ABSTRACT
Impact investing benefits from a positive momentum and is developing across private and public markets, in part supported by an adapting regulatory landscape.
Core principles – intentionality, measurability, and additionality – guide impact strategies. Based on these, various frameworks, methodologies and models can be used to deliver impact across different market segments, including private credit, and topics, such as social and biodiversity. These approaches can demonstrate credibility through robust, science-based methodologies, the use of internationally recognised tools and by leveraging investor engagement.
Despite this progress, challenges persist, such as defining additionality, addressing perceived trade-offs between impact and financial returns, onboarding institutional investors, and closing data gaps, particularly in emerging areas like biodiversity.
Convergence around key impact concepts and standardised metrics are essential to overcome these hurdles and scale up impact investing. As it evolves from niche to mainstream, impact investing offers a key opportunity to align financial performance with real-world social and environmental change.
Keywords: impact, sustainable, social, environmental, biodiversity, measure, indicators, methodologies, comparability, greenwashing, regulation
Key Findings
- From niche to mainstream: Impact investing is expanding rapidly across public and private markets, driven by regulation, investor demand, and real-world urgency.
- Core principles remain key: Intentionality, measurability, and additionality are essential for credibility and distinguish impact from ESG.
- Private credit gains traction: Embedded impact targets and predictable returns make it attractive for institutional investors.
- Public markets drive scale: Stewardship and engagement enable impact across large, listed companies.
- Progress in biodiversity metrics: Emerging tools are helping investors assess biodiversity risks and exposures.
- Momentum in social impact: Legal frameworks like Spain’s are enabling scalable, replicable models for social change.
- Ongoing challenges: Data gaps, additionality debates, and return expectations remain barriers to growth.
- Terminology matters: Clear definitions are needed to avoid impact-washing without excluding emerging players.
- Regulation is evolving: New rules (e.g., UK SDR, ESMA, Spain’s definition) are shaping the market and raising standards.
- Engagement is critical: Active investor involvement ensures impact targets translate into real-world results.
Content
Why invest with impact?
With the rising frequency of major environmental events and social movements, the objective of making the world a better place has gone from personal choice to a global necessity. This has raised awareness of the role capital can play to address these topics.
As the world faces mounting environmental challenges, the call for pragmatic, actionable solutions in sustainable finance has never been stronger. This is especially the case post-COVID, where there’s strong demand for financial tools that address inequality and social inclusion. Globally, we see a convergence of regulatory progress, investor appetite for purpose, and the urgent need for systemic resilience.
Comprehensive impact investing is not just a moral imperative but a strategic necessity to protect people and the planet from economic and environmental shocks, while ensuring long-term value creation for investors.
Recent trends in impact investing
The impact investing market is rapidly expanding, reflecting a growing demand from sophisticated investors for credible, transparent, and purpose-driven strategies which also means that asset managers are increasingly identifying impact as a differentiating factor.
Globally, the GIIN indicates that Impact Assets under Management have increased at a compound annual growth rate of 21% over the past six years with an 11% increase over 2024 alone. This trend is verified for example in Spain, where especially since the COVID-19 pandemic, impact investing has gained unprecedented traction, multiplying the impact economy by three times since 2018, with an annual rate of 26%. Growth will persist as current funds expand, and new ones emerge.
This positive momentum is also verified across market segments
Private markets:
There has been a continued growth in interest in impact private markets investing, though the level of appetite differs across geographies. While some regions show signs of ESG fatigue, sophisticated investors draw a clear distinction between impact and ESG investing and increasingly seek investments into business models that deliver both financial returns and tangible, measurable impact.
In particular, investors saw an accelerated growth of interest in impact private credit, which has benefitted from the strong growth of private credit as an asset class overall, as well as from the accelerated growth of impact private equity in a market with limited pure play impact private debt fund players. Combined with private credit’s attraction for institutional investors – given a more predictable income stream, shorter duration, and downside protection relative to Private Equity/Venture Capital – it has been an increasingly popular route for investors to invest in impact.
Public markets:
Meanwhile, the investor community is becoming increasing aware of the crucial role impact investing can play in the public markets. While private market impact investing delivers deep, asset-specific impact, public market impact investing achieves scale by influencing listed companies whose operations affect communities and supply chains globally.
Impact investors in public markets use engagement and stewardship to directly influence corporate practices. This involves scrutinising companies’ sustainability commitments, capital expenditures, and R&D priorities, setting measurable targets, and holding firms accountable for delivering progress. Such proactive ownership drives business model reform and encourages companies to integrate social and environmental impact at scale, amplifying the reach and influence of capital beyond the private markets.
How to define and measure impact?
Unlike ESG investing, which focuses on managing risk or improving corporate practices, impact investing is about actively contributing to measurable, positive change.
There has been good development of key principles and guidance for impact investing over the past years. Intentionality, measurability, and additionality are commonly considered as the core elements of impact investing. They are usually translated in investment approaches by establishing an impact objective, assessing impact materiality and additionality, and identifying key performance indicators to measure impact.
Engagement is also a key element, as it ensures that investments not only generate financial returns but also drive meaningful social and environmental change. Individual and collective investor engagement with investees informs impact target-setting and performance assessments and is essential to incentivising real-world change and delivering impact.
These elements can be applied to different market segments and objectives, resulting in various approaches and leading to the establishment of bespoke methodologies:
Private impact credit
Interest is growing in impact private credit as an innovative response to generate impact and can help a range of different companies and projects across developed and emerging markets. This approach enables support to targeted companies and to innovative sustainable or social initiatives that may benefit from mission-aligned investors, and which may have less access to capital markets. The embedding of impact requirements in loan documentation, including for example impact targets and reporting requirements, enable lenders to engage with borrowers over the course of the investment to ensure impact objectives are met.
Social impact investing
In Spain, where the June 2024 legal framework for impact was implemented, the social impact market is particularly dynamic, with product launches showing how public capital can unlock private investment at scale, some even highlighted by the United Nations as a use case of public innovation in achieving social challenges which confirms their value as a replicable model. Tools used in this space can include IRIS+, the Impact Management Platform, and alignment with SDG Impact Standards. Robust decision-making process, and governance are also highly relevant.
Biodiversity impact investing
Biodiversity loss is now widely acknowledged as a material financial risk, yet investors have historically lacked the tools to measure or manage it effectively. Methodologies have emerged to map environmental pressures across countries and economic activities, tracing supply chain linkages worldwide and calculation of biodiversity impacts throughout companies’ value chains. Such models can provide investors with a picture of where risks and opportunities are concentrated and the portfolio exposures to such risks, while enabling them to identify and prioritise the main drivers of biodiversity loss, using this information in their engagement efforts towards targeted companies.
Ongoing challenges and debates
As a developing approach, impact investing still faces challenges to scale-up.
This includes the potential tension between the willingness to mainstream impact investing and its “niche” nature. The notion of additionality – achieving positive outcomes that would not have occurred without the investment – is the centre of many debates, as it is challenging to demonstrate, and even more so in some specific market segments (e.g. public markets). Furthermore, some projects may be additional but should not be categorised as impact investments unless they are also intentional and measurable.
A balance needs to be found in the definition of impact investing to enable its development. If the term is restricted too tightly, this would risk sidelining actors genuinely transitioning toward impact. But if the term is diluted, the risk is eroding trust and opening the door to impact-washing.
Another debate is the sometimes-perceived trade-off between impact objectives and financial returns. Some argue that there is always a trade-off between financial returns and impact, asserting that true impact investing necessarily involves concessionary or below-market returns. Others maintain that there is no trade-off, and that the most effective impact investments can and should yield fully commercial returns – particularly over extended time horizons. However, this binary perception seems increasingly outdated, as impact investing sits in a space where financial returns and impact can be balanced depending on the investment objectives.
A key challenge is the availability of shared metrics and data. There is still a significant need to improve impact convergence and data comparability to more robustly benchmark impact performance and to enable better impact decision-making. This data gap is even more challenging in emerging topics, such as biodiversity. Biodiversity underpins economic stability, yet its loss is poorly understood and rarely quantified in financial markets. Unlike climate change, where carbon metrics such as Scope 1 & 2 emissions are now mainstream, and where there are emerging standards around methodologies around e.g. avoided emissions calculations, biodiversity metrics are more complex, less standardised, and highly location dependent.
Challenges also include how to onboard institutional investors and whether approaches such as blended finance, shared-governance and risk-sharing, or support such as technical assistance in certain cases could help in this regard.
The regulatory landscape is adapting
Current regulatory frameworks and guidance (e.g. European and Singapore-Asia Taxonomies) are encouraging investments into sustainable economic activities and can already provide some of the growth drivers for impact investing.
National rules are developing in Europe. The UK’s SDR label in setting expectations for impact. Spain’s legal definition aligns with this trend. Defining impact for the first time, it offers much-needed clarity for investors and policy makers.
At the EU level, the ESMA guidelines on funds names provided more clarity by pushing back on the misuse of the term “impact.” The upcoming review of the SFDR may also bring additional clarity for impact investing and further incentivise its development.
Conclusion
Impact investing is transitioning from niche to mainstream, fuelled by robust growth across markets, innovative approaches, and the development of dedicated regulatory frameworks.
By balancing financial returns with measurable social and environmental outcomes, impact investing offers a model adapted to value creation while delivering real-world change.
Convergence over key concepts, such as additionality, and more standardised and comparable metrics will be critical to sustaining momentum and ensuring credibility as the market matures.
Recommended readings:
- Pictet Asset Management, 2023, Biodiversity impact assessment (https://am.pictet/en/us/global-articles/2023/expertise/thematic-equities/biodiversity-impact-assessment)
- Pictet Asset Management, 2023, Costing the Earth: measuring corporations’ impact on biodiversity loss (https://am.pictet/en/us/global-articles/2023/expertise/esg/corporate-impact-on-biodiversity)
- Kulionis, V., Pfister, S., & Fernandez, J., 2024, Biodiversity impact assessment for finance, Journal of Industrial Ecology (https://doi.org/10.1111/jiec.13515)
- Rockström, J., et al., 2009, A safe operating space for humanity, Nature (https://www.nature.com/articles/461472a)
Authors
- Diane Mak, Head of Impact Strategy, Allianz Global Investors.
- Ángela Pérez, Chairman and CEO, COFIDES.
- Yi Shi, Client Portfolio Manager & Engagement Specialist, Pictet Asset Management.
- Moderator: Pierre Garrault, Senior Policy Advisor, Eurosif.
Furthermore, this document is signed in a personal capacity and does not represent the official position of the institutions or entities to which the author may belong.
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