WHAT IF 1% ?

Peak into the future: Increasing Impact Investment allocation  by 1%

 In recent years, impact investing has garnered significant attention as a means to generate not only financial returns but also positive social and environmental outcomes. As the world grapples with issues such as climate change, social inequality, and sustainable development, the role of large financial entities in fostering change has never been more crucial. We have all witnessed the recent floods in Italy and Switzerland, drenched spring in Europe, extreme scorching weather in Mecca.  One cannot be indifferent to the changing climate wherever you are on the globe.

The Current Landscape of Impact Investing

Impact investing is a strategy that aims to produce measurable social or environmental benefits alongside financial returns. According to the Global Impact Investing Network (GIIN), the impact investment market has been growing steadily, with a market size estimated at USD 1.164 Trillion alluding to its considerable growth over recent years. This growth indicates a rising awareness and commitment to using capital for good among various financial entities.

 What are the potential effects if all asset owners, pension funds, insurance companies, and institutional investors were to increase their impact investment allocation by  1%?

 The total assets under management (AUM) globally exceed $100 trillion. Pension funds, insurance companies, and other institutional investors hold a significant portion of these assets. Increasing the impact investment allocation by 1% across these entities could translate into an additional $1 trillion directed towards impact investments.  Nearly double what it is today!

 Such an influx of capital could drive substantial growth in sectors that are crucial for sustainable development, such as renewable energy, affordable housing, and sustainable agriculture. This additional funding could accelerate the development and deployment of innovative solutions to global challenges, providing a much-needed boost to efforts aimed at achieving the United Nations Sustainable Development Goals (SDGs).

 1. Climate Action: Increased funding for renewable energy projects could hasten the transition to a low-carbon economy. Investments in technologies such as solar, wind, and energy storage would help reduce greenhouse gas emissions and combat climate change.

 2. Social Equity: Impact investments often target underserved communities, providing essential services like affordable housing, healthcare, and education. An additional 1% allocation could enhance the quality of life for millions of people worldwide, reducing inequalities and promoting social cohesion.

 3. Sustainable Agriculture: Investments in sustainable farming practices could improve food security, protect biodiversity, and enhance soil health. This would contribute to more resilient food systems capable of supporting a growing global population.

  Beyond the direct social and environmental benefits, increasing impact investments could stimulate economic growth. Impact enterprises, which often operate in emerging markets and underserved areas, could gain access to much-needed capital, fostering innovation, job creation, and local economic development.

 While the potential benefits are substantial, there are challenges to consider. One significant barrier is the perceived risk and lower return associated with impact investments. However, as the market matures and more data becomes available, these perceptions are gradually changing. Several organizations provide research and insights on successful impact investments. Some of the leading ones include:

 GIIN is one of the foremost organizations dedicated to increasing the scale and effectiveness of impact investing. They offer a wealth of research reports, case studies, and data on the performance and impact of investments.

 Impact Investing Institute-This UK-based organization provides resources and research to support the growth of impact investing, including market reports and guidelines for investors.

 Rockefeller Foundation- Known for its pioneering work in impact investing, the Rockefeller Foundation offers various publications and reports on the subject.

 Stanford Social Innovation Review (SSIR)- SSIR publishes articles, case studies, and research on impact investing, often focusing on the strategies and outcomes of various investments.

 Cambridge Associates- offer research and advisory services on impact investing, including performance analysis and market trends.

 Toniic Institute -Toniic provides insights and research for impact investors, including reports on investment strategies and outcomes.

There is a need to revise the investment guidelines of the large asset owners to allow a more current approach of investment guidelines to a changing world.   GSG Impact is active with governments globally putting in new regulations which will influence  CIOs of pension funds and insurance houses to allocate more impact investment in their portfolio.

 Furthermore, there is a need for robust measurement and reporting frameworks to ensure that impact investments achieve their intended outcomes. Standardizing impact metrics and improving transparency will be critical to building trust and confidence among investors.  ISSB is active in standardizing this impact language and set a global baseline to enable companies to provide information about sustainability related risks and opportunities which is used by investors’ decision making.

As you can see there is a solution for all the challenges and excuses. Increasing the impact investment portfolios of asset owners, pension funds, insurance companies, and institutional investors by just 1% could unleash a transformative wave of capital capable of addressing some of the world's most pressing challenges. This shift would not only drive social and environmental progress but also enhance financial resilience and long-term returns. The potential ripple effects of such a shift underscore the power of capital markets in shaping a better world for generations to come.  Let's push for the 1% challenge!