Asset Managers ‘Must Tackle Impact Investing Knowledge Gap’

Assets under management in sustainable investment strategies reached $17.1 trillion at the start of 2020, according to US SIF.

However, institutional investors face a widening knowledge gap around impact investing compared to retail-facing intermediaries, according to a new UK study.

According to Research in Finance’s 2021 UK Responsible Investing Study, this knowledge deficit could have an impact on the scale of impact-related funds.

When investors were given a definition of impact investing published by the Investment Association — the UK trade body for asset managers — 38% of retail intermediaries said this gave them new information about the term, while more than half (52%) of institutions said this.

Institutional investors were also least likely to understand the term ‘impact investing’ compared to other responsible investing categories such as ESG integration, negative screening, sustainable investing, and engagement/stewardship, the report found. Meanwhile only 3% of retail advisors said their clients have a good understanding of impact investing.

A total of 193 advisor respondents out of 210 were already investing in or recommending responsible funds, compared to 131 out of 152 for the institutional cohort.

Although there has been a rise in interest in impact investing funds or strategies among both retail and institutional investors in recent years, their take-up remains far below ESG integration or sustainability focused funds.

However, successful examples of impact investing do exist. Pennsylvania-based Reinvestment Fund has an estimated $1.2 billion in assets and has invested in health care, education, and job initiatives in underprivileged US cities.

The Research in Finance report added that a more holistic understanding of the impact investing concept was needed for an increased take-up of these strategies.

With impact investing valued at nearly $9 trillion in the US alone, asset managers looking to secure a larger piece of the responsible investing pot needed to refresh their focus on impact investment messaging, the report said.