Investors Ready to Endure Liquidity Issues for Impactful Returns, Study Shows

In a notable change of direction, investors are moving away from investments in sustainable cities and communities, and are instead focusing on clean energy solutions and climate resilience. This shift, according to a report published by Toniic, a global community of private asset owners, is driven by a growing backlash against environmental, social, and governance (ESG) investing, coupled with mediocre performance and high interest rates.

The report, titled 'Cruising Altitude', highlights this shift and offers insights into the changing investment landscape. Toniic, with its 500 members who are active impact investors and philanthropists, spread across over 25 countries, is at the forefront of this transition. Amanda Cutter, the president of Toniic, authored the report, providing a comprehensive analysis of ongoing product demand and investor engagement to provide capital for impact.

Amidst this shift, there are signs of sustained demand for products that contribute to solutions. For instance, Aegon AM launched a climate transition bond fund, and Finnfund announced the first close of a €80 million digital access impact fund. Even though there was a withdrawal of $20bn from US-based sustainable funds last year, as reported by Morningstar, the T100 Project findings show a continued commitment to impact investing.

The report also sheds light on the challenges posed by public equities for investors seeking solutions-oriented products. However, investors are increasingly willing to allocate to illiquid assets and to catalytic capital, a trend that is evident in the T100 portfolios. Catalytic capital, which represents 19% of the investments in these portfolios, holds assets worth $3.5bn (€3.1bn).

SDG 6 - water and sanitation received 1.3% of investments among Toniic's members, while SDG 16 - peace, justice, and strong institutions received 0.5%. Notably, Toniic identified a $2 trillion investment gap in water and sanitation, as reported by their website.

One notable example of this shift is Kristin Hull, a Toniic member, who sold all of her public equities years ago but later changed her mind. Hull, using Nia's holding of Tesla shares, is now trying to improve its human capital management. She emphasizes the importance of investor voice and believes that investors have a responsibility to engage with companies to help them improve.

In conclusion, the report shows a sustained demand for products and commitment to deploying capital for impact across a range of asset classes and strategies. As the world grapples with climate change and social issues, the role of impact investing in driving solutions becomes increasingly important.