Social impact investment: the finance that transforms the world

In a world with major social and environmental challenges, social impact investment is a powerful alternative for making the financial system a positive driver of change. This type of investment, which combines economic profitability with the goal of generating measurable social or environmental impact, has gained traction in recent years. However, its potential is still far from being fully exploited, as noted in a recent report prepared by the Chair of Social Impact at the Comillas Pontifical University, prepared within the framework of the 4th International Conference on Financing for Development (4FfD). 

Impact investment is not a new idea, but it has gained momentum in the last decade in response to the growing need to finance the Sustainable Development Goals (ODS). Unlike other forms of sustainable investment, which may be limited to excluding controversial sectors or applying ESG criteria, impact investing is defined by its intentionality: it actively seeks to generate a positive and measurable change in society or the environment. This can take shape in projects that promote financial inclusion, access to education, healthcare, gender equality, or environmental protection, among others. 

The report highlights that, although impact investment flows have grown steadily, they are still insufficient to close the financing gap for the SDGs. In 2022, assets managed under this modality exceeded 1.1 trillion dollars worldwide, but most of these resources were concentrated in developed countries, mainly the United States, Canada, and Western Europe. Only a small fraction reached regions such as sub-Saharan Africa, where they are most needed. This disparity reflects one of the sector’s main challenges: the high risk perception that investors face when operating in low-income contexts or where this is high economic volatility. 

The report also points to factors limiting private capital mobilization. These include the lack of reliable data to assess the impact, the scarce availability of financial instruments adapted to local needs, and the difficulty of accessing financing in local currency. In addition, many SMEs, especially in developing countries, cannot absorb the large investment volumes that international funds usually handle, leaving them off the radar of investors, a phenomenon of wasted opportunities known as the missing middle. 

Faced with these challenges, the Chair of Social Impact with which MAPFRE collaborates proposes three strategic lines of action:  

• Make more effective use of risk-reduction instruments, such as guarantees or first-loss tranches, which provide greater security, especially in high-risk contexts. 

• Invest in strengthening local impact investment ecosystems by promoting local currency investment, capacity building, and the involvement of local stakeholders.  

• The need to agree on standards for impact measurement and management in order to improve transparency, prevent  impact washing (the appearance of impact without real results), and support investor decision-making. 

The paper also highlights the importance of innovative and collaborative approaches, such as the role of fund funds that invest in local managers, alliances between sovereign funds to promote regional strategies, or initiatives led by NGOs and philanthropic entities that, thanks to their knowledge of the land, can reach neglected communities with solutions adapted to their realities.  

“These experiences show that it is possible to combine patient capital with transformational impact and that the success of the impact investment depends not only on the volume of resources mobilized, but also on their quality and alignment with local priorities,” says the Director of the Chair of Social Impact at Comillas-ICADE Pontifical University, Carlos Ballesteros.  

The 4th International Conference on Financing for Development “is creating major opportunities and raising expectations to reaffirm the role of impact investing and public-private collaboration in sustainable and inclusive development, especially at a time of intense upheaval and geopolitical uncertainty,” notes Ballesteros.  

But to meet expectations, a change of approach is required. It is not enough to attract capital: we must design financial structures that respond to real needs, foster collaboration between public and private actors, and ensure that the impact generated is tangible and verifiable.  

“Impact investment represents a unique opportunity, but growth not only depends on investors’ willingness, but also the capacity of governments, financial institutions, and civil society to create a favorable, transparent, and collaborative environment,” concludes Ballesteros. If this balance is achieved, impact investment can become a decisive lever to build a fairer and more inclusive future. 

RELATED ARTICLES: