Investing with Positive Impact for People and Planet: still relevant in today’s geopolitical and economic context?
We are living in uncertain times, with challenges reshaping the sustainable and impact finance market. Historical financial crises have led to shifts in decision-making, integrating risk management in the 1970s and impact considerations in the 2000s. Impact investing emerged as a third pillar alongside return and risk, aiming to generate financial profits while creating positive social and environmental outcomes.
Initially driven by philanthropy, impact investing has evolved into a sustainable business model, attracting mainstream investors. Two main strategies exist: focusing on minimizing harm (cfr. responsible investing) and actively driving positive impact (cfr. sustainable and impact investing). Key players include private impact funds, institutional investors, banks, and public investors. Challenges remain, particularly in transparency, regulation, and the need for diverse financial instruments. Blended finance, catalytic capital, and government incentives can help scale impact-driven investments.
These topics will be further explored during an event organized by the Belgian Financial Forum and Impact Finance Belgium on June 13th at the National Bank of Belgium.
A. THE WHY: A CONTEXTUAL and HISTORIC PERSPECTIVE
Changing times
We are living in uncertain and changing times, making it increasingly difficult to offer a clear perspective of the future of the sustainable and impact finance market, which is striving for long term viability of people and planet. Each day brings a new reality, often accompanied by significant challenges. The collapse of the US Net Zero Insurance Alliance, the withdrawal of several banks from the Net Zero Banking Alliance, and the suspension of $300 billion US federal funding for green infrastructure and clean energy projects highlights this shifting landscape. In Europe, the ongoing changes in the EU Sustainable finance framework create uncertainty. Meanwhile, serious cuts to development aid from Belgium and other European nations, along with the near elimination of USAID, underscore how rapidly the world is changing. These evolutions can be discouraging, but they are not unprecedented. History shows that evolution in financial frameworks has always occurred and, in fact, has played a crucial role in shaping the foundations of today’s financial sector.
The introduction of ‘impact’ in financial decision making, next to financial return and risk
The collapse of the stock market in 1929 triggered the Great Depression, leading to widespread economic devastation. In the aftermath, trust in financial institutions and financial numbers plummeted. To restore credibility, governments introduced strict regulations, such as the Securities Act of 1933 and the Glass-Steagall Act of 1933, which sought to curb speculative banking activities and ensure greater transparency in financial reporting. This era marked the emergence of standardized accounting practices to safeguard financial stability, to increase credibility of financial numbers and prevent future crises.
In the 1970s, financial decision-making underwent a significant transformation with the rise of risk assessment as a core dimension. Before the 1970s, financial institutions primarily focused on financial returns without systematically assessing the risks involved. However, a series of economic and financial shocks—including the collapse of the Bretton Woods system and the 1973 oil crisis—exposed vulnerabilities in global markets. This led to greater emphasis on understanding and quantifying financial risks. By the end of the 1970s, financial institutions had embedded risk management into their core decision-making. Risk was no longer just an implicit consideration; it became a quantifiable and systematically managed factor. These developments laid the foundation for modern financial risk assessment, influencing everything from investment strategies to regulatory frameworks.
The early 2000s marked a significant shift in financial decision-making again, with the introduction of impact: how to contribute to the planet’s sustainability and the people’s wellbeing. It became the third critical dimension, alongside financial return and risk assessment. This shift was driven by several key factors. The increasing dominance of finance over the real economy led to short-termism and wealth concentration, often benefiting investors at the expense of societal well-being. The speculative bubble that inflated the housing market and which led to the 2008 financial crisis, exposed how financial markets were undermining economic stability and contributing to rising inequality.
In addition, by the early 2000s, evidence of climate change, biodiversity loss, and resource depletion became undeniable. Governments and organizations began recognizing that long-term financial stability required integrating environmental, social, and governance (ESG) factors into investment decisions. Governments start to develop policies to mitigate environmental degradation, such as promoting renewable energy, reducing carbon emissions, and protecting natural habitats.
While environmental issues have gained significant attention in recent years, social inequalities—such as income inequality, access to education, healthcare, and basic services—remain a deeply embedded societal problem. For instance, marginalized communities often bear the brunt of environmental degradation (e.g., poor air quality, extreme weather events) and have fewer resources to adapt or recover from climate change impacts.
As global challenges like climate change, social inequality, and human rights issues became more urgent, there was a growing recognition that investments could— and should— contribute positively to solving these problems. This shift meant that impact (positive, measurable social or environmental outcomes) started to be viewed alongside financial returns and risk. In this context, impact investing emerged as a way to generate both financial returns and social or environmental benefits. The growing focus on impact investing led to the creation of key organizations such as the Global Impact Investing Network (GIIN) that would help formalize and expand this field
Impact by desire’ versus ‘impact by design
While the Rockefeller Foundation and the GIIN were instrumental in bringing impact to the forefront, the world continued to evolve. Just as risk and return were further developed and shaped by their context, so too has the concept of 'impact'.
Initially, the primary focus was on 'creating impact' as an end in itself. This is what we call ‘impact by desire’. Finance as a means to an end, to help create the transition to a fair and just world. However, over the past few years, the impact narrative has shifted. In Europe, impact and sustainability remain core values, but these concepts now must also align with economic competitiveness, innovation, and geopolitical independence.
In the meantime, impact investing proved itself to be not just a philanthropic activity, but a sound business model. By supporting ventures that prioritize green innovation and social outcomes, investors are seeing risk adjusted market returns, in addition to the positive societal impact they seek. The growing evidence that impact investing can be profitable is attracting the attention of more mainstream investors.
The key to success lies in carefully designing impact into all the financial decision-making processes, ensuring it is not sidelined or adopted opportunistically. With an approach centered on ‘impact by design’, a more rational balance is sought between the 3 components (impact, risk and return). By doing so, investing with impact becomes not just an ethical choice, but a profitable and sustainable one. By not putting the impact dimension on an equal footing as risk and return, there is a real risk change is only made in response to crises, leading to what could be described as ‘impact by disaster’, a painful and costly situation.
B. The HOW and the WHO
Different investment strategies for considering impact
Impact can be approached from mainly 2 perspectives: minimizing negative effects or actively pursuing positive change, as the figure indicates.
As an investor, you can consider impact from a risk perspective. This strategy gained importance in the 1990s when concerns about environmental pollution, social justice, and corporate governance began to shape investment decisions. Investors started excluding certain companies from their portfolios based on ethical criteria, such as avoiding investments in industries like tobacco, alcohol, and weapons manufacturing. Over time, this focus on avoiding "harmful" companies evolved into the current ESG (Environmental, Social, and Governance) approach, which emphasizes mitigating negative impact. Today, this is commonly referred to as Responsible Investing.
Another approach focuses on actively creating long term positive impact. Within this approach, there are two key strategies:
- Sustainable Investing : This strategy prioritizes promoting sustainable products and services that have already proven their positive impact. In recent years, this approach has gained traction, reinforcing the idea that economic growth and sustainability can go hand in hand. With advancements in the circular economy, renewable energy, and climate technology, businesses now have opportunities to generate financial returns while addressing pressing environmental and social challenges.
- Impact Investing : Not all solutions for transitioning to a more sustainable society are readily available. This is where impact investing comes into play. Unlike sustainable investing, which focuses on mainstreaming solutions, impact investors seek out companies that are developing innovative business models or solutions to tackle problems that currently lack viable solutions. While this strategy inherently carries higher risks, it can also generate attractive financial returns, making it a valuable option for investors looking to drive both economic and social transformation.
Evolutions in the sustainable and impact investing market
While responsible investing has been known to investors for a while and embedded in their practices, the concepts of sustainable and impact investing are fairly new. Nevertheless, they have seen a significant increase in recent years. A recent report of Impact Europe (1)indicates that the size of the European sustainable investment market is 4.7 trillion EUR, of which the impact investing market is 230 billion EUR, accounting for 5% of the sustainable investments. However, the growth rate of the European impact investing market (20% -21%) is slightly higher than that of the European sustainable investment market (17%). These growth rates are in line with the global impact investing market, calculated to be approximately $1.164 trillion (GIIN)(2).
From a country perspective, the UK (29%), Netherlands (25%), and France (22%) have relatively high shares in the European impact investing market, with Belgium (5%) ranking among the mid players. A 2022 study by Impact Finance Belgium (IFB) estimated the Belgian impact investing market to be between €6 billion and €16 billion, which is 1 to 2,5% of all AUM. An update of these figures by IFB is expected towards the end of this year.
The impact investing sector has not only grown but also become more mature in recent years, not only in scope but also in the size of investment funds. Ten years ago, impact investment funds were typically in the tens of millions of euros. Today, they have grown to hundreds of millions, with some even reaching the billion-euro mark. Similarly, ticket sizes have increased from a few hundred thousand euros to several million, with some reaching up to €10 million. Moreover, impact investing is no longer a one-size-fits-all approach. Investors can opt for lower-risk strategies by supporting proven solutions like renewable energy or take a more active role in driving cutting-edge innovations. Both approaches are essential in shaping a new financial system contribution to people and planet.
Actors active in the space
Step by step, impact investing has grown into a dynamic and multifaceted sector, with various key players driving sustainable and impact capital flows. These actors can be categorized into four main groups, each playing a unique but interconnected role:
- Private Impact Funds (Venture Capital, Private Equity, Blended Finance): Traditionally these funds invest in early-stage innovations and growth stage ventures, incubating and scaling impactful businesses. They are the ‘home ground’ of the impact investing sector and play a crucial role in catalysing entrepreneurial solutions to address social and environmental challenges.
- Institutional Investors (Pension Funds, Insurance Companies, Asset Managers): Traditionally focused on risk-adjusted financial returns, institutional investors are increasingly integrating impact considerations into their portfolios. With their long-term investment horizon and large-scale capital deployment, they can provide scalability and stability to impact-driven investments.
- Bankers & Financial Institutions : Banks provide sustainable-aligned financial solutions, including sustainability-linked loans, green bonds, ... . By mobilizing capital and reducing investment risks, they facilitate broader participation in sustainable and impact investing.
- Public Investors (Governments, Development Finance Institutions, Sovereign/Regional Wealth Funds): they can de-risk private investments, set policy frameworks and fund large-scale sustainable projects, also acting as catalysts for private sector engagement in sustainable and impact investing.
In response to the growing awareness and demand for impact-driven financial strategies, Impact Finance Belgium (IFB)(3) was founded early 2023 with the mission of supporting, promoting, and growing sustainable and impact investing in Belgium. As an independent, not-for-profit organization, its ambition is to catalyse this market 10-fold by 2030. This is only possible in close collaboration with strategic partners such as Febelfin, BVA (Belgian Venture Association) and The Shift and the support of the leading business schools. Internationally, IFB is an active partner of a network of like-minded institutions in other European countries and globally.
Overcoming challenges to scale impact: Navigating transparency, regulation, and financial innovation
While we have highlighted the key players and the continuous growth of sustainable and impact investing, this sector is not without its challenges.
One of the main challenges is still the lack of clear understanding and perception surrounding transparency in impact investing. Transparency is particularly weak in the social dimensions of impact, where no universal taxonomy exists. Regulatory frameworks such as the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR) are evolving, aiming to enhance disclosure and accountability. However, a key challenge is ensuring that reporting obligations remain meaningful and effective without compromising the integrity of impact. Impact should not be reduced to a set of KPIs but rather embedded as a continuous, strategic process within organizations and their decision-making frameworks.
To eliminate confusion around impact strategies, investors must step up the learning curve and start the journey, embracing impact as a proactive, integrated approach rather than a retrospective compliance exercise. Without strong foundational elements—clear definitions, transparency, measurement, and integration into financial decision-making—there is a significant risk of impactwashing instead of genuine impact.
While private equity (PE) and venture capital (VC) have played a critical role in impact investing, relying solely on these models is insufficient. A broader range of financial instruments and different types of capital are essential to support impact-driven businesses across different growth stages.
- catalytic capital and early-stage funding are needed to nurture innovation and enable experimentation in new impact models.
- Government-backed guarantees and subsidies lower entry barriers for capital to support (capital-intensive) industries in their transition towards sustainable solutions.
- Blended finance models can attract institutional investors by de-risking investments in emerging impact sectors.
These mechanisms have been instrumental in the success of renewable energy (wind, solar), battery technology, and electric vehicles—and they remain just as critical today in scaling the next generation of impact-driven innovations for people and planet.
Invitation to the event
Interested in knowing more? The Belgian Financial Forum and Impact Finance Belgium organize an event on June 13th at the National Bank of Belgium Auditorium where these topics will be further explored.
To register for the event, please click the button.
Endnotes
(2) GIIN, State of the Market 2024 : Trends, Performance and Allocations, GIIN, 2024
(3) IFB is financially supported by 15 key partners, such as the King Baudouin Foundation, the Federal Sovereign Fund (SFPIM), the National Lottery, DPAM (Degroof Petercam Asset management) and BNP Paribas Fortis. The organization's network comprises over 50 members from a variety of backgrounds, including private impact funds, bankers, institutional investors, and public entities.
Auteurs
