In advance of the United Nations General Assembly that begins later this month, a new report released on Wednesday details the present shortcomings and future opportunities in “frontier finance”.
That area of impact investment seeks to attract funding for projects consistent with the UN’s Sustainable Development Goals (SDGs).
Published by the Global Impact Investing Network (GIIN), the report is the first of its kind to study the financing for efforts to improve the lives of low- to lower-middle-income people in emerging and frontier markets. And it identifies ways to scale the market to reach ambitious targets.
“Achieving the Sustainable Development Goals will require investing to go into areas where it has not historically gone,” said Amit Bouri, CEO of the GIIN.
“For us to be successful, it is critical to expand frontier finance and help develop business models that serve developing markets and communities that have been underserved by the global financial system,” he added.
“This report assesses the impact and financial drivers of these markets, allowing us to explore the potential of frontier finance to create substantial impact locally, regionally and globally.”
Investors in frontier finance are motivated by an interest in creating tangible impact and broader systemic change, alongside solid returns.
The GIIN said that $2.5 trillion is needed per year just in emerging markets to meet the SDGs.
The report says that impact in this sector specifically aims for the “creation of quality jobs, fostering of sustainable supply chains, and empowerment of entrepreneurs”.
It also said that frontier opportunities are often in large, untapped markets with high growth potential and quickly “growing middle classes of consumers”.
According to the report, 75 percent of frontier finance investments look for market-rate returns, and 87 percent of investors report meeting or exceeding performance expectations.
The report analysed a database of transactions and a survey with investors and “other ecosystem players”. While the $502bn impact investment market is growing, frontier finance is still young.
“Some of the most transformative innovations to address poverty, healthcare, and access to basic services have occurred in frontier and emerging markets, yet these markets consistently attract nominal amounts of impact investment capital,” said Rachel Bass, the research manager at the GIIN.
“By embracing their role as both financers and field builders, impact investors can catalyse unprecedented market growth and truly drive global development,” she said.
The social impact objectives most commonly cited by these types of investors include no poverty (SDG1) and decent work and economic growth (SDG8).
Industry, innovation and infrastructure (SDG9) as well as good health and wellbeing (SDG3) were also cited as important targets for their investments.