Deep impact: the next step in sustainable investing

The impact investing sector is by far the smallest portion of the overall ESG investing universe in Australia. According to the  Responsible Investment Association Australasia (RIAA)'s Responsible Investment Benchmark Report Australia 2021, total assets under management for identifiable impact investing strategies was $29 billion in 2020. Total managed funds in Australia at that same point in time was almost $3.2 trillion.

But as ESG investing has caught on with a range of investors, impact invest strategies are being applied to a wider range of assets, including listed companies and sustainability-linked bonds and other vehicles. The growing interest in aligning investment with positive outcomes could lead to strong growth towards funds and products that provide that outcome.

To avoid the accusation of "greenwashing" or "rainbow washing", asset managers, advisers and other financial service providers are working to demonstrate that their investment process authentically brings positive benefits through increasing access to goods and services that improve communities and/or the environment. 

Sponsored by T. Rowe Price Climate Resolutions Make a Mark on the 2021 Proxy Season

It is also an ongoing question as to whether deliberately seeking out positive impacts guarantees higher return, with fund managers saying that it can help identify opportunities, without having firm evidence that it is a direct signal.
 

Impact investing to grow

As noted earlier, RIAA's Responsible Investment Benchmark Report Australia 2021 calculates total assets under management for identifiable impact investing strategies at $29 billion in 2020, while total managed funds in Australia at that same point in time was almost $3.2 trillion.

In Australia, the specific impact investing space is dominated by green, social and sustainability bonds. RIAA's 2021 benchmark report noted that of the $29 billion in total AUM for impact investing, green, social and sustainability bonds comprised $26 billion. Real assets including property and infrastructure made up $2.2 billion, private debt comprised $287 million, public equity made up $195 million, private equity was $97 million, social impact bonds were $66 million and all other investments made up $44 million.

The RIAA benchmark, which covered developments during 2020, noted that "discussion with investment managers and analysis of survey responses indicates that there is a grey area when classifying sustainability-themed investing and impact investing," but also noted that the impact investing space grew 46% over 2019.

Many proponents of impact investing say that leveraging public markets is key to expanding potential positive impact across capital markets.