Over the last decade, impact investing has shifted from a disruptive investment concept to a complex and rich investment ecosystem.
According to PRI data, more than 450 investors allocated US$1.3 trillion to impact investments worldwide in 2016 and the increasing demand for impact investing products and services has opened a new commercial avenue for asset managers, fund managers and service providers interested in this growing market.
Major data providers such as MSCI and FTSE have been allocating resources to study and assess companies’ impact beyond standard ESG practices and impacts; global networks including the GIIN, GRI and others have been working on impact KPIs and ratings. Specialist service providers have emerged to provide custom products and services that meet a variety of asset owners’ goals and interests.
Impact investments can be made in several ways; through a traditional model aligned with the theory of change, the concept of additionality and purpose-driven companies, to a more mainstream approach that focuses on medium and large businesses that deliver products or services to benefit society and the environment.
The GIIN and other impact organisations have been developing tools and resources for traditional, illiquid or early-stage impact investors and impact companies in emerging and developed countries. However, more clarity around the other types of and approaches to impact investments, particularly mainstream impact investments, is needed.
With this in mind, the PRI launched the Impact Investing Market Map (the Market Map). Its goal is to bring more clarity to the process of identifying mainstream impact investing companies and thematic investments so that asset owners and fund managers can better assess opportunities in this market.
The Market Map focuses on medium and large impact investing companies (privately-owned or listed equity firms) in the real economy. The PRI used two basic frameworks, the UN Sustainable Development Goals (SDGs) and the PRI Reporting Framework, to identify 10 thematic investments (themes): energy efficiency; green buildings; renewable energy; sustainable agriculture; sustainable forestry; water; affordable housing; education; health; and inclusive finance.
The Market Map was designed using more than 450 studies and reports from UN agencies, international organisations, think tanks, as well as almost 200 analyses of company benchmarks and metrics from large data providers. Over 180 organisations participated in an international consultation process – one of the PRI’s largest consultations – to improve and validate the Market Map, which provides three basic but crucial benefits to the impact investing industry:
- a common definition of a thematic investment (i.e. water, inclusive finance, education) that is aligned with at least one international organisation, global market leader and/or data provider;
- basic criteria that explain a theme in practical terms, including thematic and financial conditions to identify specific businesses and investments aligned with the definition provided;
- a list of KPIs used by the impact investing community to track and assess the environmental and social performance of a specific theme.
The Market Map also links each of the 10 themes with specific SDGs and their respective targets and indicators, and provides information to improve knowledge and awareness of the impact investing sector.
Understanding that the impact investing industry is constantly evolving, the PRI created the Market Map to be refined and reviewed over time to reflect current information available in the investment industry.
The PRI invites organisations to use, adapt and test the Market Map methodology and tool in their own businesses and future work.