Impact Investing and Climate Change – An Assessment of Impact Investors Addressing Climate Change

Abstract

The financing of climate change solutions is extremely urgent as countries face increasing negative impacts from climate change that pose severe threats to current and future generations. Damages from environmental disasters that have been linked to climate change, such as the Australian wildfires, Cyclone Idai, Cyclone Fani, Hurricane Dorian, and extreme flooding events in many countries across the world, have resulted in more than $100 billion dollars of damage in 2019 alone. The financial sector has the power to invest in solutions that positively affect the environment and meaningfully contribute to sustainable development. Impact investing is the practice of investing by prioritizing positive social and environmental impact while still seeking financial returns. The MaRS Centre for Impact Investing defines impact investing as the investor intention to create measurable positive environmental and social impact beyond financial returns. The ability of impact investing to catalyze climate change solutions is crucial to consider because nations urgently require monetary and material investment as they further develop infrastructure, increase resource consumption, and grow their economies while adapting to and mitigating climate change.

The research objective of this study aimed to assess the degree to which impact investing can be a driver for climate change solutions. To understand the relationship between impact investing and climate change in financial institutions that engage in impact investing and to assess how impact investing can positively contribute to climate change solutions, a review of academic literature and a quantitative analysis of impact investors was conducted. A review of academic literature illustrated a tendency within the impact investing space to focus more on social issues than environmental challenges. This study’s quantitative analysis involved financial institutions that were Global Impact Investing Network (GIIN) members, the largest global community of impact investors, and assessed their propensity for addressing climate change. The quantitative analysis focused on the effects of geographic region, investor type, and assets under management on impact investors’ focus on climate change.

The results of this research indicate that the effects of geographic region and investor type is significant for impact investors addressing climate change, while the effect of assets under management was found to be not significant. There is strong growth potential and large opportunity for impact investors to make investment decisions inclined towards climate change solutions. This research adds to the academic and theoretical impact investing subject matter in that it uses a real-world sample of financial institutions practicing impact investing to observe and assess the degree to which impact investing can be a driver for climate change solutions. The practical contribution of this research is relevant to and useful for investment decision makers, impact investors, the financial industry, and the field of sustainable finance. This research has made a first step in analyzing the degree to which impact investors focus on climate change.