GIIN estimates the market of impact investing at $ 1.164 trillion in assets under management (AUM) in 2021.
Global Impact Investing Network (GIIN) is one of the key champions of impact investment sector worldwide. GIIN worked along with Nuveen to understand how the impact industry has evolved over the years for the GIIN report. As of December 2021, the directly invested impact asset under management is estimated at $1.164 trillion spread over 3349 organizations. The impact investment sector is less than 1 percent of the global capital market size in 2021. In 2021, the global bonds’ outstanding market size stood at $126.9 trillion compared to the global equity listed stocks’ market capitalization of $124.4 trillion. Impact Investors headquartered in developed countries dominate with 92 percent of assets under management with emerging markets comprising the rest of the impact AUM. Fund managers and foundations (non-corporates) account for little less than 75 percent of the total impact AUM by type of organization among the 896 organizations sampled. The sample size excludes organizations where the headquarter location is not known. The impact investing market is highly skewed. For example, according to the GIIN report, DFI (development finance institutions) only account for 5 percent of the sample but 27 percent of impact AUM. Further, the study among 1289 organizations showcases a major skew towards large organizations – 34 organizations represent 55 percent of the impact AUM. To know more about the process, read the GIIN impact report here.
Data Source: GIIN | Chart The middle Road
# Green Bonds and Interest Rates
Chart & Source: Board of Governors of the Federal Reserve System (US), Federal Funds Effective Rate [FEDFUNDS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/FEDFUNDS, October 22, 2022. Chart Federal Funds Effective Rate
This GIIN report includes green bonds and other specialized bonds issued that fit the impact investing criteria. Green, social, sustainability, sustainability linked, and transition bonds (GSS+) have grown over the years. Climate Bonds Initiative (CBI) estimates that green bond issuance crossed the $2 trillion mark at the end of Q3, 2022. However, it’s a long road ahead as GSS+ debt is only 5 percent of all debt priced in 2021, reports CBI. BNP Paribas priced in a terminal Fed funds rate of 5.25 percent by Q1 next year, signaling the end of an era of low-interest rates significantly driven by food and energy prices.
To share a perspective on how low the interest rates have been over the past decade, the peak effective fed funds rate stood at 19.1 percent on 01-06-1981. If you evaluate the effective fed funds rate cycle from 1 January 1980 till 01 July 2007 (start of interest rates reduction due to credit crisis); the average fed funds rate stood at 6.40 percent with the median at 5.56 percent. The average effective fed funds rate from 01-01-2000 till 01 July 2007 stood at 3.36 percent, a median of 3.07 percent. The research highlights an extended period of low-interest rates over the past decade; an increase in rates might be a normalization of central bank rates over the long run.
Many economies have high unemployment rates, with systematic inefficiencies like corruption. As we advance, according to the World Bank with growth slowing in the world’s three largest economies – the US, China, and the Euro Area, the probability of global recession increases under some scenarios. A majority of the key central banks have and will continue to increase interest rates (and rightly so) to tame down the inflation. To know more about the global central banks and their mandate, refer to the free module from The middle Road here.
The increase in the cost of funding most likely lessens capital allocation to the international sustainable sector. High global uncertainty accelerated due to the Ukrainian invasion by Russia has devastated wellbeing of millions leading to catastrophic consequences. Hopefully, the world will show empathy and financial resilience to enhance spending within the social impact sector to better social, environment and governance issues facing the humanity.