Impact Investing’s Next Challenge
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Impact Investing’s Next Challenge

There’s now another major hurdle to the mainstreaming of impact investing.

By Karen Hube
Thu, Sep 16, 2021 2:03pmGrey Clock 3 min

Since the term “impact investing” was coined by the Rockefeller Foundation 15 years ago, the approach has challenged the common narrative that investors must settle for lower returns if they want to bring about change.

But there’s now another major hurdle to the mainstreaming of impact investing: standardising impact measurements to equip investors to make choices that best align with their goals.

“In financial markets, we have a whole infrastructure that allows any investor to make financial comparisons. But to determine impact we don’t yet have the same tools and resources available,” says Sophia Sunderji, research manager at the Global Impact Investing Network, an industry research and analytics nonprofit group.

Much like investors can compare mutual funds with similar styles and objectives, investors should be able to make decisions about investments by comparing impact, Sunderji says.

The challenge is twofold. The first is accurately measuring impact—it can take years for an investment to produce results, and it can be difficult to prove direct cause and effect.

Possibly even more challenging is standardising the data so that one investment’s impact results can be fairly contrasted with another’s.

But the industry is making strides. Sunderji is leading GIIN’s effort to establish a go-to industry resource for due diligence on impact. This involves establishing core metrics for each type of impact goal from infrastructure and education to climate change and ocean pollution. With a combination of industry research and detailed reporting by impact investments, GIIN is crunching the data and quantifying impact.

The objective is to standardize data—using factors relevant to the area of intended impact—on GIIN’s existing database called Iris Plus (IRIS+) to make it easily comparable.

For example, for impact investors who want to help the estimated 1.7 billion adults globally without access to basic financial services, relevant metrics may be how many loans were issued to small businesses in underserved areas or the number of people who accessed financial services for the first time. Such data are finely sliced and diced by factors such as gender, region, asset, or credit size to be more meaningful for comparative purposes.

GIIN’s standardization process also seeks to evaluate future outcomes, Sunderji says. An investor might issue an impressive number of microloans, but how many of their recipients went on to create successful enterprises?

Tools are also evolving to measure the impact of investing in opportunity zones, which were established in 2018 under the Tax Cuts and Jobs Act. The law provides capital-gains tax incentives for investments in opportunity zones, which are areas identified as economically distressed.

The industry has seen average annual capital growth in the past three years of about 17% to just over $700 billion, driven in part by rising interest among institutional investors. Last year, insurance companies and pension funds each accounted for about 4% of impact capital, up from nearly nil five years ago, according to GIIN.

“Institutional investors are fiduciaries—they are finance-first and impact-second because they can’t

be sacrificing returns,” says Vikram Gandhi, founder and CEO of New Delhi-based VSG Capital Advisors and senior lecturer at the Harvard Business School. “They wouldn’t be investing if they didn’t think they could make market-rate returns.”

A next big driver of capital will be the estimated $40 trillion in wealth that will transfer from baby boomers to younger heirs over the next two decades, Gandhi says, adding that subsequent generations are more than three times more likely to include impact investments in their portfolios.

As tools to measure and compare impact are honed, enabling investors to choose effective investments, it is not just the capital that will be magnified—but its effectiveness in bringing about change.

Reprinted by permission of Penta. Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: September 15, 2021



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Australia to outshine its peers in ‘surprisingly resilient’ global economy

It’s a slow start for 2024 but the longer term outlook for the local economy is strong

By Bronwyn Allen
Tue, Apr 23, 2024 3 min

The International Monetary Fund (IMF) has described the global economy as “surprisingly resilient” amid rapid interest rate rises to quell high inflation since 2022, post-pandemic supply chain disruptions, a short-term spike in energy prices due to the war in Ukraine and increased geopolitical tensions involving China and the Middle East.

The IMF’s biannual World Economic Outlook report says the world has so far avoided stagflation and recession, with large pandemic savings enabling households to cope with higher rates and inflation, and strong immigration in advanced economies creating unusually tight labour markets.

IMF economic counsellor Pierre-Olivier Gourinchas said most indicators point to a soft landing for the global economy and the IMG now expects “less economic scarring from the pandemic. He noted that markets had reacted exuberantly in recent weeks to the prospect of central banks lowering interest rates soon.

However, the IMF says global growth will moderate over the next five years to its lowest level in decades. It projects 3.2 percent global growth in 2024 and 2025, the same pace as 2023, with still-high borrowing costs, the withdrawal of fiscal support and weak productivity growth weighing economic activity down.

Australia is expected to underperform other advanced economies, especially the United States, this year but will surge beyond them from 2025. The IMF predicts annual gross domestic product (GDP) growth of 1.5 percent in Australia in 2024, which is well below our long-term pre-pandemic average of 2.5 percent. The US is expected to book above-average growth of 2.7 percent in 2024 and the world’s advanced economies are tipped to average 1.7 percent growth.

Australian economic growth will then move above other advanced economies and maintain upward momentum through til 2029. The IMF predicts 2 percent GDP growth for Australia in 2025 and 2.3 percent in 2029. For the US, the IMF expects 1.9 percent growth in 2025 and 2.1 percent in 2029. For the advanced economies in aggregate, the IMF forecasts 1.8 percent growth in 2025 and 1.7 percent in 2029.

The IMF said higher interest rates had had less effect on the US economy compared to Australia because most US mortgages are on long-term fixed rates and household debt has been lower since the global financial crisis. In Australia, most loans are on variable rates and therefore immediately impacted by every rate rise, household debt is high, and housing supply is restricted.  

The exceptional recent performance of the United States is certainly impressive and a major driver of global growth, but it reflects strong demand factors as well, including a fiscal stance that is out of line with long-term fiscal sustainability,” said Mr Gourinchas.

An example of unusual fiscal policy is the Inflation Reduction Act, which includes US$369 billion in new spending to encourage green energy investment. This raises short-term risks to the disinflation process, as well as longer-term fiscal and financial stability risks for the global economy since it risks pushing up global funding costs, he said.

While things are going well now, Mr Gourinchas said risks to global economic progress remain.

On the downside, new price spikes stemming from geopolitical tensions, including those from the war in Ukraine and the conflict in Gaza and Israel, could, along with persistent core inflation where labour markets are still tight, raise interest rate expectations and reduce asset prices. A divergence in disinflation speeds among major economies could also cause currency movements that put financial sectors under pressure.

Mr Gourinchas said growth in China could falter, hurting trading partners, without a comprehensive response to its property sector downturn. “Domestic demand will remain lacklustre for some time unless strong measures and reforms address the root cause. Public debt dynamics are also of concern, especially if the property crisis morphs into a local public finance crisis.

He also noted that weak productivity growth remains a challenge for the whole world and “much hope rests on artificial intelligence delivering strong productivity gains in the medium term”.

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This stylish family home combines a classic palette and finishes with a flexible floorplan

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Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

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