A New Report By Arowana Impact Capital Built In Partnership With Entrepreneur Middle East and Lucidity Insights Looks Into The Business Of Impact Investing Over the past 20 years, impact investing has undergone a remarkable evolution, driven by a confluence of societal, economic, and technological factors.

By Erika Masako Welch

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Entrepreneur Middle East and Lucidity Insights partnered with Arowana Impact Capital to launch a special report titled The Business of Impact Investing in 2023, which explores the growing trend of impact investing, and its role to support the achievement of the United Nation Sustainable Development Goals (UN SDGs).

Impact investing is a form of investing that believes that every dollar invested can make a difference, while producing a profit. Over the past 20 years, impact investing has undergone a remarkable evolution, driven by a confluence of societal, economic, and technological factors. These influences have propelled impact investing into a crucial mechanism for addressing societal needs, traditionally the domain of public funding.

In 2022, the impact investing market sat at US$1,146 billion, growing at a healthy compounded annual growth rate (CAGR) of 29% over the last four years. This is driven by millenials and Gen Z-ers that are increasingly interested in using their accumulated wealth to invest into socially responsible businesses, and become angel investors into businesses that have a real-world impact with the aim to solve some of the problems facing the world today.

Image courtesy Lucidity Insights.

There has also been an influx of social capitalists- investors that are increasingly looking to invest in companies to make a difference, while also reaping a profit. These social capitalists and investors have greatly added to the investments, which usually came from foundations and the world of philanthropy, or from governments. Unfortunately, with growing and ageing populations around the world, and governments around the world increasingly taking on large debts, our public infrastructure simply does not have the capital to invest to solve the growing societal and environmental issues that are burgeoning around the world.

We are thus at a turning point where the world's problems are getting bigger, and despite our best efforts, the funding gap to achieve the UN SDGs by 2030 is widening. Today the funding gap has reached $4.2 trillion, up from $2.5 trillion in 2015. Major world challenges such as the COVID-19 crisis has only exacerbated the challenge, as governments and businesses around the world have spent more while taking on additional debts to survive the pandemic, as well as the more recent challenges of inflation and fighting economic recessions around the world.

Traditional funding methods like grants and donations are falling short. Although philanthropy and the public sector are vital, it is becoming increasingly clear that they alone cannot bridge this substantial financing gap. This situation underlines the necessity of tapping into private capital, and its enormous $112 trillion in global assets under management. This report highlights that the issue isn't a lack of capital; rather, it's the redirection of more of these funds toward the SDGs, and the social and environmental impacts we want to have. We all must work towards ensuring that each dollar contributes significantly to the necessary positive transformations.

Related: A New Report By DP World Discusses The Importance Of Decarbonizing And Embedding Sustainability Into International Trade Practices

Image courtesy Lucidity Insights.

According to research conducted by the Global Impact Investing Network, organizations have significantly increased their impact assets in the past five years. In total, impact assets under management (AUM) surged from $95 billion in 2017 to $213 billion by the close of 2022. Despite growth in impact assets moving in the right direction, today, impact investing AUM represents only 1% of the $112 trillion global AUM, indicating significant room for growth.

This special report features interviews with thought leaders in the impact investing space, and offers an insightful perspective on the current and future state of impact investing, its challenges and opportunities, and highlights case studies of investors, social enterprises (some of which are certified B Corps), and the impact they are having on the world. The B Corp movement aims to stand out as a positive response to the challenges of consumerism and corporate responsibility, demonstrating how businesses can contribute to societal betterment. Today, there are over 7,300 certified B Corps in the world, growing 4x in seven years. This initiative aims to go beyond simply reducing harm; it represents a paradigm shift, and assesses the role of businesses in society. The B Corp certification offers a practical guide for businesses of all sizes to embed sustainability into their operations. As we enter a new phase, the B Corp movement encourages us to see businesses not just as profit-driven entities, but as potential agents of meaningful change, anchored by genuine purpose and authenticity.

The report also covers a range of inspirational social enterprises, and their impact stories that range in their impact focus areas. Issues such as gender equality and diversity are also discussed. A study by McKinsey Global Institute suggests that advancing women's equality could add $12 trillion to the global gross domestic product (GDP) by 2025, showing that gender diversity has the power to drive economic growth, but to also drive societal impact.

Image courtesy Lucidity Insights.

At the same time, the plastics waste issue cannot be understated; each year, we produce plastic waste equivalent to the entire global population's weight, of which only 9% is estimated to have ever been recycled, while a staggering 79% accumulates in landfills, or is dumped into the natural environment. With the development of biodegradable polymers, manufacturer Xampla is replacing harmful synthetic polymers in basic materials such as bottles and packaging with biodegradable plastics that will not end up in landfills or in our oceans. Another entity, Green Antz, tackles the issue of plastics already existing and overpowering our global systems by upcycling plastics waste into construction materials, such as bricks made out of single use plastics for low-cost housing projects in the Philippines.

Meanwhile, Not2Far is an enterprise working predominantly in the remotest regions of Colombia to bring affordable internet connectivity to people in the remotest regions of the world, with the belief that access to the internet is a basic human right, just as in providing access to clean drinking water and electricity is a basic human right for all. The International Telecommunication Union (ITU) estimates that about 37% of the world's population, approximately 2.6 billion people, still remain offline.

Dendra Systems is a UK based social enterprise that uses drone technology and a geospatial mapping technology to focus on ecological restoration, not just conservation. With 40% of global GDP relying on natural capital and the environment, it is increasingly becoming an economic productivity issue to not just protect, but support, the rehabilitation of our green spaces around the world. Meanwhile, EkoHealth has re-invented the stethoscope by digitizing it and harnessing the power of artificial intelligence (AI) to assist doctors and healthcare workers, even in the most rural communities get access to specialist cardiac care. The report also dives into Clarity AI, an environmental, social, and governance (ESG) data analytics platform being used by some of the largest institutional investors in the world to assess ESG performance across companies. The team has also raised over $100 million, which founder and CEO Rebeca Minguela says is a proof point that Clarity AI is on the right side of a real trend.

Last but not least, VivoPower is a renewable energy company that has financed and developed over 2GW of solar projects in the USA and Australia since 2015; it is working hard to partner with key energy consumer segments such as data center providers, so that significant parts of the future economy are powered by renewable energy. Estimates vary, but data centers are believed to account for approximately 3% of global electricity demand today, but are projected to grow to account for as much as 8% of global energy consumption by 2030. The renewable energy sector in general represented 21% of SDG deal count and 31% of the deal value, which is equivalent to $11.9 billion, signaling a shift toward investments that address environmental concerns while also offering stable returns.

To read more about impact investing and the state of impact investing in the world today, download and read the special report by clicking here.

Related: DP World Chief Sustainability Officer Maha AlQattan On How The Dubai-Headquartered Group Aims To Be A Responsible Business

Erika Masako Welch

Chief Content Officer, Lucidity Insights

Erika Masako Welch is the Chief Content Officer of Lucidity Insights.

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