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  • Writer's pictureCharlotte Gardes

Impact Investing: A Catalyst for Sustainable Development


Much of development policy over the past 15 years – since the adoption of the Millennium Development Goals – has been geared towards enabling greater private sector investment in developing markets.In light of this, the successful implementation of the Sustainable Development Goals hinges on the mobilization of private investment, as it will largely depend on the ability to effectively mobilize both public and private financial resources. While statistics from the OECD’s Development Assistance Committee show a considerable increase in official development assistance since 2000, they also demonstrate a rapid growth of private and commercial flows. In the meantime, investments designed to promote development have also been increasing dramatically – often targeting sectors and regions that traditional foreign direct investment does not.

At the cutting edge of both investment management and economic development, impact investing has been receiving more and more attention in recent years. As defined by the Inter-American Development Bank, impact investing refers to investments that have an “explicit and inherent intent at startup to address environmental or social issues, as well as a business model with a structure dedicated to achieve both impact and financial returns” (Impact Investor Survey, 2015). In 2014, Forbes reported: “Some estimate that the impact investment market could grow to USD 3 trillion. And as the more socially conscious millennial generation of entrepreneurs build impact-driven businesses; you can be sure the supply of impact investment opportunities will vastly expand”. In the 2016 Annual Impact Investor Survey, respondents collectively reported more than USD 116 billion in capital committed for impact investment since its inception. In addition, “social banks” have consistently grown over the years, with players like GLS Bank (Germany), Umweltbank (Germany) and Triodos Bank (Netherlands), to name but a few. They focus on social and ecological projects which aim to tackle challenges in the society – beyond seeking capital or maximum profit.

So what makes impact investing different from traditional investment practices? There are three essential distinctions:

1. First, impact investing’s key innovation is that it pushes investors to pay equal attention to the social and environmental impact of private enterprise, as well as to measurement and reporting, versus traditional investment practices which are primarily concerned only with financial returns.

2. Second, impact investing is more concerned with financial stability and return of capital over the long term versus making a quick but unsustainable profit. This helps to encourage commercial discipline and more sustainable practices

3. Third, impact investment targets financial returns with a more diverse range – i.e. from below market to risk-adjusted market rate across all types of asset classes, including grant support, subordinated loans, cash equivalents, guarantees, fixed income, public and private equity.

Glossary of Financial Terms

The current state of impact investing: successes and challenges

According to the UNCTAD database, most social impact projects are found in sub-Saharan Africa, Southeast Asia and Latin America, regions which typically receive less foreign direct investment, but which are in greater need of financing. As the graph below shows, in most cases the most attractive sites for social investors happen to be the ones which receive very small portions of Foreign Direct Investment, or FDI, flows.

Source: « More than Money » report, Center for Global development (2010) – figures for 2010

Investment opportunities in developing economies and developed countries have obvious differences: impact investing in Europe and the United States is seen as a way of financing the “social economy,” meaning businesses and nonprofits with positive social or environmental impact objectives (“économie sociale et solidaire” in France, which represents about 10% of the overall GDP: social economy enterprises are intended to make profits for people other than investors or owners, , and include cooperatives, mutual societies and social enterprises). Meanwhile investment opportunities in developing economies are typically directed toward development projects and humanitarian initiatives.

Moreover, there is a lot of variation of the market across major global financial centers and countries. In Hong Kong and South Korea, the market in this sector is contracting, while in countries like Switzerland, the Netherlands, and the United States, it is still in the process of being structured. On the other hand, the United Kingdom already has a very mature market in this sector. Since 2000, the UK, a leader in impact finance, has been developing initiatives like social impact bonds, a social stock exchange and Big Society Capital (an independent social investment institution, with a £600 million capital), to name but a few. The “Dormant Bank and Building Societies Account” 2008 act has enabled banks to transfer the money held in dormant accounts to a central reclaim fund, responsible for managing surplus money and reinvesting it in the community through the Big Lottery Fund. However, the market is largely dominated by social banking institutions and governmental funds. Equity participation in social businesses still remains low, due to a lack of recognition in the UK. In France, the social economy is a growing trend, and the outstanding amount of solidarity-based financing has been consistently increasing for a decade (+17% per year in average).

That said, challenges for impact investing differ greatly depending on where it takes place. There is a need for a more efficient financial intermediation between capital supply and demand (by project holders). Owing to a mutual ignorance of the respective actors in the ecosystem, there is a lack of organizational structure allowing actors to meet and exchange on these matters. This results in three main issues: a lack of liquidity of most impact investment projects, a lack of transparency and information regarding social businesses and a lack of specialized structures in this particular field of financial intermediation.

Another obstacle in this field is how to measure the return of social impact investing. There is a need to develop appropriate assessment tools in order to evaluate the performance of a social business, particularly when its activities do not have tangible results.

Ultimately, offering greater flexibility in terms of regulatory constraints is a great challenge: in the UK for instance, most social businesses cannot access capital markets due to their legal status (company limited by guarantee, charitable status…). In France, as a result of regulatory constraints, mainstream businesses do not benefit from incentive regulation to invest in the social economy. In fact, securities regulation (regulation of financing or investment instruments bought and sold in financial markets) is designed for larger-scale investments and companies. This makes it particularly burdensome when applied to the less profitable impact investing sector. Such a challenge affects both developing and developed economies.

Challenges to the growth of the impact investing industry: Organized according to level of importance, with 1 being the highest

Source: Global Impact Investing Network (

There are a few key ideas to address the current challenges facing impact investing practices so that it can become a major force for development. Many of these ideas are closely linked to wider reflections on sustainable finance, but are still useful to apply to impact investing. These include:

The future of impact investing

Prospects are bright for impact investing. As Morningstar Sustainability Research recently pointed out, sustainability-focused funds have garnered positive flows in countries such as the United States, where, in 2016, USD 3 billion was invested in funds “with some type of sustainable, responsible, or impact mandate”.

An increasing number of events dedicated to impact investment have also been organized in cities around the world. In March, the Paris City Hall hosted Impact², a global event dedicated to advancing the sustainable economy. For the past six years, Impact² has recognized individuals from every industry across the world who work for a new more inclusive and sustainable economy. This year, Anne Hidalgo, the Mayor of Paris, led the first session dedicated to promoting inclusive and sustainable Olympic Games as part of the Paris application to host the 2024 Olympic Games. During this session, the city of Paris emphasized the its goal to capitalize on impact investment by proposing an eco-friendly plan which will slash carbon emissions by more than half compared to prior events, and making it the first Olympic Games to be aligned with the Paris Climate Agreement.

Though there is a definite need for a concerted effort among investors, development agencies and governments to develop knowledge sharing and increased transparency (most notably regarding impact assessment), and to and adapt securities regulation to this new market, impact investing is gaining greater global attention and increasing its scope. The question now is how to best transform financial capital into socio-economic and environmental benefits across the globe.

Photo credit: Erwan Floc’h for INCO/Le Comptoir de l’Innovation

Impact² event, organized at the Paris City Hall on 31 March 2017. In the center: Anne Hidalgo (Mayor of Paris), Mohamed Yunus (Nobel Laureate) and Nicolas Hazard (Founder of INCO).

Charlotte Gardes is a specialist in economics, political economy and financial regulation. She is a graduate in International Economics & Public Policy Analysis from Sciences Po Paris and Paris II – Panthéon Assas, and in International Business Law from the Sorbonne University.


- Stanford Social Innovation Review, ‘Strengthening the impact investing movement’, March 28th 2017. Available online:

- Brookings Global Economy & Development, ‘Policy recommendations for the application of impact bonds’, November 2015. Available online:

- United Nations Development Program, ‘Impact investment in Africa: trends, constraints and opportunities’, May 2016. Available online:,%20Constraints%20and%20Opportunities.pdf

- Commissariat général à la stratégie et la prospective, ‘L’impact investing pour financer l’économie sociale et solidaire ? Une comparaison internationale’, juin 2013. Available online:

- Neil Gregory, ‘De-Risking Impact Investing’, World Economics, vol. 17, n°2, April-June 2016

- Center for Global Development, ‘More than money’, December 2010. Available online:

- Global Impact Investing Network, Annual Impact Investor Survey:

- INCO website:

- European Commission, « The social economy in the European Union ». Available online:

- Nicolas Hazard, ‘Impact investing: le private equity des entreprises sociales’, Revue Banque, mars 2015. Available online :

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