Impact investing among institutional asset owners (IAOs) is entering a new phase. Once limited to scattered efforts, impact investing is now becoming a meaningful part of institutional portfolios; it is both more systematic and more common. This research, based on data from 22 IAOs collectively managing $3.5 trillion USD and headquartered across 10 countries, captures a field in transition. IAOs are moving from directional impact commitments to more concrete impact investing strategies, unlocking significant capital aimed at improving current and future quality of life for their beneficiaries.
The momentum is unmistakable. Compared to only a few years ago, the landscape looks fundamentally different. An increasing number of IAOs are no longer asking whether to engage in impact, but how to scale it credibly and consistently. Three shared priorities define their future in impact investing:
1. Institutionalizing impact: IAOs seek to formalize strategies, governance structures and measurement systems that embed impact as a routine component of investment operations and tie it to the interests of their beneficiaries.
2. Expanding across asset classes: IAOs look to move beyond single asset class allocations and, potentially, to include listed equities and public debt in impact allocations, while ensuring that their impact remains credible and effective in meeting institutional objectives.
3. Building resilience and adaptability: IAOs aim to strengthen internal impact investment competencies and enhance their capacity to navigate political and market volatility, in order to sustain momentum as internal and external conditions shift.
Integration of impact investing is underway but uneven. The participating IAOs face the ongoing challenge of developing good practices to scale impact credibly, particularly as they start impact investing across asset classes. Additionally, their governance structures, investment beliefs and policies, and performance reporting practices need to catch up with their strategic intent for impact. Finally, the IAOs need to build internal confidence in impact investing by strengthening the evidence base for financial performance, an issue amplified when expanding into new asset classes. These challenges are proving particularly important in the current climate of heightened uncertainty.
Securing strategies that deliver significant impact requires focus. While notable activity is underway to establish structures for impact investing among the surveyed institutions, the formulations of impact priorities and objectives often remain very broad. Such generality risks creating a portfolio of investments that each tell an impact story but collectively lack synergy and fail to produce clear, positive outcomes in the real economy.
The potential contribution of IAOs is immense. With approximately $100 trillion USD under management globally, even a relatively modest allocation of total AUM to impact investing can reshape the market and accelerate solutions to urgent social and environmental challenges. IAOs are uniquely positioned to drive change at the level of entire systems and sectors of the economy. Whether this potential is realized will depend to a high degree on their ability to embed an impact lens alongside a financial lens, contributing to both financial security and improved quality of life for their beneficiaries.
