Impact Investment is Growing Rapidly in Canada: New Study
The 2016 Canadian Impact Investment Trends Report reveals tremendous growth in Canada’s impact investment industry. The survey, which represents data as at December 31, 2015, was conducted between April and August 2016. Eighty-seven organizations responded to this year’s survey. The RIA uses the Global Impact Investing Network’s definition of impact investment: “Impact investments are investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social and environmental impact along with a financial return.”¹
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Four major trends emerged from our survey:
- The significant growth of Canadian impact investment assets under management;
- Performance has met or exceeded expectations, especially for those targeting competitive returns;
- The growth and development of public equity as an opportunity for impact investors; and
- An increase in the number of impact products available to investors.
A. Major Trends
1. Market Growth:
The 2016 Canadian Impact Investment Trends Report reveals that impact investing is experiencing rapid growth in Canada, and that continuing growth in this field is expected.
- Survey respondents identified over $9.2 billion in assets under management as impact investments in 2015.²
- This total represents an increase of 123% over 2013.
The significant growth of impact investment can be attributed to at least three factors:
- The increasing demand for impact investments by institutional and high net worth investors.
- The growing availability of impact investment products.
- The expansion of investors’ counting of impact investments as they gain a deeper understanding of how they can generate positive social and environmental impacts across various asset categories.
2. Positive Performance Relative to Expectations:
65% of survey respondents target competitive returns at or above market rate, an increased percentage from our last survey. Of that group, 96% said their impact investment’s performance either met or exceeded their expectations. This finding supports the case that investing for environmental or social impact can generate competitive returns.
3. Impact Investing in Public Equity:
This year’s survey revealed that impact investing is moving rapidly into public markets. Whereas public equity comprised only 3% of impact investments two years ago, the latest data shows that about 20% of Canadian impact investment assets are in public equities.
This upward trend is the result of numerous factors, including the increasing availability of impact investment products and greater demand for impact investments in the context of growing awareness of environmental and social challenges.
Another key factor is the growing number of asset owners making commitments to move assets into impact investments. The growing proportion of portfolios moving to impact means a greater need for diversification into public markets. To meet this need, asset managers are increasingly offering funds and strategies dedicated to impact investing in public equities.
4. Expansion of Impact Investment Products:
A growing number of impact assets (18% in 2015 versus 6% in 2013) are invested indirectly, through funds or other products, into companies or organizations with an environmental or social purpose. The increased availability of impact products from which investors can choose is an indicator of the industry’s progress and growing dynamism.
This year, we have included in our report a list of impact investment products available in Canada to reflect the growing number of options that Canadian investors have to steer capital towards today’s pressing environmental and social issues, in addition to making direct investments.
An Evolving Understanding of Impact Investment:
As noted above, one factor in the growth of impact investing is the expansion of investors’ counting of impact investments as they gain a deeper understanding of how they can generate positive social and environmental impacts across asset categories. But even when we control for evolving methodologies, impact investing is growing tremendously in Canada. As shown in the chart below, we still see a 55% increase in the growth of the impact investment industry from 2013 to 2015, even when we only include the same type of assets reported in the last survey:
Canadian Impact Investment Assets (billions) (Outlier excluded*)
*For comparison to 2013 figure only; excludes $2.8 billion in additional assets classified as “impact” investments as reported by one credit union as of December 31, 2015.
B. 2015 Survey Highlights
1. Market Characteristics
- The vast majority (91%) of the assets identified in the survey are associated with organizations headquartered in British Columbia, Ontario and Quebec.
- Impact investment assets are allocated across private debt (32%), private equity (24%), and public equity (20%), as well as residential mortgages, green buildings and consumer loans.
- Canadian impact capital is invested in a wide variety of sectors, with housing/real estate, clean technology and energy topping the list.
- 71% of reported impact assets are invested in mature businesses. In this category, assets are split about evenly between private and public markets.
2. Performance and Risk
- 65% of survey respondents target competitive returns, an increased percentage from our last survey.
- Of those who target competitive returns, 62% target market rate returns and the remainder target above market rate. 96% of this group said their impact investment’s performance either met or exceeded expectations.
- Business model execution and management is perceived as the top contributor of risk to impact investment portfolios, followed by financing and market demand and competition.
- 17% of respondents provide credit enhancement, primarily guarantees and subordinated debt, while 12% said they may do so in the future.
- 50% of respondents believe that standardized environmental/social impact metrics are important for industry development, with 17% saying standardized metrics are “very important.”
- A majority (62%) of respondents expect either moderate or high levels of growth of impact investing over the next two years.
- Contributing to local community development was the top motivation for seeking investments with environmental or social impact, followed by contributing to sustainable development, financial opportunity, and stable long-term returns.
- Risk concerns, performance concerns, and lack of viable products/options are the top three factors preventing investors from demanding more impact investments
[¹] Global Impact Investing Network
[²] Due to industry-specific challenges associated with data collection, we recognize that this estimate may be
incomplete. There are likely additional impact investment assets not captured in this estimate.
[³] Source for 2015 data: RIA 2016 survey. Source for 2013 data: RIA’s Responsible Investment Trends Report 2015. Source for 2012 data: Impact Investing in Canada: State of the Nation. MaRS and Purpose Capital, 2014.
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