Transcript:
Stephanie Kater: I’m a partner at Bridgespan, and we’ve now had the privilege of supporting over 50 impact investing clients as they collectively have put $24 billion to work to advance social and environmental outcomes. Here’s what our clients are asking us these days, and here’s what our peers in the field are asking us as well.
If you think you’re hearing a lot about climate these days, you are. This is born out in the data, which shows that basically all of the growth now in the impact investing market is driven by the new climate fund launches. We’re actually seeing kind of that curve reflect the broader market and a deceleration of new fund launches on the social side or on the general side, meaning funds that tackle both social and environmental issues together.
Because we expect this trend to continue well into the next year, we’re getting a number of other questions about what it all means. Is it good? Is it bad? Is it nuanced? We think it’s nuanced. On the one hand, it’s great that there’s so much capital flowing towards climate, which is a very serious issue facing us as a society. Every study has said we need billions or trillions of dollars to begin to make a dent in the issue. So it’s a good thing that the market is starting to put that capital to work.
And it’s a good thing that LPs are demanding these products, because we are certainly seeing the GP market respond by creating the new funds. What’s nuanced about it is that, and what we worry about is, that we might lose some of our momentum on the social issues, or the pure climate funds may not think as much about the social side of things and about taking a social lens some of the investments that they make.
For example, we’ve been working towards sustainable development goals as a field for a while now. All of those goals still hold. A lot of the issues are going to be made even worse than we thought because of climate issues. For instance, the risks to human health are obviously huge. We’re going to see tens of millions of people who are put into poverty specifically because of climate-related health issues.
We’re also going to see the workforce meld and morph in big ways. We’re going to see tens or even hundreds of millions of jobs transition from some of the older industries like oil and gas and become green-collar jobs. And the way that impacts peoples’ livelihoods is a really significant result, or at least an indirect result of some of the climate investments being made. So what we’re hoping happens, and what we have been advising our clients, especially on the owner side and the allocator side to think about is, how you can do both? If you’re a generalist fund, how you think about kind of the intersection in the mill with some of the social and environmental issues, and if you’re a pure climate player, how you can take a social overlay to some of the questions that you’re grappling with to some of the outcomes that you’re trying to drive? Identifying externalities or benefits that can come as a result of the investment on the social side and try to manage towards those as well as towards the pure mitigation goals.
Michael Etzel: What’s the fund of the future? It’s an interesting question for a young marketplace. Are we going to see a TPG Rise Fund 13 and a Bain Capital Double Impact 16 that are broadly serving a wide range of social and environmental topics in 10, 15 years from now? Or will the market take a different route and almost like the rest of alternatives start to specialize where we instead see the Healthcare Fund 2, Education Fund 4, Financial Inclusion Fund 3 coming out of some of these successful impact franchises and platforms?
Right now, we’re stuck in a bit of a middle gear where the size and scale required to launch a successful product tends to be still 500 million to a billion dollars. And we aren’t yet at a point where some of those sub-sectors have achieved that scale. But as we discussed before, the trajectory we’ve seen with climate has been an absolute rocket ship in the last couple of years, and it opens up a question of what does that trajectory need to look like in order for some of those social themes to really continue to get traction and continue to gain momentum, particularly from some of the largest asset allocators in the world?