The agriculture, renewable energy, water and sanitation industries find it harder to attract capital than others despite their integral role in society, according to an impact investor survey conducted by JPMorgan and the Global Impact Investing Network (GIIN).
Food and agriculture accounts for just 5 percent of the $60 billion total of impact assets under management, according to a survey of 146 of the world’s largest impact investors.
“I expected to be a lot more… at least a quarter or one-third, if not more,” Robin Murphy, a spokesperson from Conservation Fund, told Agri Investor. Murphy said with a predicted 9.6 billion people to feed by 2050 he expects to see more investments focus on food and agriculture.
The Conservation Fund make impact investments through its Natural Capital Investment Fund, which is $16 million in size. The fund helps entrepreneurs build locally-owned enterprises that create lasting jobs and community wealth, while using natural resources responsibly, according to its website.
But more than half of the respondents said they had some allocation to the food and agriculture sector and 38 said they plan to increase their exposure to the sector this year, ahead of healthcare, education, water and sanitation.
“Every investor is different and there is no standard profile,” said Kevin Egolf, managing director at Iroquois Valley Farms, a US farmland impact firm, and participant in the survey. “A lot of investors like to know that their money is being used in a beneficial way beyond pure profit maximisation. The fact that there is an impact is the essence of what’s driving them there.”
“The question so far is whether they would make investments if there’s no impact or whether impact is making them make the investments. Some investments highlight low financial returns and high impact so clearly on those the impact is driving it, but if it’s just offering on normal returns, what is the bigger driver here?”
Iroquois is currently raising $20 million in equity and debt to invest into a diversified portfolio of farms.
Survey respondents said a shortage of quality deals and a lack of appropriate capital were the top two challenges for impact investors. Difficulty exiting investments and a lack of common dialogue around impact investing were also cited as challenges in the report.
Impact investments reached $10.6 billion in 2014 and there is expected to increase by 16 percent in 2015. Investment into emerging markets and developed markets was split evenly in 2014.
“Impact investing is based on the concept of ‘doing good while doing well’, harnessing the power of the free market and private sector to sustainably benefit society,” read a statement from Impact First Investment (IFI), an Israeli investment firm focused on local technology and innovation to create global social impact. “Impact investments are made in companies with both social and financial objectives, and that can demonstrate a viable business plan as well as a clear strategy for impacting and improving society.”
OPIC, referenced in the report, argued that “that other sectors present far easier investment options” so investors into sectors like agriculture, water and education, “would only engage in out of a deep commitment to impact”.
Private debt and private equity are the most-used investment vehicles and account for 40 percent and 33 percent of assets under management respectively. About 91 percent of the capital managed today is invested in companies post-venture stage and only 28 percent is allocated to companies at the growth stage, the report shows.
Hannah Schiff, senior associate for the GIIN’s research team and the co-author of the report told Agri Investor, that investors that responded to the survey are generally happy with their social impact and their financial returns. Each investor determines where they want to achieve social impact, she added. “The overall high level trend is that impact investing as a market is growing; it has a lot diversity and it’s where investors are generally satisfied or seeing some outperformance.”
Click here to read the report “Eyes on the Horizon The Impact Investor Survey.”