A new global study by Vontobel shows that investors plan to increase their allocations to impact investments, seeing renewable energy, energy efficiency and water being their top three areas of concern.
Nearly three-quarters of global investors are planning increase their allocations to impact investing over the next three years, a new study by Vontobel reveals.
According to the study, investors in APAC are catching up with those in Europe, the firm said in a statement. The environment remains a main consideration, with decarbonisation a key goal. Vontobel's survey shows that a significant majority of global institutional and professional investors are planning to increase their allocations to impact investing solutions over the next three years, and while European investors continue to lead in demand for solutions, investors in Asia are planning to catch up quickly.
Vontobel’s 2023 Impact Investing Study assessed the views of 193 institutional and professional investors from 21 countries throughout North America, Europe and Asia-Pacific to understand their thinking and priorities with respect to their current and future impact investing allocations.
Of respondents who already invest in impact, or are poised to do so, listed equity is the most popular route with 67 per cent currently usng this asset class. Furthermore, 56 per cent are also planning to increase allocations to listed equity over the next three years, the firm said. Investors are also planning to broaden the range of asset classes they use in the next three years from current allocations, with 51 per cent choosing infrastructure, up from 39 per cent.
Looking at allocations to impact investment solutions from a geographic perspective, Europe is currently leading with 70 per cent of those surveyed in the region investing in impact, compared with 56 per cent in North America and 57 per cent in Asia-Pacific, the firm continued. However, the results also show a keen interest by investors in Asia-Pacific in allocating more to impact, with 92 per cent of them planning to increase allocations via public markets and 79 per cent via private. In public markets, a driving force behind this growth in appetite in Asia-Pacific is the broadening definition of fiduciary duty, which includes assessing impact, cited by 54 per cent of investors compared with 25 per cent in Europe and 20 per cent in North America. In Europe, 67 per cent expect to allocate more via public markets in the future and 72 per cent via private, the firm added.
While a majority of those surveyed are investing in impact solutions, this is still a relatively new concept for many of them, with more than half saying they have only been doing so for less than three years, the firm said.
“Despite this more difficult time, our study shows that investors remain committed to impact investing and are even planning to increase their allocations over the next few years,” Pascal Dudle, head of Listed Impact at Vontobel, said.
“Looking at the driving force behind allocations to impact investments, the energy transition remains top of mind, with 81 per cent and 77 per cent of investors ranking decarbonisation and the transition to net zero respectively as the key goals they want their impact investments to address, while biodiversity is also rising up investors’ agenda, with more than half favouring impact investments that promote biodiversity goals,” he added.
“Looking at what they believe are the most pressing areas that need to be addressed through impact investing, the top three areas include renewable energy, energy efficiency and water,” he said.
While investors have a bias towards environmental objectives, they are nevertheless considering making an impact across the sustainability spectrum. Nearly six in 10 want their impact investments to target equal opportunities and diversity goals. Investors in Asia Pacific and North America express the strongest preference for these social causes, the firm said.
According to Vontobel, investors continue to grapple with greenwashing when incorporating impact investing into their portfolios. Their top three concerns include misleading or exaggerated impact claims, no clear industry standard/definition for impact managers and inadequate transparency in reporting. Being able to evidence the impact of the portfolio is absolutely crucial and must be a key part of investment firms’ reporting frameworks, as 82 per cent of investors say transparency and measurability of impact results is an important factor in selecting impact investing managers, the firm said.
Investors cite several challenges they have experienced in evaluating impact investing strategies, which might discourage them from adopting these strategies. These include lack of reliable data, poor transparency of benchmarks/indices and a wide range of different approaches among asset managers.
“While we see a clear demonstration of commitment to impact by investors, it is also true that many are still fairly early on their impact journeys. One of the key barriers they face, and a common challenge cited wherever they are based, is a lack of transparency and therefore the ability to measure and report on the impact their own portfolios have had. Greater transparency is key to building investor trust and confidence,” Dudle added.