Impact investing, a strategy that aims to generate measurable positive social and environmental impact alongside financial returns, has gained significant traction in recent years. While it initially focused on established markets, there is now a noticeable shift towards emerging markets. This change presents immense opportunities, but also poses unique challenges. In this blog post, we will explore why the impact investing industry is turning its attention to emerging markets and why a robust impact measurement strategy is crucial before diving into these dynamic economies.
The Appeal of Emerging Markets
Emerging markets, often found in regions of Asia, Africa, Latin America, and Eastern Europe, are characterized by rapid economic growth, a burgeoning middle class, and a youthful demographic dividend. These factors make them attractive destinations for impact investors. Here's why:
- Untapped Potential: Emerging markets offer untapped potential for impact investment. Many social and environmental issues are more acute in these regions, providing ample opportunities for investors to make a significant difference.
- Scalability: The impact of investments in emerging markets can often be scaled more rapidly than in developed markets due to the lower cost of operations and the ability to address critical needs in underserved communities.
- Diversity of Sectors: Emerging markets span various sectors, including clean energy, healthcare, education, and agriculture. This diversity allows investors to choose areas that align with their values and expertise.
- Global Interconnectedness: The global economy is increasingly interconnected, and the impact of positive change in emerging markets can ripple out to affect the entire world.
The Importance of Impact Measurement
While the opportunities in emerging markets are promising, impact investors must navigate these waters carefully, and impact measurement is paramount for several reasons:
- Alignment with Mission: Impact investors prioritize both financial returns and social/environmental impact. A well-defined measurement strategy ensures that investments align with their mission and values.
- Risk Mitigation: Emerging markets often come with unique risks, such as political instability or regulatory uncertainty. Impact measurement can help investors assess and mitigate these risks.
- Accountability: Measurement holds investors accountable to their stakeholders, ensuring transparency and credibility in their impact claims.
- Learning and Improvement: Accurate impact data provides a feedback loop for investors to learn from their successes and failures, leading to more effective strategies over time.
- Attracting Capital: Demonstrable impact can attract more capital to the sector, helping it grow and reach its full potential.
Implementing an Impact Measurement Strategy
To establish a robust impact measurement strategy before entering emerging markets, impact investors should consider the following steps:
- Define Impact Metrics: Clearly define the social and environmental metrics that align with your mission and objectives. UpMetrics’ platform and services, using our premiere DeCAL methodology (learn more), can help you develop a proper impact measurement & management strategy that will get you ready to service these markets.
- Data Collection: Invest in data collection and analysis systems that can provide accurate, reliable, and timely information on impact performance.
- Standardization: Utilize industry-standard frameworks such as the Impact Reporting and Investment Standards (IRIS) or the Sustainable Development Goals (SDGs) to ensure consistency and comparability.
- Local Partnerships: Collaborate with local organizations and experts who understand the unique challenges and opportunities in the target region.
- Impact Due Diligence: Prioritize impact due diligence alongside financial due diligence when evaluating investment opportunities.