Private markets
Cutting through the noise: Three trends shaping impact investing
10 min read 6 Jun 25
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Impact investing has been shaped by various trends that have transformed it from a niche initiative to a mainstream strategy. Cut through the noise of headlines and buzzwords to find out what the three trends shaping impact investing today.
When impact investing began to gain traction two decades ago, it was characterised as a niche strategy primarily focused on microfinance and community development, setting the stage for broader integration of social and environmental considerations in investment practices. Investors were mostly channelling funds into small-scale enterprises in underserved regions, looking to tackle poverty and boost local economies. The concept of measuring impact was still in its infancy, and many investments were more about philanthropy than balancing financial returns with social and environmental outcomes.
Fast forward to the 2010s and the scene had shifted. Investors began zeroing in on integrating ESG standards into mainstream strategies, aiming to balance ethical considerations with financial returns. The UN Sustainable Development Goals (SDGs) provided a roadmap, leading to the rise of green and social impact bonds, which funded projects from clean energy and affordable housing. Advances in data analytics and blockchain made impact measurement more sophisticated, enhancing transparency and accountability. Institutional investors started to embrace impact investing, lending it greater legitimacy and attracting substantial capital. By the end of the decade, climate change mitigation and adaptation took centre stage, prioritising investments in renewable energy and sustainable practices.
Today, three major trends are steering the next chapter of impact investing. These elements, often associated with lofty claims, are now inevitably proving their real-world impact.
As impact investing continues to mature, the various frameworks and strategies that have paved its path are being called into question. ESG, once the darling of impact finance, has recently faced a wave of scepticism, with many suggesting its influence is waning. On the one hand, surveys show the majority of practitioners still use an ESG framework1, with leading investment firms still introducing new ESG fund tiers to meet regulatory demands2. Yet, the overall media narratives surrounding ESG have become more critical, reflecting the increased politicisation of the standards. Highlights include the establishment anti-ESG legislation in some US states3 and a decline in new ESG funds4.
Which brings us to a crucial question: How relevant is ESG in today’s impact investing landscape?
Although ‘ESG’ may no longer be the catchphrase du jour, overshadowed by newer terms, its principles continue to be actively practiced, particularly in private markets. It is now difficult to envision a major firm that has not adopted policies on or is not subject to regulations surrounding emissions, labour practices or disclosure requirements, reflecting a general long-term trend of heightened focus on these areas.
“It is now difficult to envision a major firm that has not adopted policies on or is not subject to regulations surrounding emissions, labour practices or disclosure requirements, reflecting a general long-term trend of heightened focus on these areas.”
Even if they are not explicitly labelled as ESG initiatives, the principles have become deeply embedded in modern business practices, having progressed from supplementary risk management tools to fundamental drivers of strategic investment decisions. According to a PitchBook survey, 82% of ESG practitioners have declined investments or recommendations for ESG reasons, and even among those who don't typically consider ESG factors, 39% have done the same5.
That said, there remains uncertainty around what ESG integrated into broader impact measurement in practice truly entails. Smitha Jain Arora, Head of Sustainability and Impact at Vivriti Capital, unpacks how ESG standards can be practically integrated investment practices. “Impact and sustainability have always been fundamental to Vivriti's ethos”, shares Arora, who oversees the group’s corporate sustainability adoption, ESG initiatives, impact strategies and CSR activities.
Vivriti group, founded by Vineet Sukumar, aims to serve India’s mid-market segment and promote financial inclusion. Their latest milestone includes securing a US$25 million debt facility from the Asian Development Bank (ADB) for their first green bond, marking ADB’s first inaugural bond with a non-banking financial company6.
The core aspect of integrating ESG into private credit investments is evaluating the ESG practices of potential borrowers and their impact on risk and return. Increasingly, these metrics can be utilised in mechanisms such as margin ratchets, which adjust loan terms based on the achievement of specific ESG performance targets. For example, loan terms may be adjusted for companies that achieve significant improvements in water conservation or those that enhance supply chain transparency.
Arora details Vivriti’s ESG performance measurement journey, transitioning from a simple in-person questionnaire to the Vivriti Sustainability Assessment Model (VSAM), which aligns with frameworks the Global Impact Investing Network (GIIN) and the Task Force on Climate-Related Financial Disclosures. Due diligence inputs generate an ESG score and report, reviewed by the ESG Risk Assessment Committee, which recommends monitoring and stewardship plans to improve borrower ESG performance.
Arora stresses that the main challenge most practitioners face in ESG assessment is the availability and granularity of data, particularly given the size of the entities that Vivriti finances or invests in. To address this, she says, they’ve tailored an impact measurement and management (IMM) framework based on global standards like GIIN IRIS+ and SDGs and supported by ‘The Theory of Change’ pathways addressing the five dimensions of impact: ‘what’, ‘who’, ‘how much’, ‘contribution’ and ‘risk’. This framework helps Vivriti to identify and map relevant impact parameters or key performance indicators for reporting.
She notes how this has been successfully implemented with the Vivriti India Retail Assets Fund (VIRAF), a US$250 million asset-backed securitisation fund in India aimed at increasing small loans for micro and small enterprises and individuals with a focus on women entrepreneurs.
Arora explains that while ESG is a crucial component, it is not the be-all and end-all of their strategy. “In addition to the VSAM, we have a sustainable finance framework, an energy policy, alongside other relevant social and governance policies. Altogether, measuring impact is an ongoing roadmap for us and we have just begun this journey.”
Arora’s insights reveal how ESG standards are no longer marginal considerations but are woven into the core operations of modern organisations, along with newer concepts and frameworks to drive impact forward. ESG’s core principles – environmental stewardship, social responsibility and governance – will likely remain essential to modern business practices, even as the term itself wanes in popularity, eclipsed by emerging concepts or frameworks and occasionally targeted during political cycles.
“ESG’s core principles – environmental stewardship, social responsibility and governance – will likely remain essential to modern business practices, even as the term itself wanes in popularity, eclipsed by emerging concepts or frameworks and occasionally targeted during political cycles.”
In this way, ESG’s enduring legacy in impact investing is its institutionalisation of measurement and transparency around ESG factors, fundamentally shaping both performance assessment and decision-making processes across organisations. This sustained relevance guarantees that its principles will continue to dictate impact investing practice, whether under the ESG banner or through newer methodologies.
No sector has escaped the whirlwind of artificial intelligence (AI)’s rapid advancements. Paired with improving big data and cloud computing capabilities, AI is transforming our ability to tackle global challenges from food security to healthcare. Governments are increasingly embracing AI capabilities to enhance research, decision-making and policy implementation, from Germany’s Environment Agency's new AI lab7 to the Philippines’ Department of Education’s AI Research Center8.
Leading this trend are private markets, which are championing innovation and investment in AI to enhance social and environmental outcomes. A McKinsey report found that around 40% of private investments in the 20,000 AI companies surveyed supported at least one of the SDGs9, underscoring the significant alignment of AI innovation with impact objectives.
According to the report, certain themes within the SDGs, such as Zero Hunger (SDG 2), Life on Land (SDG 15) and Peace, Justice and Strong Institutions (SDG 16) exhibit higher and more straightforward deployment potential for AI technologies10. For instance, AI-driven solutions are making significant strides in areas such as Life on Land (SDG 15), where they are already yielding tangible benefits in the work of companies like BioFirst.
“...certain themes within the SDGs, such as Zero Hunger (SDG 2), Life on Land (SDG 15) and Peace, Justice and Strong Institutions (SDG 16) exhibit higher and more straightforward deployment potential for AI technologies.”
Jean-Marc Vandoorne, CEO of BioFirst, discusses enhancing traditional farming practices with modern technology. Founded in 1987, BioFirst is a global leader in biological crop management solutions. Vandoorne recounts, “The company was founded by a Belgian veterinarian passionate about bumblebees, initially using them for successful commercial greenhouse pollination to boost yields and reduce labour costs. To address pesticide harm to bumblebees, the company developed sustainable biological control methods for pests and diseases. In the 90s, we expanded to include biological control using insects and mites, which are now as efficient and cost-effective as chemical alternatives.”
Vandoorne highlights the use of AI in the ‘Crop-Scanner’, a platform for crop-management and pest monitoring. The ‘Trap-Scanner’ function, for example, uses AI to analyse photos of sticky traps taken on your phone, eliminating the need for manual counting and improving insect monitoring. This enables more targeted and efficient assistance to growers, embodying the practice of precision agriculture.
“Our goal”, Vandoorne asserts, “is to create a digital decision support system that analyses data, proposes solutions and even automates product acquisition. We aim to implement an integrated system for our customers, augmenting traditional wisdom with technological solutions.”
As demonstrated by the ‘Crop-Scanner’, AI technologies can be integrated into existing practices by leveraging vast data analysis to optimise processes and outcomes, employing predictive capabilities to mitigate risks, scaling solutions through replicable models for amplified regional impact or even enhancing transparency and accountability with real-time monitoring and reporting.
As Vandoorne notes, “We understand the importance of balancing pests and diseases with biopesticides, biostimulants, beneficial insects and other biological crop protection products – a concept rooted in traditional farming practices. However, we augment this approach with modern technology.”
BioFirst’s evolution from bumblebee pollination to precision agriculture exemplifies the transformative potential AI holds for the impact sector. As AI continues this trajectory of exponential growth, its capacity to tackle complex challenges and drive impact will likely cement its status not merely as a disruptive innovation, but as a cornerstone of our economic landscape, making it a key trend to watch.
While AI has preoccupied the public’s focus, the landscape of emerging technologies remains vast and ever-evolving, particularly in the climate trade, where impact investing capital is heavily concentrated. By the end of the 2010s, the urgency of addressing climate change had become a dominant theme in the realm of impact investing. This shift was driven by increasing evidence of the adverse effects of climate change, such as extreme weather events, rising sea levels and biodiversity loss, which underscored the necessity for immediate and sustained action. Emerging technologies not only play a critical role in mitigating environmental issues but also unlock new opportunities for financial returns.
The first port of call is the transformation of hard-to-abate sectors through the innovation of sustainable industrial technologies, with steel manufacturing being a prime example. Traditionally, steel production relied heavily on carbon-intensive processes, such as the use of coal in blast furnaces. The steel industry’s dependence on fossil fuels has positioned it as one of the largest industrial contributors to greenhouse gas emissions, accounting for approximately 8% of global emissions11.
“The first port of call is the transformation of hard-to-abate sectors through the innovation of sustainable industrial technologies, with steel manufacturing being a prime example.”
Not only is steel production fundamental to a wide array of industries, but it also plays an indispensable role in the energy transition, underpinning renewable energy infrastructure and the development of low-carbon technologies. Addressing these emissions is vital, not only to achieve global decarbonisation targets but also to satisfy the escalating market demand for green steel.
An emerging technology in green steel production is Molten Oxide Electrolysis (MOE), a tonnage metals platform technology powered by renewable electricity, pioneered by Boston Metal. Tadeu Carneiro, CEO of Boston Metal, sheds light on its origins, “originally developed at MIT with NASA funding for lunar oxygen production, the technology was adapted for Earth-based steel manufacturing by switching the anode material to a chromium metal alloy, making it economically viable.”
He explains how modular cells are used to split iron ore into pure liquid metal and oxygen at 1,600°C. This process generates no carbon dioxide or harmful byproducts and does not require water, hazardous chemicals or precious-metal catalysts, making it a cleaner alternative for steel production. In addition to green steel production, Carneiro adds that MOE is also being used by Boston Metal for high-value metal recovery from mining waste.
As with all groundbreaking solutions, the journey has been fraught with both challenges and opportunities. Carneiro notes that an initial challenge was convincing stakeholders that steel could be competitively manufactured using electricity. He recalls that some sceptics even joked that only divine intervention could provide the necessary electricity to eliminate carbon from steel manufacturing on a large scale.
Carneiro shares despite early doubts, the feasibility of using electricity for steel production is now widely accepted. “Access to affordable green electricity in various parts of the world allows the deployment of this energy-intensive technology. The process is more energy-efficient than traditional methods, using fewer megawatt hours per ton of steel. While conventional methods rely on coal, this technology requires electricity, highlighting the importance of abundant, cheap and reliable green electricity for the future.”
The challenge today is to accelerate the implementation process, according to Carneiro. “We don't face significant regulatory obstacles; in fact, there is widespread support for rapid deployment. The primary focus now is on scaling up, developing engineering systems and making larger advancements more quickly.”
As these technologies advance, it is important for stakeholders to expand their focus beyond AI to encompass the broader spectrum of emerging innovations. These technologies are not just peripheral developments; they are reshaping key industries in the climate mitigation regime. By paying close attention to this wider array of advancements, stakeholders can better position themselves to capitalise on these developments.
Onward and upward
Over the last two decades, impact investing has experienced profound shifts, evolving from fringe microfinance initiatives into a mainstream strategy characterised by constant advancement and innovation. From our current vantage point, the enduring legacy of ESG standards, AI’s transformative role in driving social and environmental outcomes and the emerging climate tech trade are no longer mere jargon or buzzwords — they are harbingers of the next chapter of impact investing.
“From our current vantage point, the enduring legacy of ESG standards, AI’s transformative role in driving social and environmental outcomes and the emerging climate tech trade are no longer mere jargon or buzzwords — they are harbingers of the next chapter of impact investing.”
As we embrace these trends, we must also confront the paradoxes they present. ESG standards, despite having established robust pillars around ethics and sustainability, risk greenwashing and regulatory uncertainty which could undermine accountability mechanisms. AI, while driving new capabilities, raises ethical concerns about equitable access and biased decision-making. Climate tech, despite its promise, faces hurdles in scalability and adoption.
For investors, the future of impact investing hinges not just on embracing these trends, but on scrutinising their real-world applications and outcomes. It’s easy to get carried away by the allure of new frameworks or the latest innovation, but the true measure of progress will be in tangible, equitable results.
Discover further insights from these executives and others in the M&G Catalyst Annual Impact Report 2023
1Hilary Wiek and Anikka Villegas, Sustainable Investment Survey’, (pitchbook.com), September 2024.
2Mark Segal, ‘Fidelity International Launches New Sustainable Investing Framework to Meet New ESG Regulations’, (esgtoday.com), July 2024.
3Henry Engler, ‘Anti-ESG legislation seen facing uphill struggle to become law’, (thomsonreuters.com), February 2024.
4Alastair Marsh, ‘Backlash Against ESG Seen in Sharp Decline of Fund Launches’, (bloomberg.com), July 2024.
5Hilary Wiek and Anikka Villegas, ‘Sustainable Investment Survey’, (pitchbook.com), September 2024.
6Asian Development Bank (ADB), ‘ADB to Invest $25 Million in Certified Climate Bond for Climate Financing in India’, (adb.org), October 2024.
7The Umweltbundesamt, ‘The AI Lab at the German Environment Agency’, (umweltbundesamt.de), January 2025.
8TMT Newswire, ‘DepEd launches AI center for education’, (manilatimes.net), Febraury 2025.
9Medha Bankhwal, Michael Chui, Ankit Bisht, Roger Roberts and Ashley van Heteren. ‘AI for social good: Improving lives and protecting the planet’, (mckinsey.com), May 2024.
10Medha Bankhwal, Michael Chui, Ankit Bisht, Roger Roberts and Ashley van Heteren. ‘AI for social good: Improving lives and protecting the planet’, (mckinsey.com), May 2024.
11International Energy Agency, ‘Emissions Measurement and Data Collection for a Net Zero Steel Industry’, (iea.org), April 2023.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast, nor a recommendation to purchase or sell any particular security.
