Written by Jorge Alarcón
Impact investing is in vogue. Impact assets under management reached over 1.5 trillion USD worldwide according to GIIN’s latest estimate in 2024.
The practice emerged in a philanthropic context where the first impact investors had both the flexibility and the willingness to sacrifice (risk-adjusted) returns for impact. Ever since, the impact investing industry has endeavoured to experiment with the delicate trilemma of risk, return and impact. A particularly thorny question pertains to whether impact and return comprise an inescapable trade-off or a compatible, even mutually-reinforcing, aspiration.
Years of practice have cast light on the sophisticated and convoluted nature of this impact-return balance that lies at the heart of impact investing. If anything, it has become clearer that while impact investing may comfortably deliver market returns in some cases, other “wicked” problems inexorably demand a patient approach that, sooner or later, across a portfolio, involves compromise on less-than-market-optimal risk-adjusted returns.
Naturally, impact investing approaches are as diverse as the never-ending list of problems they seek to redress, in their diverse profiles of risk, return and impact. Not only that, but under the arguably vague concept of “impact”, many factors underpin positive outcomes for people and the planet and those may not necessarily play out consistently.
Mobilising private capital
A case in point is “mobilisation”, which is argued here to be a determinant of impact when investing in emerging markets with evidence of impact capital scarcity. Mobilisation can represent a worthwhile measurement of the impact of such investments.
But why is mobilisation relevant for investing for impact?
Albeit relatively unfamiliar among private investors, the case for mobilising private capital is far from new in development-finance circles. Indeed, multilateral development banks (MDBs) and development finance institutions (DFIs) can be regarded as the quintessential “mobilisers”. Their mission is to invest for “developmental impact” by supporting the private sector in emerging markets and developing economies. Yet, the climate challenge, a sweeping SDG to-do list and stubborn poverty serve as powerful reminders that they cannot do everything alone.
Mobilisation is increasingly considered a central pillar to development finance by “crowding in” private sector investment to complement, amplify and leverage investments from public sources, whether national or multilateral, and thus deploy transformative capital to solve pressing social and/or environment problems.
MDBs and DFIs are increasingly required to “do more with less”, calling for riskier investments into needier, frontier markets for the sake of further impact. The mobilisation case makes financial as well as impact sense: by bringing in private capital for each investment or transaction they undertake, MDBs and DFIs can reduce the financial need for that specific investment, release their own resources (balance sheet optimisation) to invest afresh into new, impactful projects and unlock ripple effects that amplify impact at a minimal use of financial resources. More impact with less investing.
Even more, MDBs and DFIs are best placed to mobilise since they have demonstrated prowess to operate where others fear to tread: they can afford the flexibility of embracing lower-than-market-level returns in challenging contexts and pave the way for risk-conscious investors seeking better (or entirely) market-adjusted risk-return profiles. In accordance with this, the impact-return-mobilisation trilogue could be argued to make most sense in the context of Global South countries, where underserving is largest and impact harbours the greatest potential.
Yet, it is precisely in these promisingly impactful contexts where mobilisation remains, in most cases, elusive; because of the difficulty to entice private commercial investors at those risk-return profiles.
Mobilisation as an impact metric
It is thus worth arguing that mobilisation can become an insightful measure of impact, not just for MDBs and DFIs but impact investors more broadly. As in MDB/DFI methodology, mobilisation would always entail private capital pursuing commercial risk-adjusted returns. At the end of the day, as long as an investor brings into the impact investment another investor that would not otherwise have invested, and as long as the investment brings an additional positive outcome for people and/or the planet, mobilisation may count as impact. In impact-investor jargon, mobilisation can enhance both financial and non-financial additionality.
Indeed, some private impact investors have reported different mobilisation metrics, often claiming multipliers of 1 USD of their own catalytic capital for up to 3 USD of private capital achieved. While more prevalent in blended finance and catalytic capital communities, private capital mobilisation may merit further attention from impact investors as they measure and manage their impact, particularly those in emerging markets with large financial gaps.
Impact investors can embed mobilisation within their own impact measurement approaches and systems, while building on the existing MDB and OECD methodologies that measure mobilisation for development financiers.
Mobilisation would then amount to a short to medium term outcome, whereas the long-term impact would rest upon the developmental positive effects unleashed by the capital mobilised into underfinanced problems.
Admittedly, mobilisation as an impact metric may add another layer of unwelcomed complexity to the already arduous task of measuring and managing the impact of investments. Endeavours to measure mobilisation could give rise to numerous struggles for impact investors, such as different ways to account for capital mobilised at the time of financial commitment or instead at later investment stages.
Yet, the effort may become worthwhile as mobilisation can be argued to embody the financial additionality that impact investing seeks to unleash, and it provides the data to ground such claims. Furthermore, the case for mobilisation can also stir other important reflections on the contribution that impact investors bring with their investments towards positive outcomes for people and the planet (also called the investors’ “attribution” over impact). Seeing how elusive attribution remains for investors, mobilisation metrics can act as an anchor of tangible evidence, whereby private investors reporting mobilisation may benefit from the existence of a consistent and established methodology from MDB/DFI practice.
All in all, coming back to the original discussion about impact, returns and risk, mobilisation may be regarded as a core tenet of impact when investing in emerging markets for developmental impact. And at the same time, it can become an impact metric worth exploring for those investors moving across a spectrum of financial additionality amid evidence of capital paucity. Third but not least, mobilisation is largest in well-established markets and often relates conversely to other determinants of impact, namely underfunded markets with the largest potential for positive social or environmental outcomes. Measuring and disclosing mobilisation can go a long way in having those crucial, but still too infrequent, conversations about the trade-offs between risk, return, mobilisation and impact where needs are largest and financing scarcest.
About the author
Jorge Alarcón is a Consultant at Stone Soup Consulting, specialised in impact investing and development finance. Stone Soup Consulting is a B-Corp forward-thinking consultancy with a mission to enhance impact for purpose-driven organisations. Stone Soup Consulting can leverage its community of impact experts to help investors harvest more impact with less investing, while advising financiers on how to enhance outcomes for people and the planet with their funding.
