“Mainstreaming” impact investing has often been cited as a long-term objective for those within the industry. In other words, rather than impact investment being an exercise pursued by specialist managers and driven by distinct “impact” allocations, its ethos and practices will pervade all private markets investing.
The logical conclusion, goes one line of thinking, is that the term “impact investing” will be obsolete, because all investing will take impact into consideration.
There are some significant structural reasons why this vision of the future seems pretty far off. One of these is that asset allocators’ performance is judged based on conventional financial benchmarks. Scott Kalb, a former CIO of Korea Investment Corporation who now works towards reforming the investment industry, laid the issue out for delegates at our Impact Investor Global Summit earlier this year, along with some potential solutions.
Structural issues aside, we also saw plenty of developments at that same event that gave us reason to believe the anticipated mainstreaming is underway. And we continue to see evidence that innovations from the world of impact are being adopted as part of mainstream investing. Take TiLT Capital, for example: the firm has tied a quarter of its carried interest to four ESG KPIs tracked across its portfolio companies. This type of carried interest mechanism has been more commonly deployed by impact funds to align compensation with impact outcomes. Here it is being used for ESG purposes: a nice illustration of impact investing practice seeping into the mainstream.
For another example of mainstreaming, let’s consider who has backed the funds in the Impact 50, our list of the largest managers of private markets impact capital. These funds are backed by mainstream, returns-seeking investors. Indeed some of the LPs in these funds are public institutions based in US states at the forefront of the ESG backlash, where legislation has been enacted to ban non-financial considerations when investing.
A question for us at New Private Markets is what this mainstreaming of impact investing means for the Impact 50. It has always been a challenge to ascertain which funds qualify as being impact funds; this will no doubt get even harder as impact investing traits – like more thorough gathering and reporting of extra-financial data – seep into the mainstream. Our list has evolved rapidly since it was introduced two years ago and has more than doubled in size. Our intention is to keep evolving the list in line with the rapid evolution of the market. We welcome your feedback.