Impact Investing Update by PitchBook

The Impact Reporting and Investing Standards (IRIS+) framework, curated by the Global Impact Investing Network (GIIN), offers an industry-leading methodology to aid investors in sorting impact investments into the different types of impact they are targeting. While the UN Sustainable Development Goals (SDGs) are better known, not all of the goals are intuitively investable, as they were designed for the world as a whole to solve some of the most pressing issues facing humanity. The IRIS+ categories, on the other hand, were designed by and for investors. While the GIIN does provide mapping to the SDGs in the IRIS+ taxonomy document, the relationship is one where investors deploy capital into the IRIS+ categories to both earn returns and move the world closer toward the UN goals.

One interesting attitude among GPs is that some would prefer not to be categorized as impact investors, even though they are clearly investing with that objective, because potential LPs may misconstrue the label as an indicator that financial returns are a secondary focus. While after gathering information from the fund managers working in the area, the financial returns are still a primary intention of most. Hence, this report refers to the dual objectives of achieving both financial returns and a positive measurable social or environmental impact, with key takeaways as follow:

• With improved fund tagging, PitchBook have recast their analysis of the impact funds universe previously published in Q3 2021. Since that report, PitchBook have begun tracking hundreds more impact funds and added thousands of additional IRIS+ category tags to those funds, allowing PitchBook to provide a deeper analysis of the private market impact investment landscape.

• Looking at drawdown private fund structures only, 1 over 1,700 impact funds have been raised since 2007, with over $380 billion committed to these vehicles. The funds vary widely in size, geography, and the types of impact they are attempting to effect. In addition, there are types of funds that impact investors appear to prefer that are less prevalent in the general private fund landscape. For example, real assets, particularly infrastructure, represents a higher proportion of capital raised for impact funds than for private market funds overall.

• Using the GIIN’s IRIS+ framework for impact investing, PitchBook have found that energy is a staple of impact investment capital, while some categories such as biodiversity & ecosystems garner much less attention. Also, due to cultural differences, some impact categories appear to be more attractive in different geographies. For example, air and pollution impact efforts are funded largely by North America based funds, while focus on land preservation and sustainability is more often found in funds outside of North America and Europe.

This report also shows that 28 more impact funds having closed in Q4 2022 as of this writing, with more expected before the close of the year. While PitchBook hear from quite a number of VC funds planning to provide measurable impact alongside financial returns, PitchBook were curious as to where there might be concentrations of impact investment within particular private market strategies. PE represented 24.6% of all private market impact vehicles closed between 2007 and September 2022. However, because PE fund sizes tend to come in larger than other strategies on average, by capital raised, PE represented 30.1%. On the other side, VC funds were 42.7% of impact funds raised, but only 14.3% of capital raised.

This Impact Investing Update is presented by PitchBook, a financial data and software company that delivers data, research, and technology covering private capital markets including venture capital (VC), private equity and M&A transactions. For more information about PitchBook please check their website on this link.

Source: PitchBook Data, Inc.