Feeding the world’s nearly 7.5 billion people while minimizing damage to the environment ranks as the challenge impact investors are most likely to pour money into this year, with roughly one-third planning to increase their allocations to food and agriculture, according to a survey released this week by The Global Impact Investing Network (GIIN).
Other areas where impact investors—who seek to solve social and environmental problems while turning a profit—see increasing opportunities include clean energy and health care. The regions they’ll be giving the biggest boost in capital to are sub-Sahara Africa and East and Southeast Asia.
“These investors consider impact investing to be a powerful tool when it comes to furthering economic development in emerging markets, where basic services like food and agriculture are a critical need,” says Abhilash Mudaliar, GIIN research director. “When you look at some of the other sectors highlighted, such as education, healthcare, energy, these are all critical basic services that can drive improved socioeconomic outcomes in these regions. And food and agriculture in particular play a critical role in livelihood support, given the high proportion of people in these markets that derive their income from agriculture.”
The network surveyed 157 investors managing $77 billion in impact assets and found that nearly 80 percent intend to maintain or increase their commitments in 2016. That translates to a 16 percent jump in capital committed—to a planned $17.7 billion this year from $15.2 billion in 2015—across various sectors, geographies and asset classes.
The bulk of 2015 investments, $7.2 billion, came from asset managers, who said they invested primarily on behalf of family offices and foundations. Direct investments from foundations, banks, development finance institutions, family offices, pension funds and insurance companies made up the rest. In all, these investors committed capital to 7,551 deals in 2015 and plan to commit to 11,722 deals in 2016.
The survey results do not represent the entire global impact investment market, which is difficult to measure, but they do give some indication of its growing strength. Interest in the discipline is increasing largely because of changing attitudes—the realization that governments and philanthropy can’t solve today’s megaproblems alone and that, in fact, there is money to be made in solving them.
Survey respondents expected an average gross return for debt of 5.4 percent in developed markets and 8.6 percent in emerging markets. On the equity side, they expected an average gross return of 9.5 percent in developed markets and 15.1 percent in emerging markets.
The vast majority, 89 percent, reported that their investments have performed either in line with or above financial expectations, while nearly all reported impact performance in line with or better than expectations.
Why are impact investors so concerned with food and agriculture?
To begin with, food and agriculture already claims nearly half of the planet’s land and the huge environmental challenges posed by the industry are expected to become more pressing as the world population increases and economies grow. By mid-century, the world is looking at two billion more mouths to feed, or more than nine billion people. Moreover, as global prosperity spreads, especially in China and India, the demand for meat, eggs and dairy will increase and with it pressure to grow more corn and soybeans to feed more livestock. If these trends continue, the world will need to roughly double the amount of crop output by 2050.
Agriculture is already among the greatest contributors to global warming, emitting more greenhouse gases than all our cars, trucks, trains and airplanes combined. Farming also slurps up more water than any other industry and is a major polluter, not to mention its contribution to the loss of biodiversity.
