Our global model is challenged by the escalating risks of climate change, biodiversity loss, and rising inequality within and between countries.

Covid widened the poverty gap. It alerted us to the fragility of our systems and the need to invest in resilience and inclusion. It also inspired some of us in our search for a better system. This all amidst a growth in populism and a legitimate challenge to the neo-liberal democracy system that we in the West have become so used to.

We have a clear set of goals to guide us in addressing these challenges — the 2030 UN Sustainable Development Goals (SDGs) and Net Zero commitments. Now we must demonstrate real delivery. Net Zero momentum has added to the SDGs, together guiding public and private resource allocation.

The investment requirements are immense and well-known. According to the International Energy Agency, an estimated $4 trillion in clean energy investment is needed every year between now and 2050 to keep global warming to within 1.5°C¹. There will never be enough public money to resolve these challenges, especially in emerging economies. Kenya, estimates that it requires $62 billion annually for is climate plan; its own public resources have capacity to cover only 13% of this figure².

The SDGs and the necessary just transition to Net Zero will not happen without the full engagement of private enterprise, underpinned by innovation and capital supplied at the right cost. Harnessing more private capital for public good is essential. Global financial markets represent a hugely powerful — and hitherto underutilised — lever for the systemic changes we need to see.

Investment that takes into account ESG criteria and seeks positive impact has expanded and become much more sophisticated over the past decade. Many investors still consider ‘ESG’ as simply taking ESG data into account when assessing the potential risk-adjusted returns of an asset investment. ESG strategies also include ‘ESG investing’ or ‘responsible investing’ — the use of negative filters to inform investment decisions, primarily to avoid conflict with the investor’s ethical guidelines, as well as ‘sustainable investing’ — the use of positive strategies that seek out investments that score well on ESG criteria. The step further is ‘impact investing’, setting and measuring deliberate specific social and/or environmental impact goals and optimising for impact, risk, and return, the new ‘IRR’.

The global ESG investment market, including responsible and sustainable investments, doubled from 2016 to 2021 and is estimated by Bloomberg to hit $53 trillion in 2025³. Much of this growing ESG capital is moving towards sustainable and impact investment, especially with progress in transparency and measurement.

Impact investors have invested in climate and social objectives for decades across developed and emerging markets and the impact investment market is estimated by the IFC to be in excess of $2.3 trillion⁴. They have pioneered the integration of intentional impact investment and measurement, and the targeting of the achievement of SDGs and Net Zero commitments into investment decisions.

Impact integrity and market growth around the world matter as this will be an essential source of the investment required to meet the SDGs and achieve the just transition to Net Zero.

¹ IEA (2021): “World Energy Outlook 2021 shows a new energy economy is emerging”

² FSD Kenya (2021): “A Snapshot of FSD Kenya’s Intended Work in Green Finance”

³ Bloomberg (2021): https://www.bloomberg.com/professional/blog/esgassets-may-hit-53-trillion-by2025-a-third-of-global-aum/

⁴ Investing for Impact: The Global Impact Investing Market 2020 www.ifc.org