We are facing unprecedented collective pressure to address social and economic injustice. Alongside good public policy and community action, we know that mobilizing investment capital has a significant role to play in tackling our most pressing problems. And Canadian asset owners have the capital to make meaningful progress in addressing these challenges.
While there is clearly an impact investing movement underway, there is much work to be done before we can declare that local and global capital has been transformed to operate in the service of all people and our planet. As impact investing continues to rapidly evolve, it is crucial that we look to collect data to identify the levers to pull and barriers to break to unlock new capital. Accordingly, we need to ask important questions: what is the current state of impact investing in Canada, what preferences do investors hold, and what roadblocks exist for asset owners?
As a starting point to answer these questions, SVX designed and deployed a survey this past spring targeting accredited impact investors from across Canada to assess their current and planned impact investing activities. The following key takeaways are a taste of the insights we’ve gained from our survey.
What did we want to know?
Our core objectives for the survey were:
- Assess current engagement and desired future engagement with impact investing;
- Understand information flows and pain points in the impact investment process;
- Discern target return profiles, geographic preferences, and thematic focuses for impact investment opportunities; and
- Identify the ways in which intermediaries can improve their service offerings to better meet investor needs.
How did we do it?
The survey was deployed in April 2021 to a broad range of pre-selected respondents from the SVX and Impact United investor network as well as our partner client and investor networks. Those surveyed were accredited investors active or interested in impact investing representing individual investors, foundations, family offices, financial institutions, endowments, and faith-based organizations. A total of 95 respondents completed the survey, representing approximately $3.5 billion in assets (CAD).
What five key insights did we derive from the survey?
- Investors are meeting their financial and return expectations
- Climate, housing and food are top priorities for investors
- There is a need to build greater engagement and capacity in equity lens investing
- Investors want to significantly grow their asset allocation to impact investing
- Asset owners are seeking a shared community for connecting, learning and action
Investors are meeting their financial and impact expectations
We found that investors overwhelmingly view their impact investments as performing in-line or outperforming their expectations along both frontiers, with very low levels of underperformance on impact or financial returns. This demonstrates that impact investment product issuers are bringing a high degree of rigour to their return projections, pointing to the proficient expectation setting in the industry.
When we explored what financial returns impact investors were seeking, it became clear that the majority were targeting risk-adjusted market-rate returns. 72% of survey respondents were seeking market or risk-adjusted market rate returns, which is largely in-line with global results sourced from the Global Impact Investing Network (GIIN). This reinforces the narrative that impact does not necessarily have to come at the expense of financial returns.
However, when we break down the return expectations by investor type, we see that the comfort with more modest return investments that may generate greater impact is highest among foundations (42% seeking capital preservation or below market-rate) while larger institutional investors like financial institutions and family offices are seeking market-rate returns.
Climate, housing and food are top priorities for Canadian impact investors
We asked investors about thematic priorities in their impact investments and saw the greatest interest in issue areas like energy and the environment, food, and affordable housing. These issues are not only top of mind for Canadians, with the climate-related events on the West Coast and rapid housing cost increases across Canada, but they’re also highly investable with existing and emerging solutions that can be capitalized with impact investments.
There is a need to build greater engagement and capacity in equity lens investing
Respondents reported lower overall interest in equity-lens investing, which includes investing in BIPOC-led and BIPOC-serving enterprises as well as gender lens investing. This is at odds with the rise in awareness around issues of equity and inclusion, systemic racism, and the disproportionate disadvantage that women and racialized communities face in accessing investment capital. This disparity may indicate that an education gap exists in relation to equity lens investing, as well as a product availability and awareness gap with opportunities that drive greater equity, diversity, and inclusion. This identifies a greater need to integrate equity into the strategies of all impact investing intermediaries, and to support the work of impact investing community actors including SETSI, New Power Labs, and the Social Innovation Academy.
Investors want to significantly grow their asset allocation to impact investing
To discern how best to unlock more capital for impact, we sought first to understand current and prospective levels of portfolio allocation among active impact investors. To this end, we asked respondents to disclose their current and desired portfolio allocations to impact investing.
Given our previous insight that impact investments are meeting or exceeding the impact and financial targets of investors, the results were unsurprising, yet highly encouraging. Participants suggested a decisive increase in overall engagement in impact investing, with 45% of respondents indicating plans to allocate half or more of their portfolio by 2026. With the majority of growth coming from the group indicating current 0–9% allocation, it seems that impact-generating holdings are providing sufficient proof of concept to drive increased demand from those already exposed. Investor appetite on a decisively upward trajectory is appealing on two fronts. First, it validates the ability of existing products and issuers to deliver on ambitions of producing attractive financial and impact returns. Second, it shows that there is indeed an abundance of investor demand already, which can encourage further adoption of impact investment among all asset owners.
Asset owners are seeking a shared community for connecting, learning and action
Once again, the survey results were clear: asset owners have significant interest in connecting and collaborating with one another in practical ways. This provides a positive and strong foundation for communities and movements through communities like Impact United.
Though simple, providing a common place for like-minded individuals and organizations to connect and work together can go a long way in preventing the fragmentation faced by many sectors and movements. Moreover, linking players can amalgamate numerous unique voices into a unified chorus, hence transforming an industry into a movement to achieve mutual objectives. In doing so, leading impact investors can lay the groundwork for subsequent investigations like this survey, which cast light on the necessary improvements in our approach to create the transformative change we seek.
These five (5) headlines only scratch the surface of the insights from our 2021 Canadian Impact Investor Survey. We are encouraged by the insights and responses shared by investors. Certainly, there is more work to be done to support investors and to continue building a vibrant sector, but the future is very bright.
We will be releasing a full report on the survey results and subsequent insights in Fall 2021. Please keep an eye on this space for the report and sign up for our mailing list to be the first to know when it’s released.