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In today’s Brief: What we’ll be looking out for in the year ahead.
Featured: Looking Ahead to 2025
Finding impact alpha: Ten compelling storylines to watch in 2025. The operating environment has changed; the fundamentals remain the same. In 2024, the accelerating backlash to investing in climate, sustainability and racial equity created opportunities for those who are staying the course. In 2025, misplaced and mispriced social and environmental risks are likely to create even bigger opportunities for impact alpha in underserved markets. Opportunities to zig while others zag. In other words, to buy the dip. “Impact investing is at a crossroads and in the crosshairs,” Fran Seegull of the US Impact Investing Alliance wrote in a provocative op-ed on ImpactAlpha in response to this year’s Supreme Court rulings that previewed next year’s expected assault on rules and precedents that have undergirded social and environmental progress. The rollback will have consequences for communities and democratic institutions. “Our actions now, as investors, field builders, policymakers, funders, businesses and other market actors, will determine the ability of the field to continue to scale with impact integrity,” says Seegull. All week, with our annual series of look-aheads, ImpactAlpha will preview opportunities to find, and drive, impact alpha in 2025.
Here are 10 impact investing storylines we’ll be watching next year:
1. Institutional investors are driving the growth of impact investing. The growth in assets flowing to impact remains a bright spot, and surprisingly resilient. The GIIN’s annual survey estimates that impact investing assets under management have grown to almost $1.6 trillion, representing a 21% compound annual growth rate since 2019. Driving growth: Pension and insurance funds that are increasing their allocations to impact themes and strategies. “We’re seeing institutional investors starting to think about how they can set a portfolio-level impact goal, and how that cascades into decisions they make across all of their investments,” the GIIN’s Amit Bouri told ImpactAlpha.
- “And the size of the impact investing market is $1.5 trillion…ish,” by David Bank.
- “Amit Bouri on the inevitability of impact investing,” by David Bank.
2. Power imbalances create overlooked opportunities for impact. The lion’s share of impact capital wielded by investors from wealthier markets has tilted impact investing toward the lower-risk, higher-return expectations typical of developed regions, says Pablo Freund of Criterion Institute, who conducted a power analysis of the GIIN survey for ImpactAlpha. Of the $490 billion in assets managed by investors who responded to the GIIN survey, 98% is managed by investors headquartered in developed markets, driving imbalances in decision-making authority, resource distribution, and the prioritization of outcomes, according to Criterion’s analysis. “This mismatch between risk appetites is a leading cause of underinvestment in regions, sectors or asset classes deemed risky, despite the impact potential,” Freund writes. Instead, he suggests, “Investors could adopt frameworks that prioritize local perspectives and definitions of social impact.”
- “Let’s make 2025 the year impact investors analyze power,” by Criterion’s Pablo Freund.
3. Investing in emerging markets is less risky than perceived. Imperfect information, often paired with received assumptions, not only misprices risks – it creates them. A rare data release of more than 15,000 emerging market credit transactions from the Global Emerging Markets, or GEMs, database reveals that in 40 years of lending, the average default rate for non-investment grade borrowers in emerging markets was just 3.6% – roughly on par with companies with a B rating from S&P and Moody’s. The takeaway: Private investors should “see loans in emerging and developing markets as a long-term asset class, which repays patient investing and a thorough approach to asset selection,” Neil Gregory wrote on ImpactAlpha.
- “New release of GEMs loan data debunks misperceptions of risks,” by Jessica Pothering.
- “Five things we learned from the GEMs data on the credit risk of lending in emerging markets,” by Neil Gregory.
4. Private capital is stepping up to catalyze impact investments. Commercial investors are stepping up to drive some of the biggest blended-finance funds for climate and development. Financial institutions like Allianz and Mitsubishi UJF Financial Group are adhering to regulatory rules for calculating risks and to their own investment policies by co-investing and blending capital. Family offices, too, are stepping up to derisk high-impact climate and development interventions. A $70 billion credit-risk guarantee from Lukas Walton’s family office, Builders Vision, helped seal a $300 million “debt for nature” swap in the Bahamas.
- “How commercial investors are streamlining blended fund structures (video),” by Jessica Pothering.
- “Bahamas swaps ‘debt for nature’ to invest $124 million in marine conservation,” by Jessica Pothering.
- “C3 doubles down to scale up deployments of catalytic capital,” by Dennis Price and Lynnley Browning.
5. Climate gets a new narrative for the Trump era. Out: Solving the climate crisis. In: Creating jobs, lowering prices and beating China. With an incoming US administration that is hostile to climate action, the clean energy and infrastructure crowd is bracing for a backlash. Climate-tech founders, investors and energy officials at the Department of Energy’s second annual “Deploy” conference this month recast their missions around economic and national security. Their ace in the hole: 60% of the new clean energy jobs created under the Inflation Reduction Act, and 80% of the investment dollars, have gone to Republican-led congressional districts. “Clean energy has become bipartisan in the United States,” said White House climate advisor John Podesta.
- “New climate narrative: Creating jobs, lowering prices and beating China,” by Amy Cortese.
6. Impact investors are leaning into economic populism. Since the US election, Agents of Impact have tried to lean hard into economic justice and systemic change. Impact investing priorities like affordable housing and infrastructure, employee ownership and small businesses, are issues “that the vast majority of Americans would consider beneficial and patriotic,” impact advisor Antony Bugg-Levine said on ImpactAlpha’s post-election call. A patriotic narrative, he said, would signal that “we as an impact investing movement are aligned with what the vast majority of Americans want to see in how this economy changes.”
- “Share the wealth: Agents of Impact lean into economic justice (video),” by Dennis Price.
- “Economic populism, disruptive innovation and other strategies for the era ahead,” by David Bank.
7. The ownership economy has arrived. Driving ownership of real assets – land, homes, businesses, communities and, yes, equities – down the country’s wealth pyramid has become a viable, and arguably essential, investment strategy. Participants in the ownership economy include the millions of Baby Boomer owners who could sell their businesses to their workers, and first-time home buyers like those buying at least fractions of their own homes through shared-equity schemes. The ownership narrative flips the script from redistribution to predistribution, from zero-sum to bigger pie, from scarcity to abundance, from disadvantage and division to “let’s get richer, together.” View our list of 68 ownership economy funds.
- “Taking ownership,” by David Bank.
- “Unlocking and preserving broad-based ownership to make housing more affordable,” by David Bank, Roodgally Senatus and Dennis Price.
8. Fund managers and entrepreneurs go local. Resilience – local as well as national – will be vital for weathering the storms ahead. With parts of Asheville, NC, still without water or power months after Hurricane Helene, Neighborhood Economics’ Kevin Jones described the “neighborhood-scale resilience” on display to meet needs for water, electricity, food and Internet connectivity. Napoleon Wallace and his colleagues are standing up emerging fund managers across the South around what Wallace calls “impact alpha” and place-based investment theses. In Baltimore, Parity’s Bree Jones and other social entrepreneurs are buying back blocks of blighted row houses to drive equitable homeownership and community revitalization without displacement. View our list of 40 local impact funds.
- “Mutual aid network in Asheville helps overlooked entrepreneurs rebuild after Hurricane Helene,” by Kevin Jones.
- “From North Carolina, a playbook for the Reconstruction of Black wealth,” by David Bank.
- “Real revitalization: Parity buys back the block to drive community revival in West Baltimore,” by Roodgally Senatus.
9. Setting the record straight on DEI by confronting the real bias in asset management. Efforts to roll back initiatives promoting diversity, equity and inclusion have opened the door to a more fulsome debate about how racial bias shows up in the selection of managers steering more than $82 trillion in US-based investment assets. Rather than focusing on the few grant programs that might boost managers of color, “explain the studies that show 98.6% of assets are managed by white men,” political strategist Robert Raben told ImpactAlpha. And then there are the positive linkages between diversity and performance. “This is about fiduciary duty,” said CapEQ’s Tynesia Boyea-Robinson, who co-founded Freedom Economy with Adasina’s Rachel Robasciotti to defend the rights of justice and sustainability investors. “We’re not just fighting back. We are standing 10 toes down on what makes good financial sense.”
- “Confronting real bias in asset management to set the record straight on DEI,” by Dennis Price.
- “Progress and possibilities for climate action and inclusive prosperity,” by Dennis Price, Amy Cortese and David Bank.
10. Impact investors are getting political. It won’t be possible for impact investors to look away in the Trump era, as expected policy reversals touch every aspect of the impact agenda. Already, Agents of Impact are looking for ways to defend priorities and make incremental progress. Jim Sorenson of the Sorenson Impact Group sees opportunities to enact policies like the Employee Equity Investment Act to expand financing for businesses that extend ownership to employees. Others, including a community of asset owners led by Blue Haven Initiative are stepping up their lobbying game and embracing “policy-enhanced impact investing.” Groups like Freedom Economy and Freedom to Invest are readying legal defenses and advocacy campaigns to push back on political attacks on diversity, equity and inclusion, and environmental, social and governance investing. Omidyar Network and the Ford and Cummings foundations took small stakes in Anthropic to push the development of responsible AI.
- “Investors fight for ‘freedom to invest’ in wake of Supreme Court rulings (video),” by Dennis Price.
- “These investors are raising their lobbying game to enhance their social impact,” by David Bank.
- “With stakes in Anthropic, impact investors seek a seat at the AI table,” by David Bank.
Keep reading, “Finding impact alpha: Ten compelling storylines to watch in 2025” by Dennis Price on ImpactAlpha.
Dealflow: Follow the Money
- Electrified Thermal Solutions in Boston raised $19 million to demonstrate the commercial viability of its “joule hive thermal battery.” The thermal energy storage system is for industrial uses that otherwise depend on fossil fuels. (Electrified Thermal)
- Chile’s Impacta VC provided $2 million in bridge financing to Mexico’s Airbag, which makes road safety software to reduce collisions. (Impacta VC)
- UK-based KHP Ventures, a collaboration between King’s College London and several public hospitals, launched a £20 million ($25.5 million) fund to invest in mental health startups. (TechCrunch)
- Lowercarbon Capital, Lightspeed Ventures and other investors backed a $40 million funding round for Mumbai-based rooftop solar installer SolarSquare. (VCCircle)
Agents of Impact: Follow the Talent
The Global Reporting Initiative taps Robin Hodess, previously chief of strategy and impact of The B Team, as CEO, starting in February… Anthony Bugg-Levine, who stepped down as president of Lafayette Square Institute in October to launch an impact investing advisory practice, joins Homium as a senior adviser… Western Digital is hiring a corporate sustainability manager… Trust Neighborhoods is looking for a senior project manager.
Lemnis, an Oregon-based philanthropic firm focused on expanding access to education, seeks a head of impact investing… The UK’s Impact Investing Institute is recruiting a head of engagement and communications in London… Elemental Impact has an opening for an innovation director… Prime Coalition is hiring a partnership director… Green Climate Fund seeks an intern to work with its chief investment officer… Waverly Street Foundation is on the hunt for an impact investing director in San Francisco.
One Acre Fund is looking for an ESG and impact senior associate in Kampala, Uganda… Reinvestment Fund is looking for a senior underwriter for national lending… responsAbility has an opening for a climate finance investment officer… Boston Impact Initiative will host a webinar Wednesday, Dec. 18, on its publication “Fearlessly funding racial equity,” which explores challenges and opportunities facing emerging fund managers investing for economic and racial justice.
👉 View (or post) impact investing jobs on ImpactAlpha’s Career Hub.
Thank you for your impact!
– Dec. 16, 2024
