Impact Investing Trends and the Rise of Sustainable Investing

Impact investing is on the rise, with more and more investors looking to make a positive impact on society and the environment while generating returns. According to a recent report, impact investing is expected to reach $1 trillion by 2025.

Investors are no longer just focused on financial returns, but also on the social and environmental impact of their investments. This shift in focus is driven by concerns about climate change, social inequality, and the need for sustainable development.

Impact investing can take many forms, from investing in renewable energy to supporting social enterprises that address poverty and inequality. One example is the Global Impact Investing Network, which has attracted over $100 billion in commitments from investors worldwide.

Investors are increasingly looking to sustainable investing as a way to achieve their financial goals while also making a positive impact.

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Impact investing is on the rise, with sustainable funds attracting an estimated $8 billion in net flows in the first half of 2019, vastly surpassing the $5.5 billion for all of 2018. This trend is expected to continue, with more companies taking an active stance on sustainability and ethical practices.

Three emerging trends in the impact investing industry have tremendous disruptive potential, according to Antony Bugg-Levine, the previous managing director at the Rockefeller Foundation. These trends are: the current urgent need to address social issues; an increased interest in impact investing, especially among young people; and structural changes within the investment industry.

Companies with strong ESG performance can often attract more capital than those without, as investors increasingly consider ESG credentials when making investment decisions. This means that companies need to improve their ESG performance to gain access to the capital markets.

The Paris Agreement has made climate change a key focus for businesses and investors, with the Biden administration keen to follow the agreement's guidelines. However, only 16% of IMI companies align with the regulations to meet the 2-degree Celsius global temperature target, and only 5% meet the more challenging 1.5-degree Celsius target.

Investors willing to combat climate change are rising yearly, and government-level pressure is increasing every year. This means that more companies are expected to align with the ESG trend and open more investment trends for sustainability.

Here are some key statistics on the growth of impact investing:

These statistics demonstrate the significant growth of impact investing in recent years, and the trend is expected to continue.

In 2024, ~49% of the global population, including voters from over 64 countries, will head to the polls to address topics like climate and socio-economic challenges.

The US SEC has already adopted the Climate Disclosure bill, which requires standardized disclosures and assurance requirements on material Scope 1 and 2 emissions, as well as climate-related risks and risk management.

This bill doesn't require Scope 3 emissions reporting, unlike the EU Corporate Sustainability Reporting Directive (CSRD) and California's climate disclosure bills: SB-253 and SB-261.

The EU's CSRD requires disclosures on double materiality (both financial and impact) that cover various environmental, social, and governance topics, including Scope 1, 2, and 3 emissions.

This will apply to over 50,000 public and private companies, including many US companies, making it a significant development for the regulatory environment.

The International Financial Reporting Standards Foundation has also made disclosure recommendations that will further enhance standardized disclosures and facilitate an apples-to-apples comparison of companies.

However, there is a need for convergence and harmonization of these various requirements so that companies are clear on reporting requirements globally.

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The Paris Agreement made climate change and the factors affecting global temperature a key focus for businesses and investors. With the Biden administration keen to follow the Paris Agreement, ESG investments are expected in this sector.

Most carbon emissions in every country are produced by high-scale businesses like energy production, steel industries, and natural resource mining. This means the concerned governments would need to make their business giants reduce their emissions.

Only 16% of IMI companies align with the regulations to meet the 2-degree Celsius global temperature target, and only 5% of global IMI companies achieve the more challenging target of 1.5 degrees Celsius per year.

The number of investors willing to combat climate change is rising yearly, and adding to the increasing government-level pressure every year, we can expect more companies to align with the ESG trend and open more investment trends for sustainability.

Private companies have an important role in reducing carbon emissions, and by tracking and monitoring their emissions, they can ensure that they are taking steps to reduce their contribution to global warming.

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To reduce climate-related risks, private companies must focus on using fewer fossil fuels and investing in renewable energy sources such as solar, wind, and hydropower.

The SEC’s Climate Disclosure bill doesn’t require Scope 3 emissions reporting, but the EU’s CSRD requires disclosures on double materiality (both financial and impact) that cover various environmental, social, and governance topics including Scope 1, 2, and 3 emissions.

The policies will likely concentrate on the alarming health threats of diminishing biodiversity, directly affecting the food industries, agriculture, and real estate sectors.

Companies must create detailed portfolios regarding their biodiversity footprint to help policymakers create a plan to rejuvenate biodiversity as they take measures to reduce climate risk.

The agricultural industry accounts for almost 80% of the world’s deforestation, displacing thousands of species and impacting biodiversity.

Increased awareness of such facts and figures is bound to bring positive changes in major investment sectors, which investors should look for.

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Mental health is a pressing concern that can't be ignored. Businesses are losing valuable employees due to mental diseases, work pressure, and lack of emotional support.

In the UK, 25% of all businesses have reported at least one integral team member quitting due to depression and emotional burnout. This is a staggering statistic that highlights the need for businesses to prioritize mental health.

Companies that ignore mental health issues can face massive staff burnout and devastating financial losses. On the other hand, those that address the issue can see a boost in productivity, leading to increased revenue for investors.

Encouraging flexible work options and outcome-based job models can help employees find time for social interaction and recreational activities. This can help them pursue their hobbies and passions, leading to a better work-life balance.

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The impact investing industry has been a pioneer in innovation and collaboration. Many innovative investment products have emerged in recent years, focusing on employee ownership, decarceration, climate justice, and regenerative agriculture, among others.

These products have the potential to make a significant positive impact on the environment and society. Veris has adopted the EDI manager due diligence framework and the Just Transition Investment Framework to help clients allocate their investments towards a more equitable and sustainable world.

Initiatives like Due Diligence 2.0 and 2X Global have improved allocation to diverse and first-time fund managers. This is a significant step towards tackling inequality and other global challenges through capital markets.

Veris is proud to be part of this ecosystem, working with asset owners, investment managers, and data and solution providers to create a more just and sustainable world.

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The EU Sustainable Finance Disclosure Regulation has been enforcing more transparency since March 2021, requiring asset managers to provide information on sustainability risks and impact of their investment products.

This has led to many investment managers reporting impact metrics, but we still need them to report impact outcomes.

The SEC's Climate Disclosures rules and various frameworks have helped verify authenticity of impact investments, but there's still much to be done.

Investors are increasingly demanding companies report their ESG goals and risk factors, driving the need for more reporting frameworks like sustainability and impact reports.

Companies that adopt these frameworks stand out for their commitment to disclosing climate-related financial information and risks, making them attractive investments for responsible investors.

Better ESG data allows financial institutions and investors to make informed decisions, investing responsibly while generating returns on their investments.

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Impact investing has seen a significant surge in recent years, with sustainable funds attracting an estimated $8 billion in net flows in the first half of 2019, a 44% increase from 2018. This growth is largely driven by individual investors, especially millennials and women, who are increasingly interested in aligning their investments with their values.

More than 80% of respondents to a recent ESG Investor Sentiment Study said they love the idea of investing in companies that care about the same issues as them. This shift in investor behavior is expected to continue, with $40 trillion in wealth set to transfer to women and millennials over the next three decades.

Impact investments have also been performing well, with a study by Morgan Stanley finding that sustainable investments achieve comparable returns with less volatility than traditional investment products.

The market is growing rapidly, with sustainable funds attracting an estimated $8 billion in net flows in the first half of 2019, vastly surpassing the $5.5 billion for all of 2018.

More than 80% of respondents to a recent ESG Investor Sentiment Study said they "love the idea of investing in companies that care about the same issues" as them.

The Global Impact Investing Network (GIIN) has reported that over one-third of organizations that manage conventional investments are now making impact investments.

Impact investing has performed well when compared to traditional strategies, with sustainable investments achieving comparable returns with less volatility.

A meta-analysis of more than 2,000 studies found that roughly 90% of studies find a nonnegative ESG-CFP relation, with the large majority reporting positive findings.

Here are some key statistics on the growth of impact investing:

As the market continues to grow, it's clear that impact investing is becoming a fundamental part of all investment decisions.

Investments are a way to put your money to productive use and earn positive returns. They can also help address global issues.

Companies worldwide follow trends in ESG investing to stay relevant. This includes reducing their overall carbon footprint and ensuring ethical labor employment.

Recent research shows that following sustainability trends does not adversely affect the performance of assets. In fact, it can be profitable to be a good human being and invest responsibly.

There are options for investing your ESG funds, and it's essential to research them thoroughly before getting started.