Impact Investing And The Mainstream

At IIG, we’ve been working for at least a year on a specific fund designed to push impact investing into mainstream portfolios.

It fits into a much bigger picture: a story about the overall Australian investing landscape. We think that’s an interesting subject for the impact investing community to ponder.

Less than 1%.
The total amount of funds under professional management in Australia is about $2.25 trillion. Impact investments total about $19 billion. That’s less than 1%.

One of the impact community’s challenges, and one our opportunities, is the $2,231,000,000,000 that isn’t managed for positive impact.

What’s the priority, and where’s the best reward on effort?
Before addressing those questions, let’s acknowledge that passion and purpose runs deep for our community, and that’s great. Folks should find their own mission, and follow that. But the next few paragraphs explains what has been inspiring some of the IIG team.

Here’s a simplified, but useful model: Within that $2.23t outside of impact investments, there are segments, albeit with blurry edges.

• Net negative impact: At one end, there’s the money financing projects and companies that are contributing to problems. We don’t think there’s a good-faith argument for Adani’s Carmicheal mine, for example, so finance for that project sits here.
• Unknown or debatable in good faith: They might be harmful, they might be beneficial, but the investors aren’t screening either way, and there’s some subjectivity on impact, depending on your goals and perspective.
• Responsible Management: Actively considering ESG in investment choices and/or screening out investments that are harmful. There’s subjectivity on which themes to avoid; fossil fuels, harm to animals, and there is strong competition and diversity between products on whether to screen or pick the ‘best in class’. This responsibly managed segment accounts for about 43% of Australian AUM.
• Impact Investments: 1% of Australian AUM. Give or take. Within that there’s capital-retention, commercially-competitive returns, and concessionary returns. Those are all less than 1% of the total $2.25t.

This model will be familiar; it’s the spectrum that’s in most introductions to impact investing.

There are good and passionate arguments about how to get the 1% better. That is a worthy mission. However…

We also believe we can and should help push 99% of Australian AUM further towards the final category; being managed for positive impact. 

We believe that addressing the $2.23t opportunity will yield a healthy return on effort, for the impact community itself, and for people and for the planet. The next investment opportunity IIG announces will be targeting mainstream portfolios; we’re looking to help people move a decent chunk of that 99% into an impact investment product. It might be the first impact investment people make, or it might help clients move more of their portfolio into impact investments.

Future newsletters will detail how. There is a willing market, and we’ve been working hard to clear the barriers, around diversification, around cheque size, around liquidity, but those matters are for another day.

Of course, moving money directly into impact investing is just one piece of the puzzle. Indirect impact strategies, like greater awareness, greater desire, and better legislated rules of the road are three more. We will keep collaborating with people who work on those. But we see that $2.23t as a worthy challenge.