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Creating value with impact investment

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Introduction

Impact investment, which provides financial assistance for social and environmental projects, has emerged as a hot topic on the world arena, with the potential to outperform traditional aid by tenfold over the next decade. However, the area is approaching a tipping point: will impact investment empower millions of people worldwide, or will it repeat the flaws that have plagued both aid and finance? In this post, we propose basic yet effective guiding principles for impact investing. The principles can be applied using a variety of impact management systems, and they are intended to be suitable for a wide range of organisations and funds. The principles may be implemented using a range of tools, techniques, and measuring systems. In the second part of this post, we offer some tips to help you be the change you want to see in the world, as Gandhi said.

What is impact investing?

According to the Global Impact Investment Network (GIIN), impact investing is the act of making investments in companies, organisations, and funds that will have a measurable, beneficial social or environmental impact while also generating a financial return. It represents a dynamic and new approach to finance, combining the twin objectives of generating financial returns and tackling major social and environmental issues (www.wallstreetoasis.com).

In contrast to typical investment models that prioritise profits over everything else, impact investing acts as a catalyst for change, encouraging investors to examine the long-term implications of their financial decisions. This investment strategy has gained traction as individuals, institutions, and organisations become more aware of the critical need to address global concerns while also pursuing financial objectives. The Global Impact Investing Network (GIIN) puts the global value of impact investments at more than $1.57 trillion, with large institutional investors such as fund managers and insurance firms increasingly entering the market. Between 2019 and 2024, the sector expanded by an average of 21% per year.

According to the “Market Research Future” website, Dhapte Aarti (2025) anticipated the impact investing market size to be $1525.96 billion (USD) in 2024. The impact investing market industry is predicted to increase from 1751.23 (USD Billion) in 2025 to 6046.80 (USD Billion) in 2034. The Impact Investing Market CAGR (growth rate) is anticipated to be around 14.8% between 2025 and 2034.

At its core, this investing strategy aims to effect real and verifiable changes in environmental sustainability, social equality, and governance. In addition to avoiding harm, impact investing attempts to drive solutions and improvements actively in these fields, setting it apart from some traditional investment methods.

Guiding principles for impact investment

In this section, we propose three guiding principles (sometimes known as a “transform framework”) to assist investors in defining and differentiating impact investments. They provide an overall architecture for best practices in impact management systems and necessitate openness through verification reports, which contributes to the advancement of the impact investing industry (Simon, 2017).

(a) Involve communities in design, governance, and ownership.

Engage communities in the design, governance, and ownership of projects that will have an impact on their lives. Local participation in development projects is always preceded by a community engagement process. Thus, community involvement and participation allow people to have their voices heard in the development and delivery of services.

Indigenous communities in Southeast Asia, for example, are reclaiming and managing their land for sustainable farming through participatory techniques after years of exploitation. With external investment and training, they have created eco-friendly agricultural cooperatives that provide both food security and a consistent source of income, independent of outside assistance. This form of economic self-sufficiency, based on participatory planning, enables local communities to break free from cycles of dependency on external forces like the government or international donors. Instead, they’re developing systems that represent their values and future goals.

(b) Create more value than you extract.

Impact investors should be able to demonstrate how their capital generates unique value outside of traditional markets. Impact investors must play “a contributory or catalytic role in generating an improvement over the status quo.” Impact investors can offer value by accepting lower financial returns or higher risks than mainstream investors. They must, however, exercise caution when and how they use sacrifice tactics.

(c) Ensure a fair balance of risk and return for investors, entrepreneurs, and communities.

Investors must grasp the risk-return relationship. It is a fundamental idea that affects investing decisions and outcomes. When evaluating investing options, it is critical to assess the risks and expected returns. A wise investor carefully assesses the dangers of an investment against the potential returns.

Although these concepts seem undeniable, they are frequently absent from impact investing arrangements.

In our view, properly adopting these principles necessitates a purposeful effort that includes continual contemplation on how you, generally unintentionally and without malice, recreate unequal power relations and extractive investment structures from the traditional finance world.

Caveats:

Evaluate your role in systemic change through reflection, reading, and discernment. Allow yourself to pause and consider the systemic changes your investments can bring about to contribute to a more equal and just form of capitalism. Many in the impact industry come from traditional finance backgrounds, which can unintentionally perpetuate inequality and unfairness between investors and beneficiaries. Begin small, starting with what you know: Investing does not require large budgets or complex tactics. Individuals managing small portfolios benefit from micro investing since it allows for small, consistent investments, often as little as a few euros.

-Network with other similar projects: We cannot effect positive change without community. Beyond financial transactions, impact investing thrives on collaboration, shared knowledge, and a collaborative commitment to making a significant social and environmental difference. One of the most effective tools in an impact investor’s toolkit is their network, which is a supportive group of like-minded individuals, organisations, and resources that can help them amplify their efforts and generate more change.

-Seek for impact investing networks, forums, and communities where you may meet other investors, entrepreneurs, and experts who share your desire to effect positive change. Platforms such as social media groups, online forums, and impact investment conferences provide excellent opportunities to network, share insights, and collaborate on impact initiatives.

Conclusion

In a 2020 speech to the Economy of Francesco, Pope Francis emphasised the importance of facing pressing challenges such as climate change, mass displacement, and rising inequality. He stated, “The future will thus prove an exciting time that summons us to acknowledge the urgency and the beauty of the challenges lying before us.” This moment serves as a reminder that we are not bound to economic frameworks that focus solely on profit and the advancement of advantageous public policies, which are indifferent to their human, social, and environmental repercussions. – Pope Francisco

While not all organisations are ready to boldly enter the complex world of impact investing, we can all reflect on how each individual decision we make, such as where we allocate capital, what rate we charge, what terms we set, and whose voices we invite to the decision-making table, shapes our financial and economic systems.

References

Dhapte, A. (June 2025). Report on the size, share, and trends of the impact investing market for 2034. Retrieved from https://www.marketresearchfuture.com/reports/impact-investing-market-22940

Hand, D., Ulanow, M., Pan, H., & Xiao, K. (October 2024). Global Impact Investing Network Report: “Sizing the Impact Investing Market 2024.”

Pope Francis (November 2020). International Online Event: “The Economy of Francesco—Young People, A Commitment, The Future.” Basilica of Saint Francis of Assisi.

Simon M. (2017). Real Impact: The New Economics of Social Change. Bold Type Books.

INTEGRATING HUMAN RIGHTS INTO THE SUSTAINABLE DEVELOPMENT GOALS: A HOLISTIC STRATEGY

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The Sustainable Development Goals (SDGs) establish worldwide objectives for societies and all stakeholders, including investors, and are clearly rooted in the Universal Declaration of Human Rights. The UN Office of the High Commissioner for Human Rights has clearly delineated the intersection between the Sustainable Development Goals and human rights.

The application of the UNGPs in business and investment endeavours can significantly contribute to achieving the SDGs. By addressing the full range of human rights, corporations and investors could tackle gender-related issues linked to their business operations, which would help achieve up to eleven Sustainable Development Goals (SDGs). – Ensure workers receive a living wage, promoting the advancement of eleven SDGs. – Eliminate forced labour from the value chain, contributing to the progress of six SDGs.

The intersection of the SDGs and human rights does not diminish the inherent essence of human rights: the possible inability of corporations or investors to avert or alleviate harm to individuals cannot be compensated by specific efforts to advance one or more SDGs.

HOW TO DO IT:

Step 1. Identify Outcomes: Investors must recognise and comprehend the unexpected consequences of their investments and operational activities. This evaluation entails recognising both advantageous and detrimental real-world consequences associated with the activities, products, and services of investees. It can enhance efforts such as correlating current investments with the SDGs and assessing the magnitude of investments in activities expressly aligned with the SDGs.

Step 2. Establish policies and objectives: Investors must formulate policies and objectives, transitioning from merely recognising and comprehending unintended consequences to proactively influencing outcomes. Given the interconnections among many outcomes, such as climate change and water shortages, as well as food security and poverty, investors must adopt a holistic approach by evaluating all investments and Sustainable Development Goals (SDGs) when assessing their essential outcomes.

Step 3. Investors influence results: Investors should endeavour to influence outcomes in accordance with the policies and targets established in step 2 and provide reports on progress towards those objectives. This can be accomplished by investor activities, including investment choices, oversight of investees, and interaction with policymakers and significant stakeholders, as well as through disclosure and reporting mechanisms.

Step 4. The financial system influences collective outcomes: Bringing results in line with the SDGs at the financial system level happens when individual investors work together and team up with others in the financial system, like credit rating agencies, index providers, proxy advisors, banks, insurers, and multilateral financial institutions.

Step 5. Global stakeholders cooperate to get results aligned with the Sustainable Development Goals (SDGs): No singular group of actors can accomplish the Sustainable Development Goals independently. The banking industry, corporations, governments, universities, civil society, the media, individuals, and their communities must collaborate to ultimately attain the Sustainable Development Goals (SDGs). Essential components comprise initiatives to align investment supply and demand at scale, along with cooperation on instruments to contextualise outcome data within the global thresholds and timescales necessary for attaining the SDGs.

Given the urgency of achieving the SDGs, investors must collaborate with others to further develop the necessary instruments and incentives.

Is ESG Investing the same as Impact Investing?

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Abstract:

Private markets can make things better for everyone, promote fairness in society, and make people more aware of how human activities affect the world. One way has been through impact investing, which means making investments with the goal of having a good, measurable effect on society along with making money. ESG-focused investments have become more popular in recent years. From 2021 to 2026, PwC predicts that institutional investments in ESG assets will grow by 84% (de jong and Rocco, 2022). People often use the terms “impact investing” and “ESG investing” to refer to businesses that make money and help people and the environment at the same time. But there are important differences that affect where and how buyers put their money. It is getting more and more important to know the difference between ESG investing and impact investing as private markets continue to move towards ESG standardisation.

Context:

The term “ESG” was created in 2004 by the UN, the International Finance Corporation (IFC), and the Swiss Government to encourage the financial industry to include ESG issues in normal investment decisions. Its roots can be found in the “socially responsible investing” (SRI) movement (Foroughi, 2022). This is not a surprise since governments, especially those in the EU and the UK, have been a big part of the progress made in spending in ways that are good for people or the environment over the last 15 years.

The Rockefeller Foundation and other philanthropists, investors, and entrepreneurs came up with the term “impact investing” in 2007. This was the first time that investments were made with the goal of making a measurable positive social effect as well as a financial return. The Global Impact investment Network (GIIN), which is made up of professionals who work to improve infrastructure, research, and education around impact investment, was started by this group.

So, while the public sector pushed for ESG, it was the private sector that made impact investment possible. Because of this, ESG tries to help people understand environmental, social, and governance issues. At the same time, the fact that impact is done for profit gives people a reason to work for these interests and directs money towards them. As a type of responsible investing (Starks, 2023), both ESG investing and Impact investing fit under this term. By looking at environmental, social, and governance issues, they hope to create good results that go beyond making money. Both types of investors want to make the world a better place by making it healthier and fairer.

 Now that we know that let us look at how ESG and impact investment are different (Foroughi, 2022; Seghir,2024):

Table: Key Differences Between ESG and Impacting Investing

ESG InvestingImpact Investing
ESG is a methodology for managing risk and identifying opportunities related to sustainability challenges.  Backward-looking measure, similar to an assessment or scorecard of past activity.Impact investing is a method that delineates the specific assets an investor seeks, characterised by a deliberate objective to produce quantifiable social or environmental benefits: intentionality.  Represents an alignment with one or more of the UN Sustainable Development Goals, serving as a fundamental element of the investment strategy.  Outcomes: specific performance indicators.
ESG faces fiduciary scrutiny. It requires discretion by asset managers in its application. A trustee is required to act sorely in the interests of the beneficiary (Fiduciary Law)Impact investing does not face the same scrutiny because funds employing this approach stand alone. Investors opt into these funds knowing the investment manager’s intention before investing.
ESG might serve as a risk mitigator or a potential opportunity.  ESG can decrease risk by enabling investors to eliminate or filter investments in companies that fail to comply with established standards.Both elements are present in impact investment.  A company’s value and performance can be enhanced by making investment decisions that take social and environmental aspects into account. This is true for both market-wide systematic risks and asset-specific idiosyncratic risks.  Capital expenditures, volatility, and accounting problems could all rise if these risks are not adequately managed.
As a whole, ESG is a framework that puts money first.  Financial return is the main source of value for ESG-focused investors.  Despite the fact that these metrics can guide future investments, they are only utilised to assess the environmental and social benefits of a project after it has already been funded.In a typical impact investment, monetary, social, and environmental outcomes are all given equal weight.  As long as the investment yields a profit, it may even give precedence to social and environmental benefits in the early stages.  Furthermore, impact investors are aware of the collinearity concept, which states that a company’s financial performance and social/environmental performance are frequently linked and can even reinforce one another.
Public market firms are the mainstays of ESG-focused investments.  There are a lot of ESG-focused investments in the public markets, and that’s because ESG metrics depend on data that is publicly released.  As long as there is data to analyse the company, any company can get an ESG rating—positive or negative.Private market impact investments predominate.  Impact investments have typically occurred in private markets, where innovative solutions to some of the world’s biggest issues demand skilled and patient finance and active promotion of ethical business and sustainable value.  As the startup financing cycle progresses, more impact investments go public.  Research shows that market efficiencies make it difficult to achieve additionality in public equity markets, but Impact Management Project suggests that systems change could accelerate growth in the number of investors strategically “signalling that impact matters.”
Not all ESG funds are impact.Every impact fund is ESG-compliant.  The past must inform the future, but the future cannot be incorporated into it.  Impact investing is forward-looking, thus ESG-focused discoveries can be applied in future investments.

Conclusion:

Impact investing and ESG investments are different in how they work and what their main goals are. ESG and impact investing are both ways to improve social and environmental effects, but impact investing aims to achieve a specific social and/or environmental outcome. Investors can make better decisions about their investments and create long-term value by understanding the differences.

References:

  1. de Jong, M., & Rocco, S. (2022). ESG and impact investing. J Asset Manag 23, 547–549. https://doi.org/10.1057/s41260-022-00297-7
  2. Foroughi, J. (November 10, 2022). ESG is not impact investing and impact investing is not ESG. Stanford Social Innovation Review.
  3. Seghir, M. (October 8, 2024). Sustainable Finance: Impact investing and ESG investing. RSM Global. Netherlands.
  4. Starks, L.T. (June 19, 2023). Presidential Address: Sustainable Finance and ESG Issues—Value versus Values. Journal of Finance, 78(4), pp.1837-1872. https://doi.org/10.1111/jofi.13255.

A Concise Overview of the 2024 Macroeconomic Landscape.

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In 2024, elections were held in over 40 countries, encompassing more than 4 billion individuals globally. The ramifications of election outcomes were frequently substantial. The move to the right and the ascent of populism were only evident in financial markets in the United States. Trump’s triumph in such context elicited enthusiasm in U.S. equity markets. The S&P 500 increased by approximately 10% following the November election results, although other global regions experienced very modest gains or slight declines throughout the same timeframe. Cryptocurrencies experienced a significant increase following Trump’s electoral victory. For the inaugural occasion, the value of one Bitcoin exceeded $100,000.

Throughout 2024, the enthusiasm for AI persisted across major technology firms, with Nvidia as the most notable exception, with a return of +178% in US dollars. This resulted in the top 10 companies in the MSCI All Countries World Index being exclusively comprised of BigTech firms, all of which are US-based except for Taiwan Semiconductor Manufacturing Company, collectively representing over 20% of the total value of this predominant equity benchmark. Such concentrations have undermined several arguments in favour of passive investing. The dominance of passive investors over the majority of active investors has grown sufficiently to withstand any further losses resulting from these concentrations. Active equity investors had no grievances in 2024 either. Notwithstanding unsatisfactory assessments on the progress of European industry and the Chinese economy specifically, stock markets ascended throughout all areas. The Emerging Markets, comprising 27% Chinese shares, experienced an increase last year following a lacklustre 2023.

Government bond investors cannot express the same sentiment. In contrast to the predictions of most macroeconomists, the 10-year Dutch government bond yield increased from 2.35% to 2.59% last year. Consequently, premium European government bonds saw only a slight growth last year. Consequently, the appreciation of Euro-denominated corporate bonds by up to 4.7% may solely be attributed to a reduction in their credit risk premiums. The additional remuneration for the heightened risk associated with corporate bonds has thus diminished significantly.

It is often asserted that stock markets can typically manage only one or two issues concurrently. In 2024, the evolution of inflation and its influence on short-term interest rates was observed once more. In the Netherlands, inflation remained at +4.1% year-on-year at the end of December, although in Europe, it decreased to over 3.2% during the same period, and in the US, it reached 2.7% until November.

Global central banks reacted by reducing their short-term interest rates, despite the absence of necessity. Short-term interest rates must be reduced to avert a recession; nevertheless, globally, the majority of central banks do not anticipate a recession in their nations before 2025.  Nonetheless, elevated interest rates are detrimental to governments burdened by escalating national debts. Interest expenses are consuming a growing portion of the nation’s annual budgets; yet politicians appear to regard this mostly as a future issue, as it adversely affects their electoral support in the short term.

Additional factors, including escalating global geopolitical tensions, the emergence of numerous authoritarian leaders worldwide, growing protectionism, and natural disasters attributed to climate change, were not reflected in stock prices in 2024; however, they were evident in the 27% increase in gold prices and the over 6% appreciation of the US dollar.

It is a striking paradox that the majority of individuals express concern over communications from their governments and banks urging them to accumulate emergency provisions and increase cash reserves at home, while the stock markets continue to stagnate. The overwhelming majority of macroeconomists maintain an optimistic outlook for 2025. Let us anticipate that their assertions will be validated in practice.