Impact Investing and Why is it Essential in Emerging Markets?

What is Impact Investment?

Impact investing aims to generate measurable social and environmental benefits alongside financial returns. With the world facing critical challenges—climate change, poverty, inequality—impact investing has emerged as a key strategy. It spans sectors like sustainable agriculture, renewable energy, healthcare, education, affordable housing, and microfinance.

This approach is not just about making a difference; it's smart investing. Companies with strong environmental and social performance often attract more investors, lowering risk and cost of capital. Studies show that investments prioritizing environmental, social, and governance (ESG) factors can yield financial returns equal to or better than traditional investments.

True impact investment integrates environmental and/or social factors throughout the investment process and considers intentionality, materiality, and additionality—core principles we’ll explore further in future posts.

The Emerging Market Opportunity

But why should we focus on Emerging Markets (EM)? ?Emerging markets are home to over 83% of the global population, and represent substantially all of global projected growth. Many of these regions—such as Africa, Latin America, and Southeast Asia—account for the largest share of the $4 trillion annual funding gap, requiring capital investment at scale to meet the UN's Sustainable Development Goals (SDGs). As such, they present both a significant challenge and a unique opportunity. These regions also offer the highest potential for impact, where even a modest investment can lead to meaningful change in areas like poverty alleviation, food security, education, and climate resilience.

The demand for impact investment is accelerating, but there's a supply issue. As of 2022, impact investment assets reached $1.16 trillion, a 77x growth since 2012. However, it represents only a small fraction of the global investment market. Institutional investors, in particular, face limited large-scale opportunities, with only 5% of impact funds exceeding $1 billion in assets under management, meaning that they are often unable to invest in this vital market segment.

Impactable’s Role: Bridging the Gap

Impactable’s upcoming Emerging Markets Debt Fund aims to address these challenges with a strategy focused on private market debt that includes primaries, secondaries and co-investment, targeting sectors like SMEs, agriculture, renewables, and climate infrastructure. Impactable’s strategy combines financial-first investing, with high-impact opportunities.

Emerging Markets are also seeing rapid economic growth.? According to the latest IMF forecasts for 2024, almost every country over 3% projected real GDP growth resides in EM.? Despite having the fastest-growing economies, Emerging Markets are undercapitalized, starved of the $trillions of finance that they need to thrive. Impactable bridges this gap, offering institutional investors access to scalable, high-impact investments that deliver both competitive financial returns and positive social outcomes.

Looking Forward

The growth of impact investing in Emerging Markets is more than just a trend—it’s a vital step towards meeting our global ambitions, outlined by the SDGs. By addressing inefficiencies in EM capital markets and offering tailored solutions, Impactable aims to drive both financial growth and meaningful global change.

The decisions we make today will help shape tomorrow’s world. Impact investing in Emerging Markets provides a way to achieve strong financial returns, while tackling critical social and environmental challenges. Together, we can help scale impact investment and create a better future.