The reality of risk: Unearthed opportunity in growth equity impact
A wide gap exists between target versus actual capital raised within growth equity impact investment. From clean energy to sustainable agriculture these investments support enterprises shaping our future.
Growth equity impact supports enterprises poised to solve critical societal and environmental challenges. Concerned about an emerging funding gap, M&G Investments has partnered with Phenix Capital Group, a leading global impact investing consulting group, to explore the reasons this gap exists and the implications. Combining M&G research with the Phenix Impact Database, we present a data based analysis of this critical issue.
Impact investing is a powerful force for both profit as well as environmental and societal progress. It is where capital is able to support innovation and technological development with the goal of solving some of our greatest global challenges. For investors we believe the commercialisation of these products and services offers compelling opportunities. Companies creating these solutions, likely the prime beneficiaries of powerful growth trends, offer investors the prospect of highly attractive long term returns. It is this alignment of purpose with opportunity which makes impact investment such a powerful force.
Impact investing is an approach which has been embraced by investors in recent years. Now firmly established as a core investment strategy, the number of impact funds available has doubled over the last 10-years¹. Specifically within the impact arena, private equity dominates with 50% of all impact funds sitting in this asset class. The importance of impact private equity is underlined by the growth in capital raised, a 370% increase over the last 10-years, to €188 billion today².
However, this has not been a story without its challenges. Not least the emergence of a funding gap – a growing differential between target versus actual impact private equity capital raised. And this gap matters, serving as an impediment towards unlocking the potential of businesses positioned to make a lasting and impactful difference towards energy transition and indeed wider environmental and societal challenges. Further, it narrows the investment universe potentially excluding some of the most commercially compelling opportunities.
1,2, Phenix Capital Group – Impact Database, 2024.