In 2015, United Nations member states identified 17 ambitious benchmarks they wanted to meet by 2030. Those Sustainable Development Goals aim to reduce poverty, advance equity, and safeguard the planet. 

But the cost to achieve those targets is extraordinary. By the latest estimates, U.N. member states would need to raise $4.2 trillion every year for the next four years.

The traditional funding sources development organizations usually turn to — such as public budgets, bilateral aid, and philanthropy — simply don’t have the capacity to cover it.

Yet the capital markets could finance the funding gap more than 50 times over.

As someone who helps organizations invest for impact, I’ve observed that the private sector is still treated as separate from efforts to reduce poverty, advance equity, and safeguard the planet. In other words, the private sector is considered adjacent to development, but not integral to it. 

Why?  

One widely held view is that our classic financial systems have played a role in creating some of our current development challenges. But they also hold the financial power to advance progress in unprecedented ways.

Private Financing Matters

Private finance is already shaping infrastructure, health systems, education access, climate adaptation and more. And in some cases, it does so without considering public service outcomes. 

Consider that BlackRock, the world’s largest asset manager, is on its fifth global infrastructure fund. In the United States, almost a quarter of for-profit hospitals are owned by private equity. And, according to the Climate Policy Initiative, private capital accounted for roughly 49% of total global climate finance flows in 2021/2022 — meaning nearly half of all climate investment worldwide now comes from private sources rather than public budgets alone.

Impact investing assumes it’s possible both to make a positive difference in the world and to meet risk-adjusted return expectations.

The question isn’t whether private capital should be involved in the areas we would historically consider the domain of public good — it already is. The question is: Who gets to influence how private capital is deployed?

Impact investing offers a compelling path forward since it has an obligation to consider both a non-financial and financial impact. It seeks to strategically balance a range of outcomes by deploying capital with the intention to generate a measurable social or environmental good and to make money. In other words, impact investing assumes it’s possible both to make a positive difference in the world and to meet risk-adjusted return expectations. 

Is Impact Investing the Future of Development?

To achieve this double bottom line, many impact investors find themselves working to push back against decades-old perceptions — or misperceptions — of risk. 

Take the Energy Access Fund. Launched in 2015, this $34 million fund was created to finance clean energy companies serving low-income households in Sub-Saharan Africa and Asia. Traditional banks perceive these businesses as too risky, primarily because low-income borrowers are considered a flight risk. 

To address investors’ concerns, the Energy Access Fund combines private investment with a layer of risk-tolerant capital and a small pool of technical assistance funding. The result: low-income households have more access to affordable, off-grid energy; they rely less on polluting fuels like kerosene; and investors see viable financial returns across a range of risk and return expectations. 

South Africa’s AllLife is another example of how impact investors think differently about risk. Conventional insurers excluded people living with HIV and diabetes from traditional life insurance markets, but AllLife determined that patients who adhere to their treatments, have access to financial protections, and are provided incentives to continue ongoing care are just as bankable as any other group. 

For LeapFrog Investments, one of AllLife’s biggest champions, their $13.9 million equity contribution delivered meaningful results: expanding insurance coverage for underserved populations, improving health engagement among policyholders, and proving that inclusive financial services can be both commercially viable and health-enhancing.

Once a niche strategy, impact investing now commands $1.57 trillion in assets under management globally, having grown from fringe experiment to institutional-ready strategies. 

But scale isn’t enough. The effectiveness of impact-oriented capital depends on how well it’s targeted, governed, and measured.

Using private funds to move the needle requires a different kind of professional — not someone who merely learns the language of finance, but someone who understands how capital shapes power. Someone trained to navigate both development theory and market dynamics. Someone who can think systemically across incentives, risks and outcomes. Who can be honest about both the opportunity of capital and its limitations. Who sees incremental, rigorous progress as the achievement that it is — a step in the right direction to repurpose a centuries-old system that was not designed to serve all. 

Just because an investment is made with the right intention doesn’t mean that it succeeds.

This work is not easy. And just because an investment is made with the right intention doesn’t mean that it succeeds. We have myriad examples of adverse consequences from impact investing. 

In some of the markets we work in, building private solutions lets government off the hook from providing necessary and essential services. In other cases, asset managers slap “impact” or “ESG” labels on their products to raise money. This hasty solution, known as greenwashing, demonstrates little commitment to the complex, laborious work of designing true impact investments or vehicles. And when those mis-labelled impact products fail to deliver results, anger and disbelief ripple across the field. 

Despite these risks, engaging private capital is essential to addressing complex development challenges. With disciplined practitioners, a commitment to measurement and management, and candor about what works and what does not, private investment can help meet global needs at meaningful scale.