Who are Impact Investors?

Abstract

Impact investing aims to simultaneously deliver two objectives:

(i) social and environmental benefits and

(ii) financial returns for a desired investment risk level.

This dual objective function differentiates impact investing from other forms of investing that integrate environmental, social or governance (ESG) aspects which consider financial returns as primary objective with ESG outcomes being secondary ambitions. Despite being one the fastest growing asset classes, academic studies of impact investing remain rare, and an extensive analysis of impact investor characteristics is yet to be undertaken. Using a large data set of over eight thousand private markets investment (PMI) firms around the world, we are able to differentiate between impact investors, ESG and conventional PMI firms. We unveil differences in their ownership structure, their asset class preferences, their sectoral focus and the types of partnerships they pursue to deliver impact in addition to financial returns. We find that impact investing firms to be younger than ESG investment firms and more likely to be owned by governments. They invest over-proportionally in agriculture, clean-tech and education sectors and under-proportionally in “sin” industries such as gambling or tobacco. Finally, in comparison to ESG investors, impact investors are more likely to forge partnerships towards delivering their investment model, particularly with academic institutions.

Keywords: impact investment, private equity, sustainable finance, partnerships

JEL Classification: G24, L26, L31, O35, Q01, Q56