Impact investment – which is purposely designed to generate tangible social and environmental benefits alongside financial returns – presents promising risk-adjusted prospects. This type of investment not only provides value for investors, but can also greatly advance the UN Sustainable Development Goals.
A Maturing Sector
Impact investing continues to expand in both depth and sophistication, with clear indicators of market development since the late 2010s. In a survey conducted by the Global Impact Investing Network (GIIN) that was published in August 2023, respondents said the availability of professionals with relevant skillsets was the area in which the most progress had been made, with 27% reporting significant progress and 86% at least some progress. A quarter of the investors that took part said they had seen significant progress in research on market activity, trends, performance and practice. The perception of challenges is also illustrative of the sector’s growing maturity, as survey respondents reported that the greatest challenge to the industry’s development is the ability to compare impact results to peers, followed by fragmentation across measurement frameworks.
Investors are also shifting their attention to impact investment that accounts for climate factors. This involves more than just usual considerations like risk assessment, management and disclosure – it also comprises actively seeking climate solutions across investment portfolios. In the GIIN survey, 82% of investors said they were aiming for a positive impact on climate change mitigation, adaptation and resilience.
Tight Market Conditions
Even though projections indicate that China’s economic growth may slow to less than 4% by 2028, developing and emerging economies are expected to fuel the majority of global GDP growth through that year, due in part to stronger contributions from diverse markets. For example, the GDP of Qatar, which the IMF classifies as an emerging and developing economy, is projected by macroeconomic intelligence firm FocusEconomics to reach $307bn by 2028, compared to $232bn in 2024. The same forecast expects Qatar’s GDP per capita to surpass $103,600 by 2028, up from nearly $80,000 in 2024.
Consequently, the Economist Intelligence Unit projects real GDP growth at around 1.8% globally in 2024. At the industry level, opportunities can be found in the restructuring of supply chains, and the demand for resources vital to emerging industries and the green transition. While artificial intelligence presents opportunities for cost reduction and could cause some disruption, it is more likely to complement human capabilities rather than replace them, leading to changes in job roles.
Shift to Emerging Markets
Since 2018 investors have focused predominantly on developed markets, with the US and Canada seeing the most rapid growth in asset allocations at a compound annual growth rate (CAGR) of 53%, followed by Western, Northern and Southern Europe at 33%, and East Asia at a CAGR of 21%. This was due to the perceived volatility and risk associated with emerging markets. However, attitudes towards these markets have been changing, and investors are increasingly planning to direct their resources towards such regions. When asked about future plans, 56% of the investors surveyed by GIIN said they were intending to boost their impact assets in sub-Saharan Africa, followed by Latin America and the Caribbean (48%), and South-east Asia (42%).
Asia-Pacific is driving investor interest in green bonds, especially those supporting renewable energy initiatives. South Korea, Japan and China are expected to maintain their position as the top markets for green, social, sustainable and sustainability-linked bonds (GSSSBs) in the region, as they have consistently represented 70-80% of GSSSB issuance in the region since 2019. Meanwhile, Indonesia is slowly but surely distinguishing itself, with the archipelago issuing sustainability-related bonds worth more than $864m in 2023. Of this amount, green bonds accounted for $820m.
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