You’ve read the news yourselves - another dizzying week across the globe. Nearly US$60 billion in USAID money is frozen, unfrozen, and now frozen again. Meanwhile, the US Development Finance Corporation suggests an abrupt shift to delivering a return on investment for Americans instead of serving emerging and developing economies. Elections in Germany continue the nationalistic wave. The UK announced redirecting its aid budget to defense spending. Similarly, countries like the Netherlands are taking a Netherlands-first approach to their aid priorities.

We’re in volatile - even chaotic – times right now. Much of impact investing relies on these aid budgets. Yet we also operate in an ecosystem that creates value for money in moments of fiscal tightening. Today, I write to capture the latest market trends and set out a strategy for GSG Impact and our partners.

Emerging trends in impact investing

Beyond the US federal level, there is positive traction happening at local levels. Last month, 24 states in the US committed to the US Paris Agreement, following the federal withdrawal, in a letter to the UN. They are on track to meet the 26% reduction in GHG by 2025. Such actions will likely lead to more activity at the city-level where US domestic impact markets are advancing undeterred. Affordable housing and community banking represent impact stories that remain undiluted by partisanship. 

Strong momentum in Asia. Last month, I attended the launch of the GSG National Partner in China. The Asian market, and particularly China, represent high-growth economies for impact investment regionally and globally, with the abilities and scale to develop innovative and investible vehicles. GIIN estimates the total Asian market size at 6% of all AUM and growing. 

The debate is rich around transparency and reporting. GSG Impact recently urged the European Commission to uphold European Sustainability Reporting Standards, focusing on double materiality and interoperability. While critics imply this comes at the risk of business competitiveness, this limits the rigor and discipline the industry still needs, especially in emerging markets. We need continued traction on the global sustainability disclosure standards, and support from GSG Impact and the National Partners is needed.

Capital is still flowing to impact investing. In Europe, assets under management doubled to US$190 billion. Globally, that number grows to US$1.6 trillion. Remember, this is disbursed money already having an impact. For example, FT research points us to US$25 billion in impact-focused capital by Rise, Rise Climate, and Evercare Health funds, and another US$7.9 billion by Zurich, the insurance giant.

Fund managers in Europe and the US predict that they can fly above the radar and raise even more impact capital in their next funding rounds. This sentiment is boosted by impact funds exceeding or meeting return expectations.

Here are thoughts for the way forward for GSG Impact and the impact ecosystem:

First is to stay the course. When government budgets are tight, impact policy is one of the investments that provide the most value for money. At GSG Impact, our 42 National Partners deploy local solutions that create infrastructure and incentives for capital to flow. For example, in Brazil, our National Partner influenced the G20 and advanced blended finance mechanisms. And in Spain and Türkiye, national social impact funds were launched to support local enterprises.

Second is to show our advocacy through concrete examples. What must emerge when this chaos settles is an impact investing industry that is more effective than we were before. We know what works and what doesn’t, yet we can do better at illustrating our work with policy examples.

A simple story structure that focuses on context, actions, and results should guide all our communications. We are guilty of losing people along the way with long reports, theoretical language, and jargon. Our audiences need to know what we know - that impact investing policy and vehicles yield tangible results.

Thirdly, we must counter with unity. In a recent interview, an attorney for aid contractors mentioned a real risk of the industry turning on itself. Lawsuits being filed between development contractors have started nationally in the US and globally. A scenario of pointing fingers inward risks a race to the bottom - bankrupting the development community both financially and emotionally.

Similarly, we must ignore the temptation to choose between a false binary of returns at all costs and creating environmental and social value. Impact investing’s track record has shown us this is not an either-or moment. We can achieve economic and impact returns without sacrificing either.

As the African proverb reminds us, "Sticks in a bundle are unbreakable.” This sentiment of unifying around partnerships is needed internally and externally at GSG Impact. 

Please continue to support one another to do the best policy work possible and to fully engage our partners — leveraging our unique, in-country network model to advance policies and investments that work.

And most importantly, stay positive.

Elizabeth Boggs Davidsen, CEO, GSG Impact