Between 2014 and 2018, the global impact investing assets grew by 396 percent from $46 billion to $228 billion in just five years, a publication from McKinsey & Company says. The quantum leap in impact investing assets came from significant interest institutions shown by institutions such as banks and diversified financial institutions, pension funds and insurance companies, foundations, retail investors and others. The list also includes family offices and high net-worth individuals and development-finance institutions.
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What were the sources of the quantum growth in impact investing assets?
According to the McKinsey report, capital flows into the global impact investments came from different sources. In 2014 when the global impact investing assets were worth $46 billion, the largest assets flows of $10.12 billion or 22 percent came from pension funds and insurance companies. In 2018, the same set of institutions invested 20 percent or $45.6 billion of the global $228 billion impact investing assets. This implies over the 5-year period, the flows of funds into impact investing from pension funds and insurance companies grew by 350.6 percent.
Impact investing assets’ flows from banks and diversified financial institutions in 2014 were worth $7.36 billion in 2014 or 16 percent. In 2018, the worth of the total flow of funds was worth $109.44 billion or accounted for 48 percent of the funds invested in the global impact investing assets in that year. Undoubtedly, impact investing assets flows from banks and financial institutions grew by 1,387 percent during the five year period.
However, impact investing assets from other sources witnessed a decline in other sources. For instance, in 2014, foundations, as a source of impact investing assets flows accounted for 8 percent or $3.68 billion. Impact investing assets from foundations might worth $11.4 billion in 2018; this source accounted for just 5 percent of sources of the impact investment assets in 2018.
Family offices and high net-worth individuals, which accounted for 17 percent or $7.82 billion in 2014 accounted for just 6 percent or $13.68 billion of the sources of impact investing assets in 2018. Retail impact investing assets flows accounted for 15 percent or $6.9 billion, five years down the line, it was 3 percent or $6.84 billion of the global impact investing assets sources that this source contributed.
Development-finance institutions were responsible for 17 percent of the impact investing assets sources; in 2014 perhaps moderation in enthusiasm was reflected as the share of this source of impact investing assets declined to 12 percent. In other words, in 2014, impact investing assets from development-finance institutions was $7.82 billion but was worth $27.36 billion.
Scope of impact investments expanding in other sectors
In terms of sectors, impact investors are fast changing their investment models, as they are looking outside financial services sector. In 2014, financial services other than microfinance and microfinance sub sectors attracted 42 percent (21 per cent each) of the global impact investing assets under management. In other words, $9.66 billion each was under management in the financial services sub sector and microfinance sub sector. In 2018, the trend is completely different. Nineteen percent of the total impact investing assets under managements was under the financial services sub sector. That was lower compared with 21 percent in 2014. Impact investing assets under the management of microfinance tumbled to 9 percent as against 21 percent in 2014.
Healthcare accounted for 6 percent of the global impact investing assets in 2014 but that marginally declined to 5 percent in 2018. Food and agriculture impact investing assets fell from 8 percent in 2014 to 6 percent in 2018.
The assets for housing impact investment remained flat at 8 percent during the reference period. This is bound to change as more investments are going into the sector. For instance, Impact & Alpha reported recently that Blokable has secured a $23 million for modular housing that promises affordability in the United States. Investors are seriously looking at impact investing in housing because housing affordability gap amounted to $650 billion yearly, or 1 percent of the global GDP, according to a study by McKinsey & Company. In Nigeria alone, over 17 million housing deficits exist, and high interest rates by deposit money banks as well as lack of affordable mortgages is worsening the situation.
Which impact investing sectors gained?
The proportion of impact investing assets under the management of energy rose from 11 percent in 2014 to 14 percent in 2018. Impact investments into education witnessed a marginal increase from 3 percent to 4 percent. Water, sanitation and hygiene impact investing trended up from 1 percent to 4 percent. On a significant scale is the impact investing in others which rose from 21 percent to 31 percent during the reference period. Others in this sense encompass impact investments in arts and culture, conservation, information and communication technologies, manufacturing and others.
Impact investment instruments in use
By instruments, impact investors employed private debt and equity; public debt and equity, pay for performance as well as others. According to the McKinsey report, private debt, which accounted for 53 percent of the global impact investments in 2014 declined to 41 percent in 2018. Private equity which was responsible for 24 percent of the global impact investing in 2014 fell to 18 percent in 2018.
Public debt equally squeezed. It fell to 6 percent from 9 percent in the review period. Equally, pay for performance remained static at 0.3 percent in both periods.
On the other hand public equity ballooned from 3 percent to 14 percent between 2014 and 2018. Other assets which include real assets, guarantees and leases doubled from 11 percent to 21 percent.
What Nigerian institutions stand to gain from impact investing?
According to the 2018 survey conducted by the Global Impact Investing Network (GIIN), 58 percent of the global impact investing assets are based in the United States and Canada. Latin America, Caribbean and Mexico accounted for 4 percent, North Africa, 1 percent; East Asia, 1 percent; South Asia, 3 percent; Southeast Asia, 2 percent; Oceania, 1 percent ; Western, Northern and Southern Europe, 21 percent; Eastern Europe, Russia and Central Asia, 1 percent while Sub Saharan Africa accounted for 6 percent.
By general classification, North America and Europe presently account for 79 percent of the global impact investing assets while Africa accounts for just 7 percent.
Meanwhile, Mauritius is spearheading the attraction of impact investments in Africa. According to available reports, one of the impact investing firms was reported to have structured €2 billion impact investing capital in Africa using Mauritius as a base and that has led to the creation of 470,000 jobs. It is also helping in the achievement of the Sustainable Development Goals (SDGs).
The Nigerian economy will gain when more investment is made in sectors that lend themselves to social, economic and environmental impact. According to Dalberg , the economic impact areas are industry and light manufacturing. It includes secondary agriculture, access to finance among others. Social impact areas include health, education, housing as well as water and sanitation. The environmental impact includes tourism and transport.
