GIIN survey shows impact investing is increasing but still hesitant towards AI

Impact investing landscape evolves: The Global Impact Investing Network’s (GIIN) annual survey reveals significant growth and maturation in the impact investing sector, with larger investors driving expansion and a shift towards more complex asset classes.

• The survey included 305 impact investing organizations, each managing over $10 million in impact assets or having made at least five impact investments since inception.
• Approximately 92% of assets came from larger investors with more than $500 million allocated to impact investing strategies.
• Impact assets overall grew at a compound annual growth rate of 14%, slightly higher than the previous year.

Changing investment patterns: The impact investing sector is witnessing a shift towards more mature companies and complex asset classes, indicating increased participation from institutional investors.

• Investors are increasingly focusing on growth-stage companies, suggesting heightened activity from institutional investors.
• More complex asset classes such as public debt, real assets, and public equity have shown significant growth over the past five years, with compound annual growth rates of 32%, 27%, and 19%, respectively.
• Private capital remains the most utilized asset class for impact investments.

Client demand drives progress: Respondents cited client demand as a significant area of advancement in impact investing over the past five years, while regulatory guidance and suitable exit options lagged behind.

• Investors reported considerable progress in meeting client demand for impact investing opportunities.
• However, clear guidance from regulators on impact investing requirements and suitable exit options were areas where less progress was observed.

AI adoption in impact investing: While impact investors currently show hesitation towards artificial intelligence (AI), the survey suggests a potential shift in the near future.

• 38% of respondents expressed a need to understand AI better before deploying it in their strategies.
• Over one-third of investors want to see a sufficient track record before utilizing AI.
• Only 3% reported no barriers to integrating AI into their impact investment strategies.
• More than a quarter of respondents expect to be using AI in their strategies within the next year.

Potential for AI in impact measurement: The use of AI in gathering and analyzing impact performance data shows promise for enhancing efficiency and effectiveness in the sector.

• AI has the potential to create significant efficiencies in collecting impact performance data.
• The technology could advance impact measurement and management practices within the industry.

Climate action investments: The survey results present a complex picture of climate-related investments, with both long-term declines and recent peaks observed.

• The energy sector continues to attract significant investor attention, despite a decline in climate action investing over the past five years.
• Recently, climate investments reached a peak, with 52% of investors making at least one allocation to climate-related projects.
• This apparent contradiction raises questions about evolving investor strategies in response to increasingly evident climate challenges.

Key findings on performance and strategy: The survey highlights investor satisfaction with both financial and impact performance, as well as the effects of macroeconomic factors on investment strategies.

• Rising interest rates, inflation, and climate change were reported as having the most significant impact on investment strategies in 2023.
• 74% of investors target market-rate returns for their impact investments.
• The majority of investors expressed satisfaction with financial performance, while 90% reported satisfaction with impact performance, which met or exceeded expectations.

Analyzing deeper: The GIIN survey reveals a maturing impact investing sector adapting to new challenges and opportunities. The increasing role of larger investors and the shift towards more complex asset classes suggest a growing sophistication in the market. While AI adoption remains cautious, its potential for enhancing impact measurement and management could drive significant advancements in the field. The apparent contradiction in climate action investments warrants further investigation and may indicate a nuanced approach to addressing climate challenges through diverse investment strategies.