive change—the Core Characteristics provide an easy reference as to what developing an impact investing approach means," Shah said.
Family investors were used to asking “tough questions” in their businesses all the time and it was the same in impact investing.
“The first step in getting started is simply asking questions: ‘What am I investing in? Do my investments represent the legacy I want to leave?’ Impact investing offers families the opportunity to leave a positive legacy while also making money, and the Core Characteristics define what that entails.”
Millennials poised to inherit massive family wealth were demanding more from their family investments, Shah said. They wanted to live out their values as well as make money, but in looking at investment products it could be challenging to know what constituted a credible impact investing approach.
“Our Core Characteristics demand rigor from products labelling themselves as impact,” she said.
“As family investors know, successful businesses use evidence and data when designing their strategies—why should impact investing be any different?
“The Core Characteristics provide vital reference points for fund managers developing credible impact investment offerings for family investors. And they empower families to ask fund managers the right questions about the credibility of the manager’s impact investing practices. This should support more investment from family investors on the sidelines who are uncertain as to whether their investments will make the impact they desire.”