This year we saw a marked resurgence in the impact investing market, echoing the renewed enthusiasm of investors across asset classes.
The Global Impact Investing Network (GIIN)’s “State of the Market 2024” report provides a much-needed perspective on its evolution. The figures look promising, with the GIIN estimating almost 4,000 market participants that collectively manage $1.6 trillion in impact investing assets under management worldwide. This represents a 21% compound annual growth rate since 2019.
However, are these positive developments truly contributing to equitable and inclusive impact? Criterion Institute wanted to find out, so set about applying a power analysis to the findings in the GIIN’s report.
A power analysis serves as a critical tool to uncover imbalances in decision-making authority, resource distribution, and the prioritization of outcomes. It reveals whose perspectives influence investment frameworks and outcomes, identifies overlooked opportunities for equity, and highlights systemic biases that reinforce existing inequalities.
Crucially, in addition to critiquing the status quo, it also proposes actionable pathways toward a more inclusive, transformative, and equitable impact investing landscape. The dynamics explored below reveal how power and bias play out in the system in often unintended ways – and how investors might begin to address them.
Power and perception in developed and emerging markets
The GIIN’s report highlights the persistent gap in the allocation of impact capital between developed and emerging markets. Of the $490 billion in assets managed by investors that responded to the GIIN survey, 98% is managed by investors headquartered in developed markets.
This disparity points to a deeper power dynamic in the world of impact investing. Investors from developed markets, mostly in North America and Europe, wield the lion’s share of deployed impact capital and therefore control the narrative around what constitutes “impact.”
This results in the prevalence of investments that offer lower risk and higher returns, such as the ones found in developed regions. However, emerging markets have inherent volatility and different socio-economic contexts and are therefore riskier. This mismatch between risk appetite is a leading cause of underinvestment in regions, sectors or asset classes deemed risky, despite the impact potential. The GIIN report notes that, despite nearly half of the survey’s respondents allocating some of their AUM to emerging markets, these regions continue to receive significantly less funding. And while almost 43% of investors plan to increase their allocations to emerging markets over the next five years, there is always a risk that new entrants to emerging markets will fall into the trap of having the wrong expectations or limited local context, which could perpetuate these problems.
Ultimately, this means that the impact investing field risks prolonging global economic inequalities: emerging market communities remain dependent on external sources of capital that aren’t aligned with their needs and priorities. For instance, even among emerging market-focused investors, a significant share of investments still gravitates towards sectors like financial services. This mirrors developed economy investment patterns and overlooks other ways in which capital flows can generate local impact.
To address these power imbalances, impact investors can reassess how their bias shapes their relationship to emerging markets. Instead of viewing these regions primarily through a risk/return lens, they could adopt frameworks that prioritize local perspectives and definitions of social impact. This includes actively engaging with communities to understand their priorities and shaping investment strategies around their needs with a local approach, rather than from afar.
The outsized influence of large investors
Impact capital also reflects the wider structure of capital markets, concentrated among a relatively small group: 30% of those surveyed manage a staggering 92% of total impact AUM. Conversely, smaller investors, who are often closer to local needs, manage just 1% of total AUM, limiting their ability to influence broader trends and capital allocation decisions. This concentration creates an environment where a few large players dominate the landscape, making decisions that shape the direction and priorities of the entire impact investing field. It also raises important questions about the distribution of influence within the impact investing sector.
For example, there is often a focus on more established industries like energy and housing, which collectively receive 35% of total impact AUM. In contrast, sectors that may require more innovative approaches or serve underrepresented communities, such as water, sanitation, and hygiene, receive only 1% of total AUM despite significant global needs.
Addressing the concentration of power in the impact investing field requires a shift in how capital is allocated and how investment priorities are set. To ensure that diverse perspectives shape the direction of impact investing, the field must find ways to elevate the voices of smaller investors and community-led initiatives. For example, establishing collaborative investment platforms such as co-investment vehicles or regional investment networks could help bridge the gap between large and small investors.
Whose impact goals are we tracking?
Nearly 70% of investors in GIIN’s report use widely accepted frameworks such as IRIS+ and the Global Reporting Initiative to guide their measurement and management processes. These frameworks provide a standardized way for investors to assess their social and environmental impact, offering some degree of comparability across different investments.
However, the widespread use of standardized frameworks raises important questions about whose perspectives are prioritized in defining and measuring impact. A closer look reveals that many of the impact management practices may inadvertently favor the perspectives of developed markets investors. Most of the frameworks used by impact investors are designed and promoted by institutions based in developed markets. This can create a situation where the standards of what constitutes “impact” are defined by those who control the most capital, rather than by those who experience the impact on the ground. While these frameworks provide a level of consistency, they may not fully capture the nuances of local contexts and community priorities.
Similarly, an emphasis on standardized metrics can also pressure investees to prioritize metrics that align with investors’ expectations rather than focusing on the outcomes most meaningful to local communities. For example, a rural healthcare initiative might be evaluated based on its ability to meet broad healthcare access metrics rather than the specific health outcomes it achieves for the community it serves.
To create a truly inclusive and effective approach to IMM, the impact investing field needs to go beyond standardized metrics and embrace practices that prioritize the perspectives of those most affected by investments. This includes making a concerted effort to involve local communities in the design of impact metrics, ensuring that the outcomes being tracked align with what those communities value. Similarly, an inclusive approach to IMM emphasizes understanding and addressing the power dynamics that shape investment outcomes. This includes questioning whose voices are heard in determining what success looks like and ensuring that gender equity is integrated not just into the outcomes but also into the processes that drive those outcomes. It also means being transparent about power imbalances and working to shift decision-making power closer to the communities being served.
For gender lens investing, this shift is especially critical. Moving beyond surface-level metrics to understand how power dynamics shape investment outcomes allows for a deeper and more authentic pursuit of gender equity. It enables investors to not only count women impacted but to actively transform the systems that have historically marginalized them. This approach is essential for ensuring that impact investing lives up to its promise of creating a more just and equitable world for all. By addressing power dynamics head on, impact investors can move beyond incremental progress and work towards a more inclusive and transformative impact landscape.
Pablo Freund is a senior advisor at Criterion Institute.
Criterion Institute is a non-profit think tank dedicated to expanding possibilities for finance and social change. Their annual conference Convergence XXI: Reimagining the Future of Gender Lens Investing runs from February 4-28, 2025. Find out more and register at ConvergenceXXI.eventbrite.com
