Despite the well-noted growth of impact investing in recent years, a lack of access to information, data, and shared expertise keep even more investors from getting involved.
The Global Impact Investing Network (GIIN) seeks to overcome these barriers by connecting investors to tools and knowledge, with the goal of helping the industry scale and advance. “The GIIN’s vision is of a world where impact considerations are integrated into decision-making for all investments,” explains Sapna Shah, Managing Director at the GIIN.
Realizing that vision will require the financial industry to reevaluate the conventional notion that investment decisions should be narrowly determined by monetary risks and returns. While impact investing is sometimes thought of as a niche market, the GIIN hopes that people will come to realize that all investments have social and environmental consequences that are worth considering. “All investments actually do have an impact on the world and that is either positive or negative,” Shah says.
Keep reading for a look at some of the work the Global Impact Investing Network does to help investors become more intentional about impact.
Creating a Supportive Community
According to Shah, a robust impact investing community informs investors about the possibilities of impact investing and how to get started. “Once you begin to connect with others in the community, you can see: What are the operational protocols that underpin the practice of making impact investments? How do investors measure and manage impact? What tools and resources are most useful? How do investors apply clear expectations, such as those in our Core Characteristics of Impact Investing, to ensure products can meet financial and impact objectives? What are the different investible opportunity sets, depending on an investor’s values and investment objectives? And the list of insights available from being part of a peer community goes on.”
The GIIN’s network reaches more than 20,000 investors through its varied engagement channels. Shah emphasizes that all are welcome, regardless of whether they have committed to an impact strategy or are just learning about their options. “We want this community to be as big as possible and are encouraging of investors thinking about impact, no matter where they are in doing that. We welcome complete beginners through to sophisticated practitioners.” She notes that participants are “very interested in learning from one another about what works and doesn’t work to drive impact or in making or managing impact investments, and how to measure and manage impact while making the best use of industry resources.” Within the GIIN’s membership, investors are also “very willing to provide candid feedback on actual structures of financial products and what works and wouldn’t work about them in terms of attracting financing or driving impact.”
Shah believes that rigorous measurement practices are as important for managing impact as they are for managing any other component of investing. “Investors have, for example, financial return targets. And we would never think it was good enough to live in a world where we took approximations instead of hard data for those figures,” she points out.
Impact measurement is necessary “to understand that impact investors are making a difference in the world” and to determine where to deploy capital. In addition, Shah says, measurement helps investors track an investment’s impact performance over time and evaluate whether it is meeting their objectives.
The Global Impact Investing Network supports investors in measuring and managing impact with IRIS+, a free, publicly available system for helping investors translate their impact intentions into results by providing relevant metrics. “We have core metric sets for different strategies. The system is aligned with over 50 different impact measurement frameworks,” Shah explains. A customizable toolkit allows investors to locate resources across impact areas and geographic regions.
Addressing Challenges to Future Growth
The GIIN’s estimates place the global impact investing market at about $502 billion USD in assets under management. That is the result of remarkable recent growth—more than half of today’s impact investors entered the field within the past decade. However, the GIIN has stated that the current market still does not come close to tackling climate change, inequality, and other pressing social and environmental issues. For that, impact investing needs to continue to scale.
Shah identifies three main challenges that must be addressed if impact investing is to reach its full potential. First, diverse financing structures are needed to match the wide range of urgent sustainability issues and investor preferences. The GIIN is exploring different ways of financing impact projects that meet both investor needs and the financing needs of the underlying social or environmental issue. “One of our working groups is experimenting with blended finance vehicles that can bring together investors with concessionary capital, as well as commercial investors, and thinking about structures that allow that capital to be deployed to solve specific social or environmental objectives,” she says.
Another challenge is spreading the word about impact investing and dispelling misconceptions. In particular, many investors mistakenly believe that impact investors must sacrifice financial returns. In fact, Shah says, “It’s possible to still maximize financial returns and your social and environmental impact.” The idea that impact investments earn lower returns “continues to be a myth that we as an industry need to fight.” The GIIN’s many research publications—from case studies on financing the Sustainable Development Goals to its annual impact investor survey—help disseminate the kind of authoritative information needed to characterize the industry accurately and credibly.
The final challenge Shah notes is ensuring the availability of financial products for all the investors who need and want to make impact investments. “There is growing demand for impact vehicles large enough to absorb institutional capital that provide specific features needed, such as liquidity. In addition, there are not enough impact products offered to retail investors.”
Identifying Community Needs
Shah says that investors can maximize their impact if they first expand their knowledge of the issues they are trying to solve.
For example, “investors may want to talk to civil society organizations in the communities that they’re investing in to figure out what’s actually needed.” The key, she believes, is discarding preconceived ideas of what solutions must look like, being open to learning, and “being humble in the face of a complex social and environmental issue.”
Ideally, investors should consult people who are directly affected by the challenges they want to address. “Our vision is for a financial community that is inclusive and also integrates the populations and viewpoints that we’re trying to benefit into the actual investment decision-making.”