Impact investing has been a hot topic in the social sector for many years. With so much in this burgeoning field in flux, what are some of the key trends to keep your eye on in 2020? Here’s what I’m watching for:
1) Growth
The overall impact investing market is exploding with more than $500B in assets under management,[1] nearly a billion dollars of which is managed by non-profits in the international development industry.[2] Non-profits are continuing the trend as more and more set up impact investing funds, build partnerships with impact investors, and go beyond technical assistance for small businesses with which they work to broker investments. A recent report I’m happy to have collaborated on with Humentum and others reported a 45% increase in INGOs exploring impact investing over just a two year period. This year I will be watching for which INGOs move into this space with announcements of new funds, investments, or partnerships.
2) Maturation
Along with the growth in size, we’re seeing increasing sophistication among non-profits in impact investing. As more big investment banks like Goldman Sachs, UBS, JP Morgan and others move into impact investing with eye-popping amounts of capital, there is a growing understanding of the niche role social sector actors can fill. By building on their unique assets as non-profits, organizations are investing in hard to reach or early stage companies requiring more technical assistance, designing multi-stakeholder social impact bonds based on the trust their organizations garner, or operating in frontier markets or conflict zones where they already have a strong footprint. These activities are generating impact and attracting private capital that would not flow without social sector involvement to lower the risk.
As our sector matures in this area, networks like the Aspen Network for Development Entrepreneurs (ANDE), & Humentum’s INGOs in Impact Investing Network, and the Asian Venture Philanthropy Network are providing spaces for social sector actors in impact investing to share lessons learned and collaborate to accelerate progress.
3) Focus from USAID
In the past year, we’ve seen an increasing interest from USAID and the US government in impact investing and innovative finance more broadly. From USAID’s Private Sector Engagement Policy’s more expansive view of investments beyond traditional public-private partnerships to USAID’s Blended Finance Roadmap for Global Health, USAID is developing its own expertise in this area and encouraging its partners to incorporate socially-motivated investments into their work. USAID’s investments, including in the INVEST project, a blended finance learning project, and a social impact bond in India, mirror their public statements with concrete action. With OPIC in the process of transitioning to the new US International Development Finance Corporation with a greater focus on development impact and an intention to collaborate more closely with USAID, we can expect to see this trend continue into 2020.
4) Blended Finance
Too often the conversation in impact investing has gotten stuck in an unproductive debate about whether there needs to be a tradeoff between impact and financial returns. But in the growth of activity in blended finance, we’re seeing increasing focus on finding the right type of capital for the right need, including investments seeking market-rate returns and concessionary capital. Leading the charge this past year were the MacArthur Foundation, Rockefeller Foundation, and Omidyar Network, who teamed up to launch the Catalytic Capital Consortium to explore how their organizations’ resources could be leveraged to attract more private capital for impact. In 2020, I’ll be watching to see what kinds of innovative combinations of capital emerge and how those that have already been launched, like Zero Gap, which focuses on innovative financing mechanisms to advance the SDGs, and Terra Silva, which is targeting the climate crisis, perform.
5) Measurement
Finally, I’m encouraged to see more and more impact investors of all stripes talking about measurement to ensure that well-intentioned investments are creating the impact they seek. In the past few years, there has been a proliferation of interesting measurement methodologies, including the GIIN’s IRIS metrics, social return on investment (SROI), the Rise Fund’s impact multiple of money (IMM), and, of course, metrics aligned with the SDGs. This year I will be watching to see if there is any greater consolidation around shared metrics that would allow investors to compare and communicate impact across portfolios.
It doesn’t take a crystal ball to predict that impact investing will continue to be an important area of growth for INGOs and development organizations in 2020. But how it grows and develops further we’ll only uncover over the course of the year ahead.
[1] GIIN, “Sizing the Market.” https://thegiin.org/assets/Sizing%20the%20Impact%20Investing%20Market_webfile.pdf
[2] Amplify, “The Next Mile of Impact Investing for INGOs.” https://www.humentum.org/sites/default/files/ctools/Amplifyii_ImpactReport_2018_9DEC_1.pdf