Beyond the hype: The case for impact investment in emerging economies
Key messages:
- The case for development. Human Capital + Social Equity = Economic Growth. Impact investments strategically directed to underserved regions transform human capital, advance equity, and foster inclusive economic growth and social transformation.
- The case for investments. Untapped Markets, Untapped Returns. Emerging markets account for 65% of global GDP by 2035 and yet remain significantly undercapitalised, offering attractive risk-adjusted returns across asset classes.
- The case for climate resilience. Climate Adaptation: Protecting Global Prosperity. Impact investing in climate adaptation is urgent as emerging markets face disproportionate climate impacts, with cascading risks affecting global supply chains, investment portfolios, and the ecosystems upon which worldwide prosperity depends.
Is impact investing in emerging economies just hype? Has investor appetite reverted to purely financial returns? Far from being a passing trend, impact investing in emerging markets is poised for sustained growth. Leading voices in the industry argue that these regions represent a compelling opportunity to align capital with the transformative potential of the world’s most dynamic growth markets underpinned by robust economic projections (1)
Investor interest, however, still lags behind the scale of opportunity. Nowhere is this disparity more evident than in Africa – a continent that accounts for 17% of the global population, is home to several of the world’s fastest-growing economies and holds a vast reserve of natural capital and critical minerals essential to the global energy transition (see infographic) (2)
At the same time, the continent grapples with protracted development challenges including food insecurity and human development gaps (3) requiring significant investment amid decreasing Official Development Aid (ODA) flows. Yet, Africa attracts only 1% of global sustainable investment flows. In the following, we make the enduring case for impact investing in emerging economies.
Impact investing and sustainability finance: Headwinds in 2025
Impact investing is “made with the intention to generate positive, measurable social and environmental impact alongside a financial return”. In 2024, the global impact investing market reached a considerable $1.571 trillion USD in assets under management (AUM), with a 21% compound annual growth rate since 2019. (5)
However, the sustainable finance sector, including impact investing as well as ESG-aligned strategies (investments in companies, assets, or funds that perform strongly on Environmental, Social, and Governance metrics), is encountering strong headwinds. Firstly, the shifting political and geopolitical dynamics have led to pronounced volatility across global financial markets. Notably, the onset of the 2025 ‘Trumponomics’ era has disrupted the broader sustainable investment landscape, eroding confidence in impact-driven capital allocation. In the United States, where younger investors had previously been at the forefront of sustainable finance, 2024 saw a marked decline in enthusiasm for investments centred on environmental and social objectives. (6) In Europe, the ascendancy of right-wing political parties has injected caution, yet the EU’s green policy framework (7) continues to provide a solid foundation for sustainable finance.
Secondly, investor circles are showing signs of ESG fatigue amid intensifying public debate over greenwashing and growing scepticism about the tangible impact of sustainability-focused investments. Early pioneers of sustainable finance — once instrumental in embedding ESG in capital allocation — now feel compelled to distance themselves from the label as client sentiment shifts and the term becomes increasingly politicised. (8) Yet this recalibration may mark a maturing market, driving stricter standards and greater credibility. With markets still volatile and ESG funds suffering from outflows (worth $8.6 billion in the first quarter of 2025) (9) restoring investor confidence has become urgent.
Thirdly, growing resource constraints within developed economies continue to hinder international finance. Rising public debt, inflationary pressures, and competing domestic priorities—such as healthcare and defence (the Trump administration, for instance, has pledged for a ‘first time ever’ $1 trillion defence budget) (10) —have narrowed fiscal space. This, in turn, is reducing capital allocations for international development.
In the United States, the dismantling of USAID (which often de-risks private capital through blended finance initiatives) significantly impacts the impact investing ecosystem. The United Kingdom will also reduce its ODA to 0.3% of Gross National Income from 2027 onwards (a drastic drop compared to 0.7% in 2021), limiting funds for British International Investment (BII) – the government’s primary impact investing arm. (11) Simultaneously, several emerging economies grapple with significant debt servicing expenses and the ‘crowding out effect’ where high government borrowing limits the availability of credit for private sector investment (e.g. Ghana, Zambia), while many others continually develop newer instruments such as debt-for-nature swaps and sustainable bonds issuances enjoying good market access (e.g. Benin).
Why impact investing is the future, not the past, in emerging economies?
Despite the challenges outlined above, the impact investing landscape remains ripe with opportunity for transformative change, spanning a wide array of environmental and social impact domains and sectors. Here, we make the case(s) for impact investing in emerging economies.
The development outcome case
Strategically directing capital into underserved regions can play a transformative role in strengthening human capital, advancing social equity, and fostering inclusive economic growth. Capturing the full benefit of Africa’s youthful population is dependent on developing human capital. Ensuring that young people are educated, skilled and healthy is essential for enabling their full potential and creativity in powering of the continent’s social transformation and economic development. A powerful illustration is that “children born in Sub-Saharan Africa today will be only 40% as productive when they grow up as they could be if they had complete education and full health”. Impact investments have the potential to catalyse growth by targeting high-impact sectors such as clean energy, healthcare, education, and sustainable agriculture, while also nurturing innovative, locally driven solutions tailored to specific development contexts. By prioritising investments that empower disadvantaged groups, impact finance can also help dismantle systemic barriers to social, political and economic participation. For instance, start-up capital aimed at people with disabilities (PWD) – one of the world’s largest minorities – can drive disability inclusion by spurring employment, financial inclusion and access to tailored services and products for PWD. Impact investing not only contributes to more just and resilient societies but also enhances long-term investment prospects and financial returns by underpinning sustainable, inclusive development trajectories.
The investment case
Emerging markets present a compelling long-term growth trajectory (accounting for 65% of global economic growth by 2035.) and yet remain significantly undercapitalised. Contrary to conventional perceptions, these markets can offer attractive risk-adjusted returns and robust performance across asset classes. Increasingly, multilateral development banks (MDBs) are stepping in to de-risk climate and sustainability-focused investments in these regions—mitigating downside exposure for private investors and unlocking a wider pipeline of viable, high-impact opportunities. Moreover, underrepresented markets, particularly those with low financial inclusion and less developed capital ecosystems, often harbour high-potential ventures capable of delivering both outsized impact and scalable commercial success. By deploying catalytic capital into such contexts, investors can drive transformative development outcomes while positioning themselves for first-mover advantage. With the accelerating demographic and economic expansion (by 2030, emerging markets will be home to over 80% of the global middle class, driving increased consumption and investment needs), these markets offer not only long-term return potential, but also a chance to participate in shaping systemic shifts toward inclusive and sustainable growth.
The climate resilience case
The evidence on the economic impact of direct physical climate risks highlights the urgency of impact investing in climate adaptation in emerging markets – disproportionately affected by climate impacts. For instance, Asian megacities such as Jakarta are projected to experience flood-related infrastructure asset losses of +322–402% to 2050. In the manufacturing sector, business interruption losses from floods can match or exceed direct asset damages. Crucially, in the context of globalised supply chains and investment portfolios, climate impacts on transport systems, natural capital and food production in emerging economies can create acute and cascading disruptions felt across sectors and hemispheres. Extreme weather events have also been warned to potentially paralyse the entire financial sector, as stressed by some of the world’s leading insurers. Impact investing in climate adaptation and resilience is vital for driving stability and resilience within the global markets (and broader investor portfolios), and to protect people and ecosystems upon which our prosperity depends on.
Closing thoughts
We believe that sustainable finance that protects our planetary boundaries and vulnerable populations while driving inclusive growth and climate resilience is the only realistic pathway into the future. This has become increasingly evident in global policy agendas. Over the past 20 years alone, significant progress has been made in incentivising, regulating and driving sustainable finance (e.g. the 2003 Equator Principles; the 2005 UN Principles for Responsible Investment). Green taxonomies are continually developed, with emerging economies such as Colombia, Brazil, India, Rwanda and the ASEAN member states making rapid progress in regulating and guiding sustainable investments. At the same time, initiatives such as the Taskforce on Nature-related Financial Disclosures (TNFD) drives for improved firm-level disclosure on nature-related risks. While much of the current frameworks remain voluntary, there is a growing global recognition for strengthened regulation to drive sustainable finance.
In the current context, impact investing in emerging economies is a uniquely powerful approach to create societal, environmental and financial value. We firmly believe that the case for impact investing is strong and increasingly relevant despite the apparent headwinds. Emerging markets present a significant opportunity for deploying capital to advance sustainable development, but unlocking this potential requires a deliberate shift in the global financial architecture – specifically, increasing the flow of private and institutional finance into these regions. Encouragingly, many emerging economies are already implementing ambitious, forward-looking development strategies that are closely aligned with the Sustainable Development Goals (SDGs), while adopting innovative financing mechanisms such as sustainable bonds, blended finance, and debt-for-nature swaps. These are creating fertile ground for long-term investment. For investors, the appeal lies in both purpose and profit: by engaging early, they can position themselves to capture evolving returns while contributing meaningfully to sustainable global progress.
Authors
Dr Roosa Lambin, Research and Policy Specialist (Nsiona Impact)
Amana Shabeer, Sustainability Consultant (Nsiona Impact)
Alain Nsiona Defise (Founder and Managing Director)
References
(1) Forbes (2025), “GIIN’s Amit Bouri On Impact Investors And ‘The Moment We’re In”
(2) Infographic sources: AfDB (2024), “African Economic Outlook 2024”
(https://www.afdb.org/en/knowledge/publications/african-economic-outlook);
UN ECA (2024), Blog:
Mo Ibrahim Foundation (2022), “Africa’s critical minerals Africa at the heart of a low-carbon future”
(https://mo.ibrahim.foundation/sites/default/files/2022-11/minerals-resource-governance.pdf);
Bezeng et al. (2025) “An African perspective to biodiversity conservation in the twenty-first century” Phil. Trans. R. Soc.
(http://doi.org/10.1098/rstb.2023.0443).
(3) UNDP (2025) “Human Development Report 2025. A matter of choice People and possibilities in the age of AI”
(https://report.hdr.undp.org/human-development-gaps).
(4) GIIN (2025), ”What you need to know about impact investing”
(https://thegiin.org/publication/post/about-impact-investing/#what-is-impact-investing).
(5) GIIN (2024), ”Sizing the Impact Investing Market 2024”
(6) See Stanford Graduate School of Business/Gelfand, A. (2025), “Young Investors’ Support for ESG Dropped Dramatically in 2024”
(https://www.gsb.stanford.edu/insights/young-investors-support-esg-dropped-dramatically-2024).
(7) Anchored by the Green Deal, EU Taxonomy, Sustainable Finance Disclosure Regulation (SFDR) and Corporate Sustainability Reporting Directive (CSRD).See ETF Stream/Gordon, J. (2025), “BlackRock removes ‘ESG’ from 56 ETFs and funds housing $51bn”
(https://www.etfstream.com/articles/blackrock-removes-esg-from-56-etfs-and-funds-housing-usd51bn).
(8) See ETF Stream/Gordon, J. (2025), “BlackRock removes ‘ESG’ from 56 ETFs and funds housing $51bn”
(https://www.etfstream.com/articles/blackrock-removes-esg-from-56-etfs-and-funds-housing-usd51bn).
(9) Bloomberg UK (2025), “Trump Plans Record $1.01 Trillion National Security Budget”
(10) House of Commons Library (2025), “UK to reduce aid to 0.3% of gross national income from 2027”
(https://commonslibrary.parliament.uk/uk-to-reduce-aid-to-0-3-of-gross-national-income-from-2027/).
(11) World Bank (2024), “The World Bank Africa Human Capital Plan. Powering Africa’s Potential Through Its People”
(12) GDI Hub/Nasir et al. (n.d.) “Investing in Disability Inclusion: An Opportunity for Employers and Investors”
(https://www.disabilityinnovation.com/blog/investing-in-inclusion?).
(13) S&P Global/Perez-Goropze et al. (2024), “Emerging Markets: A Decisive Decade”
(14) Bundesinitiative Impact Investing (2023), “Why Impact Investing in December 2023 Frontier & Emerging Markets?”
(https://bundesinitiative-impact-investing.org/wp-content/uploads/2023/12/231213_BIII_DP_FEM_web.pdf).
(15) UNDP, Human Development Report 2013
(https://hdr.undp.org/content/human-development-report-2013).
(16) Januriyadi, N.F., Kazama, S., Moe, I.R. and Kure, S. (2018) Evaluation of Future Flood Risk in Asian Megacities: A Case Study of Jakarta. Hydrological Research Letters, 12, 14-22.
(https://doi.org/10.3178/hrl.12.14).
(17) Taguchi, et al. (2022). Global-Scale Assessment of Economic Losses Caused by Flood-Related Business Interruption. Water, 14, 967.
(https://doi.org/10.3390/w14060967).
(18) E.g. Ranger et al. (2025), “Towards UK Systemic Resilience to International Cascading Climate Risks: The Role of Infrastructure and Supply Chains”, Environmental Change Institute, University of Oxford.
(https://www.eci.ox.ac.uk/sites/default/files/2025-05/UK_Systemic_Resilience_Report_2025%5BWeb%5D.pdf).
(19) .g., The Guardian/Carrington, D. (2025). “Climate crisis on track to destroy capitalism, warns top insurer”