The year just passed was a huge year for impact investing. As an impact investor I have spent much of the last two decades distinguishing between impact investing and charity to investors. At the recent SuperInvestor conference, the fundraising environment was broadly viewed as tough, except for two impact themes: green investments and affordable health care. I predict that for the most part impact investing will continue to be front and centre for many investors.
In 2023 there are three themes that I believe will be at the forefront of investors’ minds as they think about impact investing.
Greenwashing: In 2022 there were two big events, firstly the CEO of one of Germany’s largest asset managers resigned amid allegations of greenwashing. The second big event was that Home REIT, a UK social housing REIT, is facing a lawsuit alleging that it was not delivering on its social impact. Investors have begun to realise that impact investing can be a double edged sword. In short, the days of impact measurement and management as tick box exercises left to a single, recent social science graduate, struggling to get heard by deal teams focused on profit, are numbered. Existing impact fund managers that have previously, expediently stretched the envelop to get deals done or used impact as marketing tool with little substance are likely to struggle with fundraising.
Climate change: In 2022, the Economist forecast global investing on clean energy alone reaching $1.4 trillion. With an ever increasing number of asset owners committing to net-zero within 20-30 years, it’s hard to see how this cannot be at centre of impact investing in 2023.
Reshoring: The system of offshore just-in-time supply chains faced a double whammy in 2022. Covid combined with political changes in China and Russia made clear just how fragile the system is. 2023 is likely to see a growth of greener onshore manufacturing investment opportunities.
The challenge asset owners will face in 2023 will be reconciling the mismatch between the pressure to make impact investments, the need to manage risks specific to impact investing and the fact that most impact fund managers are emerging small managers with limited track records.
Jim Roth is the founder and managing partner of Zamo Capital, which backs emerging impact managers. He also co-founded LeapFrog Investments.