We are approaching the dawn of a big year: 2020. We will hear the constant drum beat of the US presidential election. And we are all hoping that Camilla and Shawn will get engaged at the next Raptors’ championship parade. But, what is on the horizon for impact investing? We don’t have any Mad Money hot stock picks, or access to high quality plutonium to activate a fully functioning flux capacitor. But, we can look ahead at the next year in our field, with a view on market drivers, potential trends, and predictions for Canada and the rest of the world.
There are a number of key drivers influencing impact investing in 2020:
- We are ten (10) years to 2030. The clock is ticking down to 2030 for global targets for the Sustainable Development Goals (SDGs) and climate targets for national governments and global agreements. We will need to make significant progress early this coming decade to avoid an impossible sprint to the finish. Alongside good public policy and community action, impact investing will play an important role in helping to advance progress towards these goals.
- Significant infrastructure and capacity has been built over the past decade and beyond. There has been a great deal of spade work put into building intermediaries, support infrastructure for measurement, research and policy backbone, convening events and organizations, media outlets, and more. This infrastructure provides a powerful foundation for growth in impact investing. The question is whether we can collectively sustain and maintain this infrastructure to effectively manage growth.
- There continues to be growing demand by investors for impact options. Investors want impact. There is an overwhelming stack of reports, data and stories that point to this very real interest. The critical question: when will it move managers, advisors, and institutions to real action?
- There is money on the table. There seems to be billions on the table for investing and millions available to support the impact investing field. This may drive two outcomes. First, money (and financial services organizations) seems to follow money in the capital markets. There may be further growth in capital and a greater number of large, medium and small institutions following the impact investing trend. Second, there should be a greater array of opportunities for entrepreneurs and communities to access capital to start or scale their impact.
- There are complex economic and political forces at play in 2020. Macro scale political and economic forces have the potential to significantly influence the progress of impact investing in 2020. The global economy has experienced a long period of growth, and there is modest expectations and mixed outlooks for the year ahead and beyond. The Great Recession was a significant turning point for the impact investing movement. Although it was already a decades old approach, the term “impact investing” itself was coined in the shadow of the recession and many organizations were catalyzed during that period. We are also experiencing a period of political transition (some might say instability), where we are openly wrestling in the streets and legislatures over facts, culture, wealth, rights, trade, and democracy. And yet, governments continue to advance and support impact investing through policy commitments and investments.
- Inertia remains the greatest force in the universe. Despite commitments, strong interest, and all-around performance (financial and otherwise), alongside the moral imperative to act, there is a greater force at play in business and the capital markets: inertia. Impact investing represents a fundamental rethink of how we manage money and make investments. A phalanx of individuals and institutions have spent decades approaching investing and business with an almost singular mindset: profit. And most of us have tacitly bought into that approach with every monthly bank statement or quarterly investment report. Changing how we make decisions about our money is seen as a risk, and there remains a perceived risk with an investment approach that embeds impact alongside financial performance. It continues to be a one-on-one, long-term effort to persuade Investment Committees, managers, large financial institutions, and individual efforts to resist that inertia in order to change how they invest their money.
Alongside these drivers, there are some potential trends that we may see in the year ahead:
- Money should be on the move. Based on major commitments from banks and almost exponential growth in market size over consecutive years, there are billions committed and available for enterprises, funds, organizations and projects.
- Climate change and impact investing: There can be no doubt that there is increased urgency to address climate change, from the reems of data and pages of scientific reports to the marches inspired by young leaders like Greta Thunberg. There is a strong match to this urgency and a need for action with impact investing as one vehicle to help advance change, from financing land preservation efforts to capitalizing renewable energy projects.
- Momentum in Indigenous-led and focused impact investing. There are already many leading indigenous institutions, investors, and intermediaries in Canada leading the way on impact investing, from Raven Capital and the First Nations Bank of Canada to Aboriginal Financial Institutions (AFIs) and entities like NACCA. They are expected to continue to experience momentum in the year ahead, and it is critical that we follow, recognize and learn from these efforts as a part of the impact investing ecosystem.
- Place-based impact investing will scale up in North America. People want to invest in the neighbourhoods, communities and regions where they live. From Opportunity Zones to regional funds, it is expected that place-based impact investing initiatives will start-up and scale up, particularly in Canada and the US.
- Impact washers beware. It will be a lot more difficult to position investments or institutions as impact focused without authentic and verifiable actions. Regulators, media, standards providers, and industry organizations seem to be collectively committed to ensuring the monitoring and managing the integrity of impact investing and sustainable finance.
We don’t have a crystal ball, and any predictions for the future of impact investing are just pure speculation. But it’s fun to give it a go and guess at what might be for the year ahead. Based on progress last year, drivers and projected trends, we can make the following predictions for 2020:
- There will be new products available for impact investors, including retail investors. There continues to be a greater range of products and service offerings in market for investors. We may expect new place-based funds, climate change focused offerings, and more retail accessible products in market over the next year, featuring public and private market opportunities.
- More traditional fund and asset managers will start to make the move into impact investing. Major players like KKR and Bain Capital have been engaged in impact investing, alongside impact investing leaders like Genus, Sonen, or Cornerstone Capital. But impact has not yet hit a tipping point for more than a handful of traditional fund and asset managers. Given the increasing number of mandates and the perceptible increase in interest amongst mainstream managers, at least in Canada, it seems likely that we will see a few more traditional players enter the market with impact offerings in 2020.
- Canada’s Social Finance Fund will be in market. Based on budget commitments, Canada’s new social finance fund should be in market, with the possibility for the first deals made by the end of 2020. It may be an ambitious timeline, but if so, there will be new capital available for impact funds and products seeking to start or scale in Canada.
- A larger number of Canadian organizations will be seeking capital. Driven by funding through the Investment Readiness Program and GAC’s innovative finance initiative, many more organizations, enterprises, and funds should be at a greater stage of investment readiness, and seeking capital for their work.
- Latin America, led by countries like Mexico and Colombia, will continue to make major headway in the market. If we look back at the World Cup of impact investing or our reflections from 2019, Europe does continue to have a bit of an edge in market activity in impact investing and sustainable finance. And there continues to be material action and progress in Canada and the US. But Latin America may be the region to watch in 2020 and beyond. The region has all of the right ingredients for success with a foundation of action, political and sector leadership, aligned cultural and business orientation towards impact, a highly educated and motivated next generation, capable and motivated entrepreneurs and intermediaries, and urgency for action in areas from climate change to inequality. From our view on the outside, it is countries like Mexico and Colombia that are best positioned for scaling efforts.
- India will have the framework in place for a social stock exchange. Backed by political and corporate leadership, India has been moving rapidly and methodically on the development of a social stock exchange. Current timelines would suggest that they will at the very least have the framework in place for a social stock exchange in early 2020, with the potential for movement towards market activity by the end of next year.
- New foundations and faith-based institutions will engage in impact investing and others will double down on their engagement. In some ways, foundations and faith-based organizations are like the tip of the spear for impact investing with their early engagement in impact investing as a catalyst for the market. In general, it has only been a handful of the largest players that have been active over the past decade or so, with a focus on investing and supporting strategic initiatives. Going forward, initiatives like the Tipping Point Fund, the Solutions Finance Accelerator, and the engagement of community foundations in Canada’s Investment Readiness Program (IRP) demonstrate the potential and necessity to support industry infrastructure. It is also expected that a new wave of foundations will start their impact investing journey this year, supported by the work of membership organizations and collaboratives like Mission Investors’ Exchange (MIE), EVPN, Catholic Impact Investors Collaborative (CIIC) [NB: $40 billion committed in 2019], and CFC/PfC in Canada alongside the increased availability of products, services and firms that can support them.
So — will these trends carry through the year, and will all of predictions come true? Perhaps. Or, perhaps not. Either way, 2020 is poised to be a real turning point for the field after a very active 2019.
But we would love to hear what you think. What did we miss? What do you want to see next year? And, most importantly, what are you going to do to move this work forward in 2020?
Leave your thoughts down below — let’s talk!