The demand and interest from private investors towards impact investing has never been greater – The Global Impact Investing Network (GIIN) has already recorded a 50 per cent rise in the size of the market, with estimates from Standard Life and JPMorgan predicting that the total impact investment sector will be worth $1 trillion (£790 billion) by 2020.
Indeed, underpinned by the rise of millennials, impact investing has come to the mainstream in giving investors a real opportunity to back funds that provide them with a fair market return, whilst contributing positively to society. However, as appetite for impact investing grows and the sector expands, it is challenging for investors to judge what sectors and businesses offer the best opportunity to deliver robust returns whilst delivering the greatest level of social impact.
At Triple Point, drawing on our research and expertise working with early-stage venture capital, social investment and private equity – we have identified the four key impact sectors that that address this issue- healthcare, the environment, children and young people, and inequality.
The global healthcare landscape currently presents ripe opportunities for impact investors to generate both strong financial and social returns, making it one of the most attractive areas for impact investing.
A survey by American Century found healthcare was amongst the causes that matter most across all age groups, with one in three millennials stating that it’s the area that they would care most about if they were to make an impact investment.
Against this backdrop, the Medical Technology ‘MedTech’ industry is already set to grow globally at 5.6 per cent per year, with investment into MedTech and digital health hit a record high level of investment in 2017. In particular, innovations in preventative solutions are generating significant impact by freeing funding from other, non-preventative health needs.
At Triple Point, we’re already working with companies that are improving health outcomes, preventing disease and saving the NHS money. For example, we have been working closely with Skin Analytics, a fast-growing company that is increasing the effectiveness of identifying melanoma skin cancer by providing dermatological quality digital images and diagnosis using artificial intelligence (‘AI’). Our investment is allowing them to refine their AI capabilities – making early diagnosis, which has the potential to dramatically improve chances of survival by up to 93 per cent, a reality.
Impact allocations to healthcare have already experienced a 15 per cent compound annual growth rate (CAGR) over the past five years, according to GIIN. At a time where the deployment of private capital is pivotal to unlock the potential of such transformative products and solutions, healthcare presents clear scope and opportunity for impact investors to generate strong, long-term returns, and truly make a difference to those most vulnerable.
Finite resources, and the need to consider the impact of the climate in fulfilling needs from water, food and energy supply, has opened a surplus of opportunities for companies to offer alternative or sustainable solutions.
We have already seen some clear opportunities for investors to generate significant impact through allocations to the environment. Ecologic, for example, a firm which are championing the renewable, anti-single use plastics cause, have created a water-resistant paper bottle with eco-friendly packaging made from 100% recycled cardboard and old newspaper. Ecologic is just one example of the growth of opportunities to work with firms providing crucial solutions to global environmental problems.
At a time when governments and supranational bodies are already enforcing new regulations to make firms more accountable for their environmental footprint, investing in environmentally responsible companies ensures investments are in tune with the forces and attitudes shaping the global economy. In recent Meta- Analysis, 88% of studies found that companies that adhered to environmental standards showed better operational performance, and 80 per cent of studies showed a positive effect on stock price performance. Clearly therefore, firms tackling environmental issues present a promising backdrop for investors to do well, from doing good.
Children & Young People
Another area that should catch the eye of prospective impact investors is projects supporting the growth and advancement of children and young people. There is a basic social need, recognised by the UN Sustainable Development Goals, and governments alike, to improve and expand the access to quality education and services to children and young people, in order to tackle unemployment, address skill shortages and provide fair opportunities for all.
At Triple Point, we recently invested in MWS Technology – an innovative young company that is transforming the efficiency and compliance of organisations that deliver apprenticeship training to young people through its Software-as-a-Service (SaaS) platform, ‘Aptem.’ MWS, through its unique technology, helps providers manage programmes directed at young people who have a vocational training need, who may not have had prior educational or parental support.
According to GIIN, Five-year repeat respondents reported the largest CAGR in allocations to education (33 per cent), with 41 per cent of respondents citing allocations to the educational sector to help young people.
At the heart of the UN Sustainable Development goals is reducing the inequality that is still in existence today– and private investment has an increasingly powerful role to play in helping reduce some of these inequalities, facilitating a fairer world.
Impact investing to tackle widespread inequality can come in many forms. One particular is funds focused on closing the gap between men and women in business. Gender lens advocates argue that whilst fulfilling obvious social goals, there is also a clear link between companies with diverse workforces and strong financial returns.
Several studies reach this conclusion, including research by the Peterson Institute and Ernst & Young that analysed 21,000 public companies and found that bringing more women into higher management boosted profitability – making it an opportunity worth up to $28 trillion. There are already numerous impact projects championing this cause – The G7 2X Challenge, for example, is a commitment by development banks within the world’s biggest economies to invest $3 billion in projects aimed at women by 2020, while the Billion Dollar Fund, a consortium of finance groups, is halfway to reaching its $1 billion capital-raising target.
Clearly the scope for good impact investing goes beyond just these four sectors – but they form a useful lens to focus our impact investing. Investors looking to create a diversified, risk-assessed portfolio that has potential to ignite genuine social and environmental impact should look towards allocations towards not just one, but several of these crucial areas.
This is a guest contribution from Belinda Thomas, partner at private investment specialists Triple Point, which has more than £900m AUM.