Nick O'Donohoe, senior advisor of the Gates Foundation, told the Global Impact Investing Network Investor Forum 2016 that impact investment could be “transformational” in solving some of the world's most intractable problems such as climate change and Third World poverty.
“Impact investment is at a tipping point,” said O'Donohoe, who likened the growth in the use of private capital to generate a social and environmental impact to the early days of the private equity, venture capital and hedge fund movements.
Impact has become a “critical component” in investment decisions, he told the conference, which was co-hosted by Private Equity International.
The forum, which brought together 800 delegates from more than 45 countries and six continents, came amid strong growth in the sector.
A report by the Global Impact Investing Network unveiled on the opening day of the conference showed that assets under management in impact funds are rising by 18 percent a year, up from $25.4 billion in 2013 to $35.5 billion in 2015. Seventy percent of the assets are allocated via private debt or private equity.
But the optimism over the growing interest in the asset class came with a warning. “The challenges don't go away,” said O'Donohoe, noting the urgency of issues such as global warming.
Delegates included representatives of many of the big pension funds who said that they had turned to impact investing out of a realisation that they had a responsibility to deliver positive social change from their investments.
Peter Borgdorff, director of Dutch pension fund Pensioenfonds Zorg en Welzijn, said that it had switched to a strategy which places a greater emphasis on social outcomes.
“When we talk about impact, we want to make the world a better place,” he told a panel.
New outcome-oriented targets for the pension fund include halving the carbon footprint in its portfolio and quadrupling its impact investments. The stance is backed by its members, who increasingly expect the fund to invest in environmental and social initiatives, Borgdorff said.
The conference also highlighted the potential barriers to growth in the impact sector, notably a lack of liquidity and the difficulty of measuring impact. “We still don't speak a common language,” said Linda Broekhuizen, chief investment office of Dutch asset manager FMO, which has invested in socially responsible projects for more than 45 years. “I dream of seeing financial reporting standards for impact.”
Another criticism was the lack of scale of many of the projects. One answer put forward by Grete Faremo, executive director of the United Nations’ UNOPS programme, is a larger role for partnerships with overseas aid institutions who can provide seed capital and financial guarantees for impact investments. “There's a colossal amount of capital available for projects that deliver impact,” she said in a keynote address on the second day of the conference.