Impact investing is essential if we want to achieve the Sustainable Development Goals by 2030. Yvonne Bakkum, manager director at Dutch development bank FMO, argues that the funds of institutional investors are particularly vital in developing countries. That’s why she advocates for a more nuanced approach to impact evaluation. We have recapped her argument for you below.
“In the past ten years, impact investing has taken a flight,” Yvonne Bakkum writes in her recent opinion piece in NRC Live. “Estimates of its total volume start with $114 billion and the market is growing 17% annually, according to the Global Impact Investors Network.”
“More and more institutional and private investors are becoming aware of the fact that, apart from making a profit, their investments can also make a positive societal impact,” she emphasizes.
“This is taking it a step further than merely investing sustainably. Apart from negating negative impact, as a result of excluding cluster bombs or fossil fuels, investors actively look to make a positive impact by investing in clean energy or organic agriculture,” she writes.
A closer look at impact evaluation
“The United Nations’ Sustainable Development Goals have sparked this ambition over the past two years. This is a positive development, without a doubt. However,” she adds, importantly, “Too often still, impact is being measured on a binary scale. Is this investment causing impact, yes or no?”
She continues, “With the coming of age of impact investing, I’m advocating for a more nuanced approach to impact evaluation. We should start judging impact like investors judge a certain financial return, taking into account the risk that will have to be taken.”
“With the coming of age of impact investing, I’m advocating for a more nuanced approach to impact evaluation” – Yvonne Bakkum, managing director at development bank FMO
“A recent study by Société Générale shows that of the estimated $2.5 billion that is needed annually to achieve the Sustainable Development Goals, a staggering $2.4 billion will have to be allocated to investments in developing countries. Whereas, in developed countries, the gap represents only 10%; in developing countries, it represents 40%, and in Africa even 90%.”
“This is where it gets complicated, as governments are unable to fill the gap on their own,” she stresses. “That’s why the funds of institutional investors are essential. However, to most investors, developing countries are uncharted territory. And what we don’t know, we fear.” Hence, “We have a long way to go before we’re able to make use of impact investing’s full potential in places where it’s most needed and efficient.”
“As soon as investors start taking into account the impact revenue per Euro invested, the gap towards developing countries will be bridged quickly” – Yvonne Bakkum, managing director at development bank FMO
Nonetheless, she’s optimistic. “In the end, facts should outweigh sentiments. And the facts demonstrate clearly that impact investing in developing countries is less precarious than many investors think. What’s more, it tends to offer attractive yields.”
She concludes, “As soon as investors start taking into account the impact revenue per Euro invested, the gap towards developing countries will be bridged quickly. Only then will achieving the Sustainable Development Goals become a realistic and inspiring perspective for all of us.”
This article is an adapted version of the opinion piece by Yvonne Bakkum, managing director at Dutch development bank FMO, that was published in Dutch on NRC Live leading up to Impact Day 2018 on 8 February. NRC Live’s Impact Day is an annual event that offers a stage to pioneers that work on sustainable solutions for the global challenges that are facing people and planet.