In this week’s blog, David Sand, CCM’s chief impact strategist shares his five impact investing trends for 2020.
- Climate Change: In 2019, Greta Thunberg proved that small can be mighty. Her activism earned her global attention and she has been nominated for the 2019 Nobel Peace Prize. She was also Time’s Person of the Year – its youngest ever. And now, only a week into 2020, we are already seeing climate change play a role in the Australian wildfires. Climate change has been a hot topic with impact investing over the last few years and we think it will be at the forefront of impact investing in 2020.
- New Asset Classes: We think 2020 will see a large increase in private impact investing debt opportunities as well as impact investing cash equivalent opportunities. At 26% of impact AUM, private debt is the largest asset class within impact investing1, and we believe this will only climb upwards. There is a huge opportunity for lenders and impact investors, who are increasingly adding impact-oriented provisions into credit agreements. ImpactAssets Inc., a non-profit financial services company working to increase the flow of impact capital, notched a record number of private debt applications for its manager database in 2019.2 Investments of cash assets into community banks, local financial institutions, and community development financial institutions (CDFIs) will also increase as the number of opportunities continues to grow and investors see the positive impact their cash investments are having in their own communities.
- Impact Measurement: We mentioned in our 2018 Annual Impact Report that impact measurement was a hot topic and we see this remaining at the forefront of impact investing in 2020. Impact investing professionals continue to debate standards and protocols around how to report on impact outputs and outcomes. Whereas evaluating the financial performance of an investment is straightforward, measuring social impact is more difficult which is why we are confident the discussion will continue into 2020 and beyond. We do not believe one mechanism will ever be able to truly capture and measure all impact equally, just as asset classes have different benchmarks. We think an investor’s ability to measure impact depends on the type of investment and if it aligns with their mission or impact goals.
- Economic Inequality: We have reached another election year which means there will be intense focus on economic inequality, tax rates, and how large pools of capital help or impede social change. We anticipate the United Nations Sustainable Development Goals (SDGs) continuing to spotlight this issue given their objectives involving poverty, decent work and economic growth, and inequality. As the UNPRI stated in their academic research, “Why and How Investors can Respond to Income Inequality”, the effects for investors of a massive income gap can include (1) negative impact on long-term investment performance; (2) a change in risks and opportunities that affect the universe of investment opportunities; and (3) destabilization of the financial and social systems within which investors operate. We believe this topic will continue to be a hot topic in 2020.
- Endowments and ESG: Universities, nonprofit foundations, and other institutions create endowments by investing money in stocks, bonds, or other financial products that trustees then oversee.3 There has been a trend in this area of endowments and ESG – from student activists who cite disparities between their schools’ missions and investment choices to foundations going “all-in” and announcing their move to 100 percent mission-aligned investing. Many are realizing that grantmaking alone will not solve many of our world’s problems and that the capital markets can help drive change. While the roadmap may look different for different types of investors, the bottom line is that endowments can have true impact. We anticipate more endowments aligning 100 percent of their investment portfolio with ESG values.