Forecast for 2022: impact investing

To kick off our series of predictions for the year ahead, Abhilash Mudaliar, Portfolio Manager at the Paul Ramsay Foundation, shares two predictions and two wishes for impact investing in 2022.

Prediction: a growing interest in integrity

The term “impact investing” was first invented in 2007, and from there, coordinated efforts were made to develop a cohesive industry. In the early years, the emphasis was on expression – prove the viability of the concept. Then we focused on ladder – involve more investors and deploy more capital. Now we focus on integrity.

These days, hardly a week goes by without someone announcing the creation of an impact investing fund or strategy. Generally, it is a bargain for the market. It’s exciting that impact investors based abroad, such as Bridges, are looking to grow here. It is promising that traditional managers, such as Liverpool Partners, plan to launch an impact investment fund. And it’s great that new fund managers are being created, like IPPF and Sensitive Impact Group and Australia’s first capital, to fill gaps in the market.

The Responsible Investment Association of Australasia estimates that the impact investment market in Australia will grow fivefold, from $20 billion today to $100 billion within five years.

So, with the money starting to flow, it becomes even more important to put impact first. As the GIIN Insights, this means: having transparent impact objectives, articulating a clear theory of change, measuring progress using high-quality indicators, integrating feedback loops and sharing real impact performance.

It is incumbent on all players in the ecosystem to push for these standards:

  • Anyone who wants to call themselves an “impact investor” should strive to disclose how they meet these standards.
  • If you are a stakeholder in impact investing, you should confidently seek to hold impact investors accountable for these behaviors and practices.
  • A robust market for independent verification of impact claims and practices is expected to develop.

So my first prediction is that impact integrity will become increasingly critical.

Prediction: More mixed trades

Conventional investing (i.e. impact independent investing) focuses primarily on two metrics: risk and return. To these, impact investing adds a third: impact.

Different investors have very different appetites for where they are willing to operate on the risk-return-impact spectrum and where they are not.

At the same time, many investment opportunities with the potential to have a huge impact lie at points on the spectrum where no investor prioritizes their strategy.

This is where blended finance comes in: by carefully combining their capital, very different investors can collaborate to channel funding into opportunities that they individually do not want or cannot fund. And we don’t see enough use of blended finance in the Australian market.

So my second prediction is that we will see at least one or two signature deals where different types of impact investors – such as foundations and institutional investors – come together to “mix” their respective risk preferences- return-impact to significantly fund new opportunities. which otherwise might not have been capitalized.

Wish: the government comes to the table

Although Australia is a prosperous nation in many ways, too many Australians continue to face deep and entrenched disadvantages. The government cannot meet these challenges alone.

There is a huge need – and opportunity – for government to partner with the private and purpose-driven sectors to leverage impact investments and fundamentally change the dial on persistent disadvantage.

the Social Impact Investing Working Group (“taskforce”) set up by the Federal Government in 2019 has submitted a set of six concrete recommendations which together can help us develop a mature, efficient and effective impact investing market in Australia.

The recommendations – which include the creation of an early-stage social enterprise foundation as well as an impact investing wholesaler – are both very practical and have broad support in the investment industry. impact investing.

To date, the federal government has not acted on these recommendations. The first item on my wish list is that 2022 is the year the government acts.

Wish: Diversity, equality and inclusion

In most cases, when we talk about ‘impact investing’, we tend to be talking either about the organizations that make investments or the companies and projects that receive funding.

We rarely talk about the who, that is, who is involved in making investment decisions and who tends to be successful in receiving funding. Specifically, we don’t talk enough about how the principles of diversity, equity, and inclusion manifest in the practice of impact investing.

We know there are approximately $20 billion in impact assets under management in Australia today. Are teams making decisions about where that money goes appropriately? What voices and perspectives are represented? Are people with lived experience consulted meaningfully? And who are the funded people?

There are now many proof worldwide than in conventional investing – where the vast majority of investors are white and the vast majority are men – female founders and female founders of color experience statistically lower fundraising success.

While there is no hard data I have seen on DEI in the Australian impact investing landscape, my second wish for 2022 is for this to be on the agenda.

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