Impact Investment: Catalyst for Sustainable Development Goals
Sustainable Development Goals (SDGs) are the modern blueprint of driving socio-economic growth outcomes towards a sustainable future. Envisioned as a universal call to achieve social and environmental equality, the goals are interconnected and interdependent of each other. The accomplishment of SDGs by 2030 requires effective mobilization of domestic assets and performance-based donor endeavors to enable the utilization of private capital for good. Keeping in tandem with the need of purpose-driven finance, the phenomenon of impact investing is the provision of funding to organizations with comprehensive expectations of financial returns and measurable development outcomes. The characteristics of scalability, entrepreneurship and experience are vital in distinguishing it from traditional philanthropy models.1
Sustainable Development Goals are extensive - and include the long-term objectives of reduction of poverty, gender equality, provision of clean and affordable energy, as well as creating more sustainable cities and communities. Every goal has targets that are preempted by considerable financial investment - the UN estimates that developing countries face a $ 2.5 trillion gap in financing, with the outsize challenge in India being of $ 565 billion.2 The International Finance Corporation (IFC) estimated that the global market for impact investments touched $ 2.3 trillion in 2020, of which $ 636 billion has a defined impact management system in place, as detailed in the report 'Investing for Impact: The Global Impact Investing Market 2020'.3 According to the annual impact investment research report, ‘2020 in Retrospect: India Impact Investment Trends’, the Indian impact sector will continue to transition into being more tech-led in the future. In a report by Indian Development Review, it was noted that Indian impact enterprises have showcased resilience - with entrepreneurs swift in pivoting and re-orienting businesses to meet the needs of the people.4
The emergence of impact investing as a new stream for development finance in India entails the provision of capital and aid to social enterprises, as well as a marked rise in public-private partnerships. The focus of impact investors includes not only the mitigation of negative impacts through their investment, but also the drive to generate net positive impacts. These positive outcomes range from creation of jobs and employability to supporting low-income citizens through accessible healthcare, housing or education.5
A notable example is that of Quality Education India Development Impact Bond (QEI0DIB) that supports Indian education stakeholders to improve learning outcomes for primary school children through an innovative results-based funding mechanism.6 In the second year of the program, 100,000 students in 600 QEI-DIB classrooms attained more than two years’ worth of additional learning compared to schools where these programs were not present. The percent of children at intermediate and advanced levels showed a remarkable increase from 47 per cent to 84 per cent in classrooms where DIB partners were present. The impact bond achieved about two to three times its initial target, and some program participants are outperforming up to five times.7
Through mutual reinforcement of social impact and financial return, impact investments are designed to enable successful solutions that generate quantifiable returns - thus relaying support for communities at large. By channeling investments in organizations that are crafting sustainable endeavors, specific needs across different communities are addressed. The global impact investment network that continues to work with an abundance of cultural, regional and socio-economic perspectives will be instrumental in harnessing the potential of SDGs.
This blog has been co-authored by Paridhi Puri and Kanika Verma.