In a time of global crisis, what can be done to accelerate positive change? Impact investors play a key role, whether they are entrepreneurs, venture capital firms, financial institutions or large publicly traded companies.
For those unfamiliar with the term, impact investing is a fast-growing investment strategy where investors look to generate significant financial returns while addressing a variety of challenges – from climate change and water scarcity to a lack of access to healthcare. , education and the widening wealth gap.
A recent example is the development of Covid-19 vaccines during the pandemic: a huge challenge solved in record time thanks to collaboration between the public and private sectors, with private equity portfolio companies involved in virtually every step of the process, from from drug development to vaccine transport.
The idea that impact investing will play an important role in solving many of the world’s problems is becoming increasingly mainstream in both business and public policy. For example the European Commission actively promotes impact investing as part of the EU targets for 2030 to reach a rate of 55% reducing greenhouse gas emissions.
An emerging investment trend
The The global impact investing market is estimated at over $1.1 trillion. So says one of the largest philanthropic organizations in the US, Rockefeller Philanthropy Advisors Impact Investing now represents one in three investment dollars in the United States, and that this is driven in large part by the increased role of women and the next generation of asset owners in investment decisions.
The main focus among impact investors to date has been concerned with decarbonizing the economy. An example of this is the steel industry, a sector that is still highly dependent on coal. Backed by private investors, including pension funds, the Swedish company H2 Green Steel was founded in 2020 to produce steel through a green, hydrogen-powered steel mill. The company aims to produce 5 million tonnes of fossil-free steel by 2030 and estimates that using hydrogen will reduce CO2 emissions by 95 percent.
There is now increasing attention among impact investors broader economic and social factorsincluding access to education and finance.
Closing the digital divide
One productive area that impact investors can now focus on is closing the digital divide, which would deliver a range of social and economic benefits. Internet access in schools It has been shown to increase an economy’s GDP because a better-educated youth population leads to a better-educated workforce, more capable of innovation and breakthrough ideas. This in turn will enable a virtuous cycle of more income, more spending, more jobs, more economic development and back to more income. By 2025, for example Niger’s GDP would increase by an estimated 20 percent if it were to increase its connectivity to the same level as in Finland.
The World Bank recognizes financial inclusion as an important factor in boosting prosperity. Today, affordable loans, insurance, savings accounts and digital payments are still out of reach for approximately 1.4 billion adults worldwide. In Africa, almost 60% of the population does not have a bank account of any kindand the lack of confidence in the traditional banking system is widespread. But what most Africans do have is a mobile connection and a trusted relationship with their mobile operator.
Mobile money systems serve as an engine for financial inclusion that can significantly improve people’s lives, while also providing enormous business opportunities for providers such as telecom operators, banks, fintech companies and financial institutions. One of the investors who has seen the potential is the American investment company BlackRock. Through its Global Impact Team, the company invests in several companies offering mobile money services that reach underserved populations in emerging markets.
Another player that is betting heavily on mobile money is telecom operator MTN. The mobile money service is one of the largest on the African continent, offering mobile wallets to more than 63 million Africans in 16 countries. These species mobile financial services have made it possible for many financially excluded people to be included in the formal financial ecosystem – but just about a quarter of adults worldwide are still unbankedwe still need to make progress in this area.
The 2030 goal to be achieved The UN Sustainable Development Goals (SDGs) are fast approaching and capital allocation for these goals remains insufficient. To be precise, The financing gap needed to achieve the SDGs is estimated at $4.2 trillion. It is therefore imperative that industry players across all sectors invest in the transformation needed to combat climate change and tackle social and financial inequality.