The world is currently facing a multitude of interconnected challenges, including climate change, poverty, hunger, and global inequality. In order to address these crises, it is imperative that the potential of impact finance is fully utilized. Impact finance encompasses investments that not only generate financial returns, but also have positive social and environmental impacts.
In 2022, the global impact investing market exceeded the USD 1 trillion milestone for the first time. While this is a significant achievement, it represents only a fraction of the untapped private wealth that has the capacity to drive positive change. The private sector’s capital was estimated to be as high as USD 300 trillion in 2021, and the total net private wealth in 2022 reached a staggering USD 454.4 trillion. This presents a substantial opportunity for the growth of impact investing and its transformative effect on the world.
According to the UN, an investment of USD 5‒7 trillion per year is needed until 2030 to achieve the Sustainable Development Goals (SDGs). Financiers and investors can adhere to a set of UN Principles for Positive Impact Finance to guide them in increasing their positive impact on the economy, society, and the environment and to achieve this target.
The democratization of impact finance is crucial for expanding its reach and impact. Currently, impact investing is primarily controlled by public institutions and institutional investors. However, the democratization of impact finance entails making it accessible to all, regardless of the size of their portfolio. Innovative solutions are emerging, such as impact crowdfunding platforms, liquidity guarantee platforms, impact securitization platforms, and sustainable banking services, all aimed at providing more straightforward and accessible investment channels into impact-driven ventures.
Innpact, a Luxembourg-based advisory and fund-management company, exemplifies this approach and has advocated for the democratization of impact finance. Their efforts aim to redefine the boundaries of investing and extend the power of finance as a force for good beyond traditional financial elites to a broader, more diverse group of stakeholders. Their vision is to unlock the potential of global private wealth for sustainable change and make impact investing accessible to a wider range of investors.
The democratization of impact finance has the potential to have wide-ranging effects in various areas, from green infrastructure to sustainable agriculture to renewable energy. By making impact finance accessible to everyone, it has the potential to become a catalyst for achieving the SDGs and financing the transition to a sustainable future.
Events such as the Sustainable Investment Week (#LSIW23), organized by the Luxembourg Finance Labelling Agency (LuxFLAG), are crucial in bringing industry leaders, financial experts, and investors together to exchange ideas on sustainability and responsible investing, including the growing potential of impact finance.
In conclusion, it is evident that the potential of impact finance remains largely untapped, and there is immense potential for it to drive positive change on a global scale. As we continue on the journey towards a sustainable future, the democratization of impact finance will play a vital role in paving the way for a more inclusive and impactful approach to investing, ultimately creating a healthier and more resilient world for all.