Impact investing not a return sacrifice for LPs

A combined 86% of endowments and foundations think impact investing will produce returns at or above market performance.

A majority of endowments and foundations that engage in impact investing believe this strategy won’t cost them good returns, according to the consulting firm NEPC Endowment and Foundation Practice Group’s first-quarter survey results.

Of those who indicated they are currently active in impact investing, a combined 86 percent of survey respondents said they expect these strategies to achieve either market performance or above market performance. Most (73 percent) believed impact investing would be on par with market performance, and 13 percent said it would beat the market. Just 13 percent said they expect “below market performance” of their impact strategies.

Of the various impact investment strategies, mission-related investments were the most popular, with 75 percent of respondents picking it among all types that applied to them. Environmental, social and governance was next on the list, with 50 percent. Advocacy was the least popular, with 13 percent.

Almost all, or 94 percent, of the respondents said they engage in impact investing because it aligns with their mission and/or values. Of the multiple responses they could pick, encouragement by their constituents was the next biggest reason, at 31 percent.

Among the endowments and foundations that allocate impact investing into specific asset classes, rather than as a whole portfolio, one-quarter did so in private investments, while every respondent pursued it in US equities.

Not one of the respondents was a signatory to the UN Principles for Responsible Investing.

For those who indicated they do not participate in impact-related strategies, 35 percent said they plan to look into it in the future, while the same amount said they will not, due to unattractive returns. Half of them said greater visibility and education into the tangible effects of impact investing would be needed for them to consider this strategy, with seven out of 10 saying they are not encouraged by their constituents to implement this strategy.

NEPC surveyed 65 respondents, all based in the US, in April.