Looking Back: Six Major Trends in Impact Investing in Canada & Beyond in 2019

It has been an active year in impact investing. The reported size of the impact investing market effectively doubled to half a trillion dollars. There has been a healthy dose of headlines and media coverage in global and community outlets, from Bloomberg to the Financial Times to Prince George Matters. Countless national, regional and local governments are committing hundreds of millions of dollars and making policy commitments to explore and advance this approach to investing and business.

Now, when rubber meets road, the financial markets have not yet transformed. And we have yet to see major dents made by impact investing in the pressing challenges we face from climate change to inequality. But, there is clearly (a) movement underway.

So, what are key trends in impact investing and related fields like sustainable finance? We can try to understand what’s happening by looking at market data, commitments, and actions by mainstream and impact leaders around the globe over the past year. Here are six key trends we’ve found:

Photo by Christian Wiediger on Unsplash

1. Many Canadian banks are making big commitments to sustainable finance.

Canadian banks went big on sustainable finance commitments in 2019. Billions big. Here are the numbers:

These announcements follow the 2018 commitment by TD of $100 billion invested in the low carbon economy by 2030. And these commitments reflect a broader global trend that cuts across banks and asset managers. But it is important to note that these are commitments to action, and we must track and critically analyze the subsequent actions of individual institutions and the mainstream banking sector as a whole.

Main Street in Bristol, UK / Source: Wikimedia Commons.

2. Place-based impact investing is really taking root.

Place-based impact investing refers to the local deployment of impact capital — that is, investments made with the intent to yield both financial and social and/or environmental returns — to address the needs of particular communities, regions, or ecosystems. In short, it is investing for local impact.* Based on market trends, it may be coming to a community near you:

* If you want to learn a bit more about place-based impact investing, organizations like Mission Investors’ Exchange do really great research and field building work on this topic.

Source: SDG Action Campaign on Flickr

3. The Sustainable Development Goals (SDGs) are emerging as a leading impact lens for impact investing.

The SDGs are a powerful rallying tool as a “blueprint to achieve a better and more sustainable future for all.” Beyond their utility for public policy and community action, it is clear that the potential for impact investing to leverage this framework and rally behind the goals is starting to be realized. Here are a few signals that point to this trend:

Indeed, this is a positive trend. However, it will be important to balance ambition with reality when it comes to the ability of finance to help meet the goals. Moreover, the SDGs are only one part of a broader impact management framework, acting as a key tool to categorize impact data (and objectives) under a particular goal or set of goals.

Photo by Guillaume Jaillet on Unsplash

4. Governments are getting serious about impact investing and sustainable finance strategy.

The Canadian government made a big commitment in 2018 to a social finance strategy. This past year represented the first steps towards implementation of the strategy:

  • The framework of the $50 million Investment Readiness Program was announced in June 2019 with applications expected to open in early January 2020. This program has the potential to build significant capacity for organizations and enterprises to leverage innovative financing to achieve greater impact.
  • Concurrently, the federal government began to lay the groundwork for the $755 million Social Finance Fund, an initiative that, “…will give charitable, non-profit and social purpose organizations access to new financing to implement their innovative ideas, and will connect them with non-government investors seeking to support projects that will drive positive social change.”

This domestic strategy was mirrored by Global Affairs Canada with a $900 million commitment over five (5) years to mobilize capital in support of the Sustainable Development Goals (SDGs). The first round of applications closed this year, with implementation and lessons learned expected in 2020 and beyond.

Government action is not limited to the Great White North. Other governments are making big policy commitments and helping to finance the growth of ecosystems around impact investing and sustainable finance.

Photo by Garidy Sanders on Unsplash

5. Gender lens investing is emerging as a key feature and focus of impact investing and beyond.

Gender lens investing was a topic of discussion in impact investing over the past few years. It has now emerged as a fundamental feature and focus of impact investing, with full integration as an ideal outcome in all impact investing approaches. Here are a few data points that demonstrate this trend in 2019:

  • The Global Impact Investing Network (GIIN) completed two (2) year research project into gender lens investing (GLI) and impact investing, acting as a central knowledge hub.
  • BDC completed the first year of operations for its $200M Women in Technology (WIT) Venture Fund, one of the world’s largest venture capital funds dedicated to investing in women-led technology companies and helping to build a robust ecosystem to support women in tech today and in the future.
  • Global Affairs Canada (GAC) announced a $300M Equality Fund, designed, “…to contribute to solving the funding gap by providing predictable and flexible funding, along with technical assistance, to women’s organizations and movements in developing countries.”
  • There are at least six (6) Canadian impact investing funds targeting gender lens investment opportunities, currently raising an aggregate of $150 million, with new funds like Marigold Capital starting to come on line.
  • The federal government in Canada recently announced funding for a Women of Ontario Social Enterprise Network (WOSEN), which will include the development of a Women’s Impact Investing Network (WIIN).
Photo by Ibrahim Rifath on Unsplash

6. Sustainable and social stock exchanges are on the rise (again).

Following initiatives in UK, Singapore, and Canada over the past decade, countries including India and Switzerland are exploring the development of social stock exchanges. There are also emerging initiatives in places like Australia. The activity in India may be among the most advanced and thoughtful so far, with the commitment of a national government and full engagement of the regulators, alongside a high-powered working group advising on the framework of the exchange, including the former CFO of Infosys. It will be very interesting to watch that initiative unfold in the year to come.

Beyond these innovative initiatives, what may be just as interesting is the pursuit of impact and sustainability in existing stock exchanges. Sustainability has emerged as a mandate around the world for mainstream exchanges, particularly in Europe:

7. There are an increasing number of collaborative approaches to measurement, infrastructure, and mobilizing investors.

Ok, we did say six trends. And this would be a number seven. Think of this one as a bonus, as it is just as important as the rest.

As we collectively try to figure out how to advance this field, it is great to see that key players are seeking to work together on impact management, infrastructure and rallying investors. There are many signals pointing to this additional trend:

There are efforts in Canada towards collaboration for the ecosystem, particularly around the federal government’s social finance strategy. And there are exciting individual initiatives founded on collaboration like the Tides Canada ImpactDAF announced this past May. But initiatives are still quite nascent, and there is a lower level of leadership, collaboration, and overall engagement from key funders and major investors on field building outside individual projects or initiatives.

Photo by Kyle Glenn on Unsplash

So what?

The field of impact investing has been through a cycle of innovation and development that has rapidly increased in velocity over the past few years. It all started with potential and early action, in some cases dating back decades or more. Interest followed with a long-tail of conversations before there was significant action. Then there were commitments, followed by the money. It seems that the capital has arrived, or hopefully, at least, the cheque is in the mail. Across many parts of this movement, we are now looking at the challenge of execution, followed by an important phase of intensive analysis and evaluation.

In that case, two conclusions come to mind based on these trends over the past year:

  • The pressure is on to deliver. The pressure will be on mainstream financial players, governments, and partners to deliver on commitments and to truly achieve and demonstrate impact. There are already concerns about impact washingand greenwashing in sustainable finance, particularly around initiatives like green bonds. So how will they get there? We can’t operate inside magic black boxes that wait to be opened by 2025 or 2030. It will take the right plans, people, partners, engagement, and internal and external reporting and analysis to ensure accountability and to move organizations and ecosystems forward.
  • If you are standing still, you will fall behind. There is a clear message to actors from stock exchanges to national governments: those countries, institutions, and organizations who do not act on the opportunity around impact investing and sustainable finance will continue to fall behind. They will fall behind on their performance (financial, social and environmental) as well as on interest amongst clients and citizens. And collectively, we will fall behind in the challenges we face today and in the critical decade ahead.

So, 2019 was a big year. But, we already have our next question: what’s on deck for 2020?

Well, more on that, here…

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SVX is financial services firm & impact investing platform connecting ventures, funds, and investors to catalyze investment capital for impact. #ImpInv #SocEnt