The Year Ahead: Impact Investing and Philanthropy in 2022January 31, 2022 - By Patrick Briaud
Over the past decade, impact investing has experienced astounding growth, with an increased focus on addressing some of society’s most urgent issues. Patrick Briaud, senior advisor at Rockefeller Philanthropy Advisors, looks back at the growth of impact investing 2021 and at how the field will evolve in 2022.
What’s driven the growth of impact investing in recent years?
In various forms, impact investing has been around for decades. The significant growth in the last 10 years, however, has brought the concept to every bank, wealth advisor, and financial news outlet. Since 2012, we have seen a 10x growth in market size, now representing one in every three investment dollars in the United States.
A few factors are driving that growth. The two that we find most interesting are the increased role of women and next-generation wealth holders in investment decisions, including $30 trillion passed down from Baby Boomers. Then, there are particularly urgent issues such as climate change and racial equity.
Ultimately, impact investing is here to stay. The question now becomes: How thoughtfully will asset owners integrate the two core considerations of impact and financial return, and can we help the long-term trajectory of this practice at its current inflection point?
Amid this surge of interest in impact investing, what areas are showing the most growth?
In RPA’s Impact Investing Handbook, we talk about two different ways of thinking when it comes to making an impact with a portfolio: a theme and a lens. An impact theme is a social goal best expressed through a particular asset class, while an impact lens is a social goal that can be integrated across the entire portfolio.
Within impact themes, we see significant activity in climate change as one of society’s most urgent issues and one that can be expressed throughout the different asset classes of a diversified portfolio. We also see significant activity in community development, education, and the workforce.
Within impact lenses, racial equity comes to the top of our list as asset owners consider the role of investment dollars to address structural racism and inequality. This could be expressed through a range of considerations, such as board diversity, BIPOC founders, or pay equity at public companies.
Regardless of the impact goal, we see significant growth in research, analytics, and products across asset classes.
What role does impact investment play in work related to systems change?
There are two broad categories of how impact investing intersects with systems change. The first category involves investors using impact investing to change a particular system. For example, an asset owner focused on K-12 education can use impact investing to advance any number of systemic forces – from education technology to more efficient delivery methods for healthy school foods.
The second category involves investors using impact investing to change the very market systems that the private sector is built upon. This can be expressed through new accounting methods integrating impact (e.g., ones set by the Sustainability Accounting Standards Board) or exploring the effect of impact considerations on modern portfolio theory.
In RPA’s Impact Investing Handbook, you argue that impact investing weaves together the investment, philanthropy, and policy spaces. Can you expand on that relationship?
We see impact investing as borrowing from the three existing sectors of investment, philanthropy, and policy, and then hopefully proving models that those sectors can build upon.
The interesting overlap with the social sector relates to the view of philanthropy as society’s risk capital. It’s concerned with how philanthropy might innovate and test models that can be used by governments with larger budgets or capital markets that typically focus on financial returns.
RPA stands for Rockefeller Philanthropy Advisors, and “philanthropy” is in the name for a reason. We have embedded that orientation in relation to impact investing as well. This involves questions around how flexible, high-impact capital might catalyze solutions for those other three sectors to build upon and activate more assets.
The interplay can be as simple as two tools used together. We have done extensive work with disadvantaged business enterprises where the best models provide an equity or debt investment alongside a grant that helps the business mature and grow through leadership development, professional services, infrastructure, etc.
How will impact investing continue to evolve in 2022?
The word integration comes to mind. In 2022, impact investing will continue to make significant strides in integrating with other fields, tools, and considerations. At RPA, for example, we are currently working with two clients that have very specific place-based strategies—one deploying $15 million in nine specific disadvantaged neighborhoods in the Midwest and the other $110 million in western North Carolina. Here, impact investing is being introduced for the first time in places where traditional philanthropy has been working for a while. The same integration trends will continue with measurement, standardization, infrastructure, training, academic research, and data.
For more on impact investing, read RPA’s Impact Investing Handbook: An Implementation Guide for Practitioners.
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