Last year should have been full of positivity coming out of Covid: little did we know. There were over 30 wars in the world last year – civil, insurgency, invasion. But it was the Russian attack on Ukraine which created truly global challenges on food, fuel, fertiliser, inflation and recession, leaving people on low incomes struggling and government treasuries empty after the pandemic. 50 countries are now at risk of default in 2023, and those countries include 50% of all people in extreme poverty.
2022 was also the year when climate change hit people hard: from Pakistan floods to China droughts, with wildfires and record temperatures across the world. It is now becoming highly visible that environmental catastrophes are creating severe damage to populations.
This will be the first time the impact movement has faced recession and harms on such a wide front. It will create major problems, but also valuable opportunities, setting a challenge for our impact movement to demonstrate its resilience and value.
There is much to build on.
Impact transparency has developed beyond all expectations. Progress at the ISSB for global
harmonised standards is strong. Regulatory systems which are helpful for impact are developing in many jurisdictions. Impact valuation work is spearheaded by the new Impact Foundation for Valuing Impacts and the Value Balancing Alliance.
The use of impact tools is spreading – domestic pools of impact capital in both developed and emerging markets, outcome-based funding demonstrating success, and financial models to address the 1 in every 8 people on our planet who live in informal settlements.
ESG investing was under attack in 2022 – for green and impact washing, and as a highly politicised climate denial, notably in the US. But this has given a new spur to action, with stronger reporting requirements and greater transparency across several of the largest jurisdictions. The ESG field will emerge even more effective and trusted, driven by the public as much as by regulations. The Centre for Sustainability and Excellence estimates $53 trillion in ESG funds by 2025. Many of these ESG allocations are on a journey towards impact.
We are seeing a wide range of efforts to achieve mobilisation of capital into emerging markets, including the Just Transition Finance Challenge from the UK, ILO guidelines on Just Transition, a new Investor Alliance, and the EU’s 40bn euro Just Transition fund. We have blended finance initiatives from Indonesia’s B20, and valuable results coming out from the C3 Catalytic Capital Consortium. COP27 included long-awaited work on a loss and damage process responding to the climate harms created by richer nations, backed with the Bridgetown Initiative. The Finance in Common group brought together all the parts of the development finance system, creating the possibility of the breakthroughs in reforms that are so widely desired.
Yet all this progress is just a start. Emerging markets continue to struggle, and are hit hardest by recession and inflation. Impact investors and market builders are doubling down in this work and will collaborate to achieve real results.
So here we are, facing an even more challenging year, but with impact investing stronger and ever more widely taken up. Here at the GSG, I have seen big steps up from countries across the world, and many additional countries seeking to create their impact ecosystems, with over 50 countries now actively engaged in GSG’s community. It has been a privilege to be with such dedicated leaders making impact work for the challenges in their countries, sharing knowledge, and collaborating for success.
For me personally, I see two powerful forces for good coming together, both gathering energy for 2023.
One is how the new impact transparency agencies are actively seeking to connect with impact leaders across countries from all situations. Impact investment is already achieving positive outcomes, increasingly at scale. Impact transparency will create a new financial world order. The development of impact in every country will make it real – impact economies. Putting the two together is transformative – it creates the possibility for a new financial system that works for all countries, not only for the richest.
The second is the realisation that climate and social action are fully intertwined and that solutions must account for both together. Climate change will be the biggest factor harming populations, particularly vulnerable populations. Equally, essential climate action can only be achieved with the will of the people. The days when climate work and social action were seen as separate have gone: we must and will work on both, together.
The GSG is contributing through impact investing, impact tools, and impact countries, collaborating with partners, sharing knowledge, creating opportunities for action. We will do everything we can for a better world: thank you for everything you are doing too.
CEO – the Global Steering Group for Impact Investment