Impact investing market map
The Impact investing market map, provides three basic but crucial benefits to the impact investing industry: (1) a common definition of a thematic investment that is aligned with at least one international organisation, global market leader and/or data provider; (2) 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; (3) a list of KPIs used by the impact investing community to track and assess the environmental and social performance of a specific theme.
This Impact Investing Market Map was developed by the Principles of Responsible Investment (PRI) to help businesses move beyond the traditional environmental, social, and governance (ESG) reporting to measuring societal impact of business strategies and investments according to the SDGs. The Map presents the following guidelines for companies and businesses to identify, adopt, and implement:
- Specific core business objectives that correspond to 10 impact areas—energy efficiency, green buildings, renewable energy, sustainable agriculture, sustainable forestry, water, affordable housing, education, health, and inclusive finance. The Map also identifies the types of companies and businesses that are expected to deliver the targeted impact under each impact theme/area.
- Certifications, initiatives, and regulations that determine a business’ thematic alignment and impact. The Map lists conditions crucial to determining whether a business/company is impactful. These conditions are categorized according to three levels of increasing thematic alignment and impact: voluntary certification/initiative, high-recommended certification/initiative, and mandatory certification/initiative.
- Key Performance Indicators (KPIs) used by impact investing community to measure performance and impact according to each impact theme/area.
Through this Map, companies and businesses will know more how to improve or redesign business objectives and targets to effectively contribute to wider social and environmental sustainability, and potentially attract/secure financing from impact investors by aligning to current investment themes and metrics. Impact investors can use the Map to help investees better align with current impact investing practices, better promote/endorse businesses to other investors, and benchmark their operations or explore other opportunities in the impact industry. Asset owners can also be guided in identifying more opportunities and strategies in SDG investing, and ways to improve relationships with fund managers that specialize in impact investments. The Map can also guide governments and trustees in encouraging greater impact investments, improving compliance and understanding of regulations related to thematic investments, and driving organizational strategies related to the SDGs.
Impact investments made to the private sector have grown in size and number over the past decade. The growth of the impact investing community has also led to an evolution of the definition and scope of impact investing. Part of the process is a reevaluation and expansion of impact investing’s objectives and targets to be more flexible and mainstream, and more so, be more inclusive of the growing range of business solutions being crafted to meet specific social needs.
The Impact Investing Market Map was an attempt of PRI to align impact investing to the SDGs, and focuses on identifying impact investing targets—businesses such as listed equity firms and medium to large companies that have or can potentially have impact at scale—which are attractive to institutional and mainstream investors. The Map was developed based on existing data and studies, and co-designed with impact investors and other stakeholders from the private and non-government sectors (including the academe).
The Map provides the impact investing community with:
- A common language for and definition of impact investment themes;
- Basic and practical methodology that can be used by asset owners, asset managers, fund managers and organizations interested in mapping and identifying companies that operate in and generate impact in one or more investment themes;
- Resources to asset owners interested in discussing how asset managers and fund managers can design and manage their impact investing funds;
- Tool that can help asset and fund managers collect, measure, and report on common impact investing metrics used by market leaders and international organizations; and
- Guide to align impact investing companies and themes with core SDG targets and indicators.
The Map identifies 10 investment and impact areas where funding gaps occur, and where impact investment opportunities are ripe because of the potential direct benefit to many people’s lives. The investment/impact areas fall under two broad themes: Environmental Thematic Investments and Social Thematic Investments. The environmental investment and impact areas cover energy efficiency, green buildings, renewable energy, sustainable agriculture, sustainable forestry, and water. The social investment and impact areas targeted are affordable housing, education, health, and inclusive finance.
While the Map presents a more systematic approach to impact investment and investee targeting, users of the Map are expected to encounter hurdles to adoption and implementation. Third-party certification bodies may find it difficult to align or integrate the forms of certification identified as thematic conditions. Finding common definitions in certification is still an issue in relatively new thematic areas such as sustainable agriculture, as well as in established investment areas such as renewable energy. It is also plausible that governments have very specific regulations in the identified areas that would make compliance or scaling difficult.