The bank’s latest survey highlighted a growing trend towards impact investing, with investors looking to take a more “holistic approach” to ESG-related investments.
Impact investing is set to overtake ESG integration as the most popular strategy for investors to achieve sustainability, according to the BNP Paribas’ ‘ESG Global Survey 2023’.
The survey, which involved 420 asset owners and managers, hedge funds and private equity firms, has moved from asking investors ‘why’ to the ‘how’ they are investing, Sophie Devillers, Head of Sustainable Finance, Securities Services at BNP Paribas, told ESG Investor.
Devillers noted that the latest iteration of the survey found that impact investing has become increasingly important to investors, moving away from ESG scores, which were a key focus in 2017 and 2019, and carbon foot printing which was a priority in 2021.
“This is really a growing trend,” said Devillers, noting that 54% of survey respondents said they expect to use impact investing in the next two years versus 45% currently.
Estimates vary widely on the current size of the global impact investing market due largely to a lack of consensus on how impact investing is defined. According to the Impact Investing Global Market Report 2023 the market grew from US$420.91 billion in 2022 to US$495.82 billion in 2023, with a compound annual growth rate of 17.8% to US$955.95 billion in 2027.
Last year, the Global Impact Investing Network (GIIN) estimated that the market was as large as US$1.164 trillion, marking the first time it had broken the trillion mark.
Devillers declined to comment on how BNP Paribas characterised impact investing in the report, as an accompanying qualitative analysis of survey responses on impact investment was set for release in October.
According to GIIN, impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.
“Investors want to make a measurable positive impact with their ESG investments in a more holistic way,” said Devillers, adding that impact investing is increasingly viewed as a way for investors to measure the positive contribution of their investments.
Devillers underscored the “massive move” towards impact investing, noting how the survey found that in two years’ time it is expected to “completely overtake” the ESG integration approach, which is currently the most common with around 70% of respondents using this strategy.
According to Devillers, the impact investment trend goes “hand-in-hand” with active ownership, with 45% of survey respondents stating it will be a key ESG objective in the next two years.
Active ownership, where investors use their rights as a shareholder to influence corporate behaviour, is seen by some investors as a tangible way to drive positive impact in listed equities.
The findings come as a global survey from asset manager Vontobel found that a significant majority (71%) of global institutional and professional investors are planning to increase their allocations to impact investing solutions over the next three years.
Of the nearly 200 respondents who already invest in impact, or poised to do so, listed equities is the most popular route with 67% currently utilising the asset class. But, while a majority of those surveyed are investing in impact solutions, it remains a relatively new concept for many , with more than half (58%) stating they have only utilised the strategy for less than three years.
Data quality issues
Commenting on the BNP Paribas survey findings, Fran Seegull, President of the US Impact Investing Alliance, said: “The future of investing is impact investing, as evidenced by the growing interest across investor types and geographies and the market’s evolution in recent years.
“ESG integration is of course just one tool in the impact investing toolkit, and we are encouraged to see more investors embracing the broader playbook in pursuit of both positive impact and financial returns.”
Sir Ronald Cohen, Co-Founder and Chair of the Global Steering Group on Impact Investment, said he welcomed the results, which show that “a majority of ESG investors are shifting to impact investing by measuring the impacts they make”.
He added that reliable impact measurement required standardised, comprehensive, and consistent metrics, noting efforts by the EU, US Securities and Exchange Commission (SEC), International Sustainability Standards Board (ISSB) and the International Foundation for Valuing Impacts (IFVI) will contribute to improving impact disclosure over the next two years.
“We are on the way to providing the quality data that investors have stated they sorely need in this survey in order to invest for profit and impact,” he added.
The survey found that limited data quality remains the biggest barrier for respondents, with 71% stating that inconsistent and incomplete data limited their adoption of ESG and impact investing, up 17% percentage points since 2021.
Devillers said this likely reflected investors becoming “more sophisticated” in their approach to ESG and impact investing, while data providers are lagging behind.
“Climate data, for example, has improved quickly in the last few years, but new needs are coming very fast, especially for biodiversity data, or even data on certain asset classes like private equity,” she noted.
Devillers added that the survey also found that best-in-class and ESG integration strategies were more prevalent in Europe and the US, while negative screening strategies prevailed in Asia Pacific.
Further, 38% of North American investors surveyed stated they are looking internally to define sustainable investing as there is a “preference for a market-based solutions”, rather than policymakers attempting to help define sustainable investing through initiatives such as the EU’s Sustainable Finance Disclosure Regulation (SFDR).