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Redefining risk: Overheard at EMPEA’s sustainable investing summit

ImpactAlpha, Oct. 9 – Private equity investors seeking impact in emerging markets are grappling with risk on both fronts. Strategies to measure and mitigate risk were on display in London at a summit of the Emerging Markets Private Equity Association, or EMPEA. We plucked some high-level takeaways:

Mitigating risk

Investment in emerging markets already comes with a higher degree of risk because there are more unknowns and less structure. Any additional risk in investments with high-impact potential on environmental or social factors should invite risk mitigation strategies that can then help shape norms.

Catalytic capital

Catalytic capital can be a “bridge” – a patient, risk-tolerant, concessionary and flexible bridge – to attract conventional investments while deepening impact. Its use in emerging markets has implications well beyond attracting conventional capital: it can yield data that can be used to identify, measure, and manage future impact investments.

Benchmarking impact

In order to improve their impact performance, enterprises and their investors will need to be able to compare themselves to their peers. Transparency with impact measurement methodology – as well as financials – will be increasingly important as measuring impact becomes normalized. Investors in emerging markets need to bake this into their strategy.

Returns on inclusion

Portfolio companies in emerging markets are full of entrepreneurs seeking success, just like those in developed markets. Investors must suspend biases to identify opportunities. There are plenty of cross-market challenges to address: gender parity among senior investment professionals, for example, is at a paltry 10% for both emerging and developed markets.

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