The operating environment has changed, but the fundamentals remain the same.
In 2024, the accelerating backlash to investing in climate, sustainability and racial-equity created opportunities for those who are staying the course. In 2025, mispriced and misplaced social and environmental risks are likely to create even bigger opportunities for impact alpha in underserved markets. To zig while others zag. In other words, to buy the dip.
“Impact investing is at a crossroads and in the crosshairs,” Fran Seegull of the US Impact Investing Alliance wrote in a provocative op-ed in ImpactAlpha in response to this year’s Supreme Court rulings that previewed next year’s expected assault on rules and precedents that have undergirded social and environmental progress. That assault will have very real consequences for communities and democratic institutions.
“Our actions now, as investors, field builders, policymakers, funders, businesses and other market actors, will determine the ability of the field to continue to scale with impact integrity,” says Seegull.
All week, ImpactAlpha will preview opportunities to find – and drive – impact alpha in 2025 with our annual series of lookaheads.
Here are 10 impact investing storylines we’ll be watching in 2025:
1. Institutional investors are driving the growth of impact investing
The growth in assets flowing to impact remains a bright spot, and surprisingly resilient. The GIIN’s annual survey estimates tha impact investing assets under management have grown to $1.57 trillion, representing a 21% compound annual growth rate since 2019. Driving that growth: Pension and insurance funds that are increasing their allocations to impact themes and strategies. “We’re seeing institutional investors starting to think about how they can set a portfolio-level impact goal, and how that cascades into decisions they make across all of their investments,” the GIIN’s Amit Bouri told ImpactAlpha.
- “And the size of the impact investing market is $1.5 trillion…ish,” by David Bank.
- “Amit Bouri on the ‘inevitability of impact investing’,” by David Bank.
2. Power imbalances create overlooked opportunities for impact.
The lion’s share of impact capital wielded by investors from developed markets has tilted impact investing toward the lower-risk, higher-return expectations typical of developed regions, says Pablo Freund of Criterion Institute, who conducted a power analysis of the GIIN survey for ImpactAlpha. Of the $490 billion in assets managed by investors that responded to the GIIN survey, 98% is managed by investors headquartered in developed markets. Criterion’s analysis identifies imbalances in decision-making authority, resource distribution, and the prioritization of outcomes. “This mismatch between risk appetite is a leading cause of underinvestment in regions, sectors or asset classes deemed risky, despite the impact potential.” Instead of viewing these opportunities primarily through a risk/return lens, suggests Freund, “investors could adopt frameworks that prioritize local perspectives and definitions of social impact.”
- “Let’s make 2025 the year impact investors analyze power,” by Criterion’s Pablo Freund.
3. Investing in emerging markets is less risky than perceived
Imperfect information, often paired with received assumptions, not only misprices risks – it can create them. A rare data release of more than 15,000 emerging market credit transactions from from the Global Emerging Markets, or GEMs, database reveals that in 40 years of lending, the average default rate for non-investment grade borrowers in emerging markets was just 3.6% – roughly equal to companies given a B rating by S&P and Moody’s. The big takeaway: Private investors should “see loans in emerging and developing markets as a long-term asset class which repays patient investing and a thorough approach to asset selection,” Neil Gregory wrote in ImpactAlpha.
- “New release of GEMs loan data debunks misperceptions of risks,” by Jessica Pothering.
- “Five things we learned from the GEMs data on the credit risk of lending in emerging markets,” by Neil Gregory.
4. Private capital is stepping up to catalyze impact investments
Commercial investors are stepping up to drive some of the biggest blended-finance funds for climate and development. Financial institutions like Allianz and Mitsubishi UJF Financial Group are meeting strict regulatory rules around risk calculations, and their own investment policies, by co-investing and blending capital. Family offices, too, are stepping up to de-risk high-impact, and potentially lucrative, climate and development interventions. A $70 billion credit-risk guarantee from Lukas Walton’s family office, Builders Vision, helped seal a $300 million ‘debt for nature’ swap in the Bahamas.
- “How commercial investors are streamlining blended fund structures (video),” by Jessica Pothering.
- “Bahamas swaps ‘debt for nature’ to invest $124 million in marine conservation,” by Jessica Pothering.
- “C3 doubles down to scale up deployments of catalytic capital,” by Dennis Price and Lynnley Browning.
5. Climate gets a new narrative for the Trump era
Out: Solving the climate crisis. In: Creating jobs, lowering prices and beating China. With an incoming administration hostile to climate, the clean energy and infrastructure crowd is bracing for a backlash. Climate-tech founders, investors and energy officials at the Department of Energy’s second annual “Deploy” conference earlier this month were recasting their missions around economic and national security. Their ace in the hole: 60% of the new clean energy jobs created under the Inflation Reduction Act, and 80% of the investment dollars, have been located in Republican-led congressional districts. Given its climate and economic impact, “Clean energy has become bipartisan in the United States,” said White House climate advisor John Podesta.
- “New climate narrative: Creating jobs, lowering prices and beating China,” by Amy Cortese.
6. Impact investors are leaning into economic populism
In the weeks since the US election, Agents of Impact have tried to lean hard into economic justice and systemic change. Impact investing priorities like affordable housing and infrastructure, employee ownership and small businesses, are issues “that the vast majority of Americans would consider beneficial and patriotic,” impact advisor Antony Bugg-Levine said on ImpactAlpha’s post-election call. Such a patriotic narrative, he said, would signal that “we as an impact investing movement are aligned with what the vast majority of Americans want to see in how this economy changes.”
- “Share the Wealth: Agents of Impact lean into economic justice (video),” by Dennis Price
- “Economic populism, disruptive innovation and other strategies for the era ahead,” by David Bank
7. The ownership economy has arrived
Driving ownership of real assets – land, homes, businesses, communities and, yes, equities – down the quintiles of the country’s wealth pyramid has become a viable, and arguably essential, investment strategy. Participants in the ownership economy include the millions of baby boomer owners who could sell their business to their workers, or first-time home buyers like the ones who are buying at least a fraction of their own home through shared-equity schemes. That gives real power to the ownership narrative, which flips the script from redistribution to predistribution, from zero-sum to bigger pie, from scarcity to abundance, and from disadvantage and division to “let’s get richer, together.” View our list of 68 ownership economy funds.
- “Taking ownership,” by David Bank.
- “Unlocking and preserving broad-based ownership to make housing more affordable,” by David Bank, Roodgally Senatus and Dennis Price.
8. Fund managers and entrepreneurs go local
Resilience – local as well as national – will be vital for weathering the storms ahead. With parts of Asheville, North Carolina, still without water or power months after Hurricane Helene, Neighborhood Economics’ Kevin Jones describes the “neighborhood-scale resilience” on display to meet needs for water, electricity, food and Internet connectivity. Across the south, Napoleon Wallace and his colleagues are standing up emerging fund managers around what Wallace calls “impact alpha” and place-based investment theses. In Baltimore, Parity’s Bree Jones and other social entrepreneurs are buying back blocks of blighted rowhomes to drive equitable homeownership and community revitalization without displacement. View our list of 40 local impact funds.
- “Mutual aid network in Asheville helps overlooked entrepreneurs rebuild after Hurricane Helene,” by Kevin Jones.
- “From North Carolina, a playbook for the Reconstruction of Black wealth,” by David Bank.
- “Real Revitalization: Parity buys back the block to drive community revival in West Baltimore,” by Roodgally Senatus.
9. Setting the record straight on DEI by confronting the real bias in asset management
Efforts to roll back initiatives promoting diversity, equity and inclusion have opened the door to a more fulsome debate about racial bias in the selection of managers to steer the more than $82 trillion in investment assets in US capital markets. Rather than focus on a few grant programs boosting founders of color, “Explain the studies that show 98.6% of assets are managed by white men,” political strategist Robert Raben told ImpactAlpha. And then there are the positive linkages between diversity and performance. “This is about fiduciary duty,” said CapEQ’s Tynesia Boyea-Robinson, who co-founded Freedom Economy with Adasina’s Rachel Robasciotti to defend the rights of justice and sustainability investors. “We’re not just fighting back. We are standing 10 toes down on what makes good financial sense.”
- “Confronting real bias in asset management to set the record straight on DEI,” by Dennis Price.
- “Progress and possibilities for climate action and inclusive prosperity,” by Dennis Price, Amy Cortese and David Bank.
10. Impact investors are getting political
It won’t be possible for impact investors to look away in the Trump era, as expected policy reversals touch every aspect of the impact agenda. Already, Agents of Impact are looking for ways to make incremental progress and ways to defend their priorities. Jim Sorenson of the Sorenson Impact Group sees opportunities to enact policies like the Employee Equity Investment Act to expand financing for businesses that extend ownership to employees. Others, including a community of asset owners led by Blue Haven Initiatives are stepping up their lobbying game and embracing “policy-enhanced impact investing.” Groups like Freedom Economy and Freedom to Invest are readying legal defenses and advocacy campaigns to push back on political attacks on diversity, equity and inclusion, or DEI, and environmental, social and governance, or ESG, investing. Omidyar Network and the Ford and Cummings foundations took small stakes in Anthropic to push the development of responsible AI.
- “Investors fight for ‘freedom to invest’ in wake of Supreme Court rulings (video),” by Dennis Price.
- “These investors are raising their lobbying game to enhance their social impact,” by David Bank.
- “With stakes in Anthropic, impact investors seek a seat at the AI table,” by David Bank.
