2024 must be “pivotal year of change” for investment in emerging economies, says the Impact Taskforce

David Lyons 13th December 2023

Report from Nick Hurd-led group of leaders says development finance institutions need to find more effective ways to mobilise private capital for impact in emerging economies if world is to meet SDGs.

More private sector capital must be directed to low income countries, according to a new report from the Impact Taskforce, a group of business and finance leaders with a mission to boost impact investing worldwide headed by former UK government minister Nick Hurd.

The Impact Taskforce’s State of Play 2023 report, published last week, provides an update on progress made since its 2021 recommendations on private capital seeking to have a positive social and environmental impact.

Private finance flows into emerging economies decreased by 22% in the last two years and only 10% of all private sector capital mobilised by development finance institutions in 2021 reached low income countries, the report reveals.

We need a concerted effort to make it easier and more compelling for private investors to narrow the unacceptable SDG funding gap

Many of the report’s recommendations are for development finance institutions – organisations which invest in private sector businesses, banks and projects in emerging economies to seek to bring about positive economic, social and environmental change.

The report says development finance institutions must change their focus, reallocate their budgets and increase transparency to redirect the flow of private capital into, instead of out of, emerging economies.

The need for private capital in low income countries is clear, with the UN estimating emerging economies face a $4tn funding gap to achieve the Sustainable Development Goals.

Nick Hurd, former UK government minister and chair of the Impact Taskforce and GSG, said: “The urgency of the situation means that 2024 has to be a pivotal year for change in the way that investment flows. Public investment matters but it will never be enough. We need a concerted effort to make it easier and more compelling for private investors to narrow the unacceptable SDG funding gap.”

Smart deployment of catalytic capital

The Impact Taskforce is a group of 120 business and finance leaders set up to boost impact investing worldwide. It is run by the Global Steering Group for Impact Investment (GSG) and was founded with the support of the UK Presidency of the G7 in 2021. GSG is an independent organisation that works to promote impact investing across the world, with a network of 30 National Advisory Boards spanning 35 countries and regions.

One of the recommendations is for new regional pools of catalytic capital to be created. Ibukun Awosika, former chair of the First Bank of Nigeria and vice-chair of GSG, said: “It is clear from our experience in Nigeria and other African markets that more catalytic capital will be critical to start mobilising institutional capital into high impact opportunities. It is a precious resource. We need to be sure that it is deployed in the smartest way.”

Read more from Awosika: ‘I live at the reality end’: GSG audience told to find courage to act for ‘real people’

GSG’s president is Sir Ronald Cohen, who has been called the ‘father of venture capitalism in Britain’ and is a pioneering figure in social investing. In 2013 he became chair of the G8 Social Impact Investment Taskforce, which became GSG in 2015.

Commenting on the report, Sir Ronald said that a significant barrier to investment in emerging economies was lack of data and reporting standards. He said: “Emerging economies must be involved in the data and standard-setting process”, adding that the GSG would launch an “ambitious initiative to eliminate this barrier” next year.

The report says there has been significant progress since 2021 on impact transparency, including the International Sustainability Standards Board, headed by ex-Danone boss Emmanuel Faber, issuing its first standards to provide a “common language” for companies around the world to report on their social and environmental performance.

But the report also highlights that there are now more than 150 sustainability disclosure measures now in place across 35 countries. The Impact Taskforce recommends there needs to be a collective effort to align those standards, the process for which must include stakeholders from emerging economies.

Nick Hurd said: “Impact transparency is important and tracking in the right direction, but needs to move faster. Much more needs to be done to help institutional investors get comfortable with the opportunity to combine acceptable risk-adjusted return with positive impact in sub-investment grade countries.”

The report also urges wider use of outcome partnerships, which bring together impact investors with other funds and offer returns based on specific results being achieved, citing figures from the UK that show outcome-based contracting has been successful in delivering a tenfold return on public investment.