A Progress Report on Impact Investing

Topline numbers on market size and growth always steal the show when JP Morgan and the GIIN release findings from their annual survey of impact investors.
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Topline numbers on market size and growth always steal the show when JP Morgan and the GIIN release findings from their annual survey of impact investors.

However the survey also provides an invaluable progress report on the scaffolding that makes impact investing possible, by asking about key challenges to the growth of the industry. By comparing the latest results to those reported in January 2013, we can see where the field of impact investing is improving and where it is deteriorating and more work is needed.

(Note: The survey scores eight defined challenges by tallying the number of respondents that rank them first (3 points per response), second (2 points per response), or third (1 point per response). Given that a higher score indicates a bigger challenge, improvement is measured by decreases in the scores from 2013 to 2015; deterioration is measured by increases - accounting for the change in the number of responses, from 99 in 2013 to 146 in 2015).

Here are the two areas of improvement:
  1. "Shortage of high-quality investment opportunities with track record" (16 percent decrease in weighted JPM/GIIN score from 2013 to 2015)
  2. "Lack of appropriate capital across the risk/return spectrum" (8 percent decrease)
Here are the four areas of deterioration:
  1. "Lack of investment professionals with relevant skill sets" (21 percent increase)
  2. "Lack of research and data on products and performance" (17 percent increase)
  3. "Lack of common way to talk about impact investing" (13 percent increase)
  4. "Lack of innovative deal/fund structures to accommodate investors' or portfolio companies' needs" (11 percent increase)

Taken together, the findings provide further evidence of the dramatic shift in emphasis towards action and execution in impact investing.

The lack of a) high-quality investment opportunities, and b) appropriate capital, remain the two biggest challenges to the growth of impact investing in an absolute sense. Yet the data suggests that pioneering, specialist intermediaries and new entrants with mainstream credentials are making a dent in the problem.

On the other hand, the infrastructure needs of the market are becoming more acute. Skills, research, communication efforts, and product innovation have all lagged in the last two years.

Governments, foundations, academic institutions, think tanks and other actors committed to field building should take notice. Without redoubling efforts to build the right scaffolding, the moment to shape and capitalize on heightened investor interest will pass.

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