Over 50% of investors are currently engaged in, or planning to pursue, impact investing, according to the latest bfinance report.
The report – DNA of a Manager Search: Impact Private Debt – looked at how the impact investing landscape has developed over the past two years. Specifically, it highlights the opportunities and challenges found within impact private debt investing through found the impact private debt sector.
It found that impact AUM has grown by 14% over the past five years, and the impact investing landscape has experienced rapid expansion, with over 100 strategies now targeting sustainability themes. This includes corporate direct lending, infrastructure debt and natural capital debt.
However, while the percentage of investors engaged or planning to engage in impact investing is promising, the proportion has only increased by 2% over the past two years. The report attributes this to implementation issues, and looks into the differences between impact and conventional strategies. This includes a greater portfolio concentration, smaller investee company size and a larger proportion of unsponsored debt, while considering the key debates faced during effective due diligence.
The largest challenges faced by investors are cited as ‘impact-washing’ – when fund managers overstate or falsely claim an investment’s positive impact on the environment or society – and the complexities of due diligence. The report raises several issues that managers face, and what questions they can ask to assess if a fund investment will deliver impact.
It concludes impact-oriented investors can access a wide range of strategies across private debt – including direct lending and infrastructure debt – and that impact investment requires more complex fund manager due diligence, such as developing the skills to assess if an asset manager is ‘impact-washing’.
