Impact investments are seen as the next wave to flow from the global trend of purchasing alternative assets to help build responsible investment portfolios.
In its 2016 Responsible Investment Outlook, AXA Investment Managers said impact investing will grow "to touch all asset classes, including listed and public securities."
"In time, we believe that the culture of impact measurement will become embedded across the financial industry," AXA IM's report said.
"Looking at impact investing as of today, while the market is still young, it has been predicted to grow to as much as US$500 billion by 2019 or about 1% of global assets."
AXA IM also predicts a 2015 trend that saw many investors divest from the most carbon-intensive industries will accelerate in 2016.
"So far, more than 500 institutions have divested representing close to US$3.4 trillion," the AXA IM report said.
"Coal divestment as a strategy to combat climate change is sometimes criticised; requesting companies that are pure coal players without diversified sources of revenues to switch to cleaner technologies can prove almost impossible."
However AXA IM also said a mix of both divestment and engagement is likely to result in the most positive outcomes for the environment.
The investment management firm said coal-related companies that remain in investment portfolios can be monitored through environmental, social and governance (ESG) analysis, including the actions such companies are taking to promote energy efficiency.
"Engagement will allow investors to have a better view of the progress made by these companies in moving to cleaner technologies and a more environmentally friendly business model," AXA IM's report said.
Given that 2015 was the fourth consecutive record year for green bonds issuances, AXA IM said this year will signal a need for selectivity. It said corporates are now the number one issuers of green bonds, making up about 45% of total issuances in 2015.
"The financial sector has been the first mover among corporates in this space, exceeding power producers that are entering the market with the aim of refinancing their renewable assets," AXA IM said.
"These issuances demonstrate the financial sector's willingness to actively participate in the transition to a low carbon economy.
"We expect demand from investors for green assets to continue, including an increase in issuance by corporates, mostly in euro and dollar denominated bond vehicles. This includes both responsible investors as well as more traditional investors attracted to the asset class by the promise of additional yield premium, increased diversification and environmental benefits. Even private placements are growing."
AXA IM said the recent COP21 agreement also reflects a worldwide awareness for the long-term risks of climate change on environment and economies. It expects investors will be looking at emerging investment opportunities from climate change as well as on the related governance implications. It added addressing environmental issues at AGMs will also rise significantly.