Positive action – the impact investing opportunity for IFCs

12 September 2017

Impact investing is increasingly taking hold as allocators recognise the return benefits and this presents opportunities for established international financial centres, a white paper reports.

The paper, ‘Redrawing boundaries: How impact investing is making a difference’ has been released by Guernsey Finance. It’s based on extensive interviews with managers, investors, law firms and industry experts and explores some of the regulatory and investor-led drivers behind impact investing. The asset class is projected to account for 1% or $2 trillion of globally-invested capital by 2025, opening up opportunities for major financial centres to support such strategies.

The paper debunks popular notions about impact investing, in particular the myth that returns are often compromised in exchange for a social good or advancement. Guernsey Finance cited findings by the Global Impact Investing Network’s (GIIN) Annual Impact Investor Survey which reported that 91% of respondents found financial performance was superior or in line with expectations, while 98% said impact performance was better or on par with expectations.

Returns have been given a boost by financial innovation in the sector, where a number of bespoke and interesting financial instruments are being used, including social impact bonds, charity bonds and blended finance structures. Impact investing is continually changing with new players entering the market, including private equity, private debt and venture capital (VC) sectors or firms transacting in real assets accounting for the majority of fund managers participating in the space.

“Impact investing used to be the preserve of HNWIs, private wealth or family offices but we are seeing a broadening of the base. This has happened due to greater awareness of the subject matter and recognition that investors can make risk-adjusted returns through a wide range of products. As such, we are seeing private banks, insurance companies and pension funds move into impact investing,” said Justin Sykes, Managing Director at Innovest Advisory, a boutique consultancy focusing on social impact and innovation.

Guernsey Finance Deputy Chief Executive Kate Clouston said impact investing was now establishing itself within mainstream global finance and that Guernsey was perfectly placed to assist in its continuing evolution.

“Any international financial centre looking to build a track record in this space has to be forward-thinking and flexible in its approach and this must be underpinned by strong but amenable regulatory oversight which permits innovation to take hold but displays robust consumer protection and follows best practices and standards,” she said.

Miss Clouston, who is a member of Impact Guernsey – a cross-sector financial initiative aimed at identifying and building business opportunities related to impact investment, said the white paper helped to underline Guernsey’s position in relation to the emerging asset class.

“Guernsey has an enviable reputation across a range of financial services sectors, including investment funds, insurance and wealth management and is therefore primed to help firms and individuals meet their impact investment obligations and requirements,” she said.

The white paper can be viewed here.