As a newly created IFoA Impact Investing Working Party, we are looking to produce a source of knowledge on the topic of impact investing that is current and relevant, provokes critical thinking, and helps to shape future action.
Impact investments are investments made with the intention to generate positive, measurable social and/or environmental impact alongside a financial return. They are typically characterised by intentionality, impact measurement and management, additionality and the significance of the outcomes delivered. It is investing with a dual objective, targeting profit alongside social and/or environmental outcomes, where the target return sits on a spectrum, between the market-rate and the philanthropic ends.
Once considered a niche area, impact investing has increasingly moved into the mainstream among certain institutional investors, asset managers, foundations and development finance organisations. The Impact Investing Institute sized the UK impact investing market at £76.8 billion in assets under management (AUM) at the end of 2023, with a 10.1% compound annual growth rate that significantly outpaced the non-impact investments over the period since the start of 2021.
Despite this growth, a significant proportion of investors remain sceptical: impact investing is accounting for less than 1% of AUM in the UK, which leaves significant room for further growth. Some investors continue to question whether pursuing impact objectives may come at the expense of financial returns, whilst others highlight challenges around impact measurement, comparability and risk management.
A growing body of research is challenging some of these misconceptions, suggesting that certain impact investment strategies can deliver competitive returns while also contributing to portfolio diversification and long-term resilience. It is becoming an investment area worth allocating more capital… and more thought to.
For actuaries working in all areas of investment – portfolio construction, risk management, sustainability reporting and related areas – understanding the fundamentals of impact investing is becoming essential.
Over the coming months, we plan to explore some of the key debates and misconceptions surrounding impact investing. We will share case studies illustrating how a variety of investors incorporate impact considerations into their investment strategies, including how they measure outcomes and manage associated risks.
We also hope to explore areas that currently attract comparatively less impact capital, the barriers driving this behaviour and the role actuaries can play in helping to bring this form of investing further into the mainstream.
