The Rise of Impact Investing
The Rise of Impact Investing
Impact investing, which aims to generate positive social or environmental impact alongside financial returns, has been growing rapidly over the past few years. Here are some of the latest trends in this emerging field:
Growth in Emerging Economies
Much impact investment is heading towards emerging markets like India, Brazil, Kenya and South East Asia, funding startups and companies focused on overcoming local challenges like affordable housing, healthcare, clean energy access and financial inclusion. According to the Global Impact Investing Network (GIIN), 63% of impact investors target emerging markets. Impact capital deployed in emerging markets grew at a compound annual growth rate of 18% between 2017 and 2019 based on GIIN data.
Major Drivers in Emerging Economies
Several factors are driving growth in emerging markets. Firstly, rapid economic expansion and growing middle classes are creating new demand. Secondly, most impact investors seek market-rate returns, which are more easily achievable in high-growth emerging economies. Thirdly, impact innovation has tremendous room for growth in underserved developing markets.
Key Sectors
Some of the top sectors receiving impact capital in emerging economies are financial services, energy access, housing, healthcare, microenterprise and sustainable agriculture. Financial services, the leading sector, enables lending to microentrepreneurs and expands access for the unbanked. Investments in off-grid solar energy are surging to provide clean electricity access. [4]
Challenges
Impact investing in emerging markets also comes with challenges like governance issues, lack of local talent, currency risk and underdeveloped regulations. However, industry associations are working to address these concerns and encourage best practices. The GIIN introduced IRIS metrics to provide consistent impact performance standards across global markets.
As impact investing scales in emerging economies, it has immense potential to deliver solutions tailored to local contexts and enable huge leaps in sustainable development.