In Latin America, Impact Finance Demonstrates Remarkable Progress and Untapped Potential

(Photo by Istock/nito100) After almost 10 years, impact finance remains a niche market in Latin America, though it continues to grow toward mainstream acceptance. To understand where the field in the region has been, where it might go, and the insights it offers to other parts of the world, it […]

(Photo by Istock/nito100)

After almost 10 years, impact finance remains a niche market in Latin America, though it continues to grow toward mainstream acceptance. To understand where the field in the region has been, where it might go, and the insights it offers to other parts of the world, it is important to understand it as a whole and through a closer look at a few nations.

Mexico, Colombia, and Brazil are important because of their economic robustness and the relatively advanced incorporation of impact finance into their markets. Ecuador, as a nation that has made far less progress with impact finance, reveals important challenges and opportunities for the field. Each country and the region as a whole have many stories to tell when it comes to the scale at which they’ve embraced impact finance, the infrastructure and institutions they possess to support the field, and the insights their experiences provide.

Impact Investing Today and Tomorrow

Impact Investing Today and Tomorrow

A consortium of more than 190 professors focused on impact investing share new insights into the rapidly changing field at a critical juncture in its development.

Several countries in the region still display some of the highest income inequality levels in the world, according to the World Economic Forum. Economic development and climate change are important issues. Public health expenditure as a portion of GDP continues to rise, a high-priority problem for the region that has been exacerbated by the COVID-19 crisis. Sanitation, water management, and communications connectivity are also important issues for the region that are being made worse by the pandemic.


Total assets under management (AUM) allocated to impact investing in Latin America reached $4.7 billion in 2016 and 2017, according to the Aspen Network of Development Entrepreneurs (ANDE) and Association for Private Capital Investment in Latin America (LAVCA). Mexico, Brazil, and Ecuador account for 53 percent of all the impact capital invested in the region.

According to LAVCA, most Latin America-based investors did not report making investments outside their country, and so their location strongly correlates to their financial activity. At the same time, impact investors based in the region more than doubled their financial activity from $95 million in 2016 to $193 million in 2017.

The robustness of the field greatly varies from nation to nation. But as of 2017, the region as a whole was home to 834 impact investing deals, according to LAVCA. Deals worth between $250,000 and $1 million made up 46 percent of the total. When the stage of the business receiving impact investment was disclosed, roughly 44 percent of those businesses were relatively mature and in a growth stage.

Impact investments in the region were expected to reach $1 billion in 2019, though the data is not yet available to verify if that amount was reached. Expectations for 2020 are less optimistic due to the COVID-19 pandemic.


Impact investment in Mexico started mostly with the intention to create jobs and promote economic development; in those terms, the field can be traced back for decades among different government and private institutions. However, the timeline shifts if we use a more typical, stricter definition of impact investing that incorporates a hunt for profit with the intent to create positive progress on social problems. With that criteria, IGNIA emerges the first impact investment fund in Mexico, starting in 2007 with roughly $20 million. However,  other organizations, such as Alianza por la Inversión de Impacto México (AIIMx), declare that impact investment might have begun in Mexico as early as the year 2000. Since then, the field has displayed significant growth. In 2017, it generated 108 deals worth $169 million, encompassing 15 out of 17 impact-related sectors, according to LAVCA.


Impact and sustainable investment funds in Colombia have never surpassed a value of $100 million. In 2017, the nation had impact deals worth roughly $86 million, reported LAVCA. It had high hopes for 2020 that were dashed by COVID-19.

Colombia’s ecosystem is dynamic, but in terms of growth rates, it does not yet compare with Mexico or Brazil, which have been much more effective at generating significant local impact investment. Additionally, most of Colombia’s impact investments have historically come from international funds, which are beginning to explore options in other countries of the region, pulling money away from Colombia. Reflecting this trend, the nation led the region in the proceeds from investment fund exits in 2017, according to LAVCA. 


Interest in impact investing in Brazil has grown quickly, even if the amount of money flowing toward it has not. In 2012, Brazil’s first impact investing conference, organized by Insper Metricis,  attracted 90 attendants. In 2018, the Social Finance and Impact Businesses Forum, led by Innovation and Corporate Citizenship Institute (ICE), pulled in about 1,000 people. New generations of Brazilian family businesses are showing an increased interest in developing more impact portfolios and playing a role in building a sustainable future for the nation.

The financial story has been much different. In 2016, Brazil’s impact AUM came to $186 million, according to LAVCA. In 2014, it was $177 million. After 2016, the reporting methodology changed, and the AUM came to $131 million in 2018, excluding microfinance institutions (MFIs).


Ecuador is still in the early stages of building its sustainable investment ecosystem, but a development in 2019 marked an important step in its journey: Banco Pichincha, a leading inclusive finance provider, made the first sale of green bonds in the nation. The $200 million deal supported projects related to renewable energy, energy efficiency, and sustainable construction and transportation. It was purchased entirely by the Inter-American Development Bank (IDP), the International Finance Corporation (IFC), and Proparco, a development financial institution partly owned by the French Development Agency (AFD). The institutions all promote private investment in Latin America to reach the Sustainable Development Goals (SDGs), and their prominence—along with the amount of the deal—may go a long way toward attracting more money to Ecuador’s impact investing field.

Infrastructure and Institutions

Much more needs to be done in Latin America for impact investing to move forward. Thus far, private initiatives and development banks have been the main drivers of the field, making it similar to other young markets around the world. Foreign investors have played a prominent role in initiating, sustaining, growing, and improving impact and sustainable finance in the region.

Challenges are very local. For the market to grow and stabilize, it must contend with corruption, illiteracy, and a lack of coordination between local governments, supporting institutions, and others. It must also combine the smaller efforts of disparate local investors to produce larger funds that can achieve impact at bigger scale. There are many of them to work with: In 2017, locals invested $193 million, up from $95 million in 2015, according to LAVCA. This is a healthy sign of a maturing market, but for it to grow further, it will need a healthy mix of foreign investors (who operate on more short-term horizons focused on successful exits) and local investors (who focus on longer-term financial and social returns).

Though governments in the region are concerned with social issues, they put less priority on investments as a way to address them, thus limiting their participation with impact and sustainable finance.

Investments in the region typically come with high rates and fees compared to other regions. Inefficiency, market risk, insecurity, and corruption are ongoing problems. Many factors also make it harder to attract new investors, including limited early-stage financing, lack of knowledge of the market, legal uncertainty, and political risks.


Mexico is one of two Latin American nations (the other being Brazil) with mature impact investing markets, according to LAVCA. The Mexican impact investing ecosystem includes local and international players. Among them are individual investors, fund managers, development finance institutions, diversified financial institutions, banks, pension funds, insurance companies, family offices, and NGOs. Some firms headquartered in Mexico control investments not only for the country but also serve as regional hubs. This positions Mexico on the edge of potentially huge advances in impact investment. In addition, some seasoned impact investors in the country have recently started to see their first exits from equity investments, which sends a positive signal to the market.

In 2018, Mexico enacted a regulation to help manage and encourage its financial technology (fintech) industry. It promoted crowdfunding, digital currencies exchanges like Amero-Isatek , and banking services that allow start-ups to exchange information and transact with established financial institutions through an application programming interface (API), a practice commonly known as open banking. As a result, more people and organizations have more access to financial opportunities, impact investing among them.

Higher education institutions are expanding the sector by training finance professionals. Tecnológico de Monterrey and other universities have included impact investment and sustainable finance as part of their curriculum, offering courses such as Sustainable Finance and Responsible Leadership.

Some factors are working against growth in the industry. Among them is the mixed support of the Mexican government. For example, in 2013 it passed a law to promote the development of the renewable energy sector. However, it also passed conflicting regulations in early 2020 that made it harder to implement the initial law while removing incentives that attracted foreign investment.


In Colombia, as in many parts of the world, investments with environmental and social returns have taken place for many years, but it wasn’t until 2008 that they were identified as impact investing. Since then, the sector has steadily grown, with its development falling into two periods with some overlap: between the years 2008 and 2016, and from 2016 to today.

During the first period, more than 90 percent of impact investment funds represented international interests in search of opportunities in the country as part of their strategy in Latin America. Long search and investment processes marked this period, as did low government participation and a lack of many facilitators, such as specialized accelerators and incubators.

Since 2016, the nation’s impact investment sector has intensified its development of socio-environmental companies. It has also involved more and more Colombian investors, especially from family offices, though international investors still make up the largest share of participants. Investments have begun to appear in new sectors, such as agribusiness and education. Financial inclusion for low-income and impoverished families continues to be attractive to investors, in large part due to the potential generated by the advance of financial technology over the past two years in the nation.


Impact investing and social finance started to gain traction in Brazil in 2012. Four funds led the way: Vox Capital; Mov Investimentos; Kaeté Investimentos, the first fund to invest in start-ups based in the Brazilian Amazon with a strong social, environmental, and financial return; and Sitawi.

As the sector developed, accelerators explored business models that connected impact-driven start-ups to investors. Artemisia, Quintessa, and Impact Hub were some of the first. Green bonds, blended finance, and crowd-funding stood out amid the new financial vehicles being piloted.

The sector continues to grow stronger with the expanded availability of financial vehicles, rising domestic interest, and increased capital flows. In more recent years, next-generation family business leaders have shown greater interest in developing more sustainable portfolios and paving the way toward impact investing’s future in the country, as the attendance of notably wealthy individuals at the Converge Capital Conference 2020 in Rio de Janeiro has shown.


Ecuador’s impact investing and sustainable finance ecosystem is growing and maturing at a reasonable pace. BID Invest has played a prominent role by educating the financial sector about sustainability and its integration with governance, strategy, and financial products. It is also notable that for the past three years the Ecuadorian capital city of Quito has been hosting the Latin American Impact Investment Summit, the sector’s most important event in the Andean region. Progress can also be seen in the 2019  launch of the nation’s first impact investment fund, CREAS ECUADOR.

A Dynamic but Unclear Future Calls for More Collaboration

The large number of impact investment opportunities associated with Latin America’s rich biodiversity distinguish the region from others. Its large base of the pyramid population also makes it stand out.

Investors in the region understand that social development is a high priority and tend to align with the SDGs that reflect that focus, such as no poverty, decent work and economic growth, and reduced inequality. Concern with gender and Indigenous rights is still relatively nascent.

Many countries in the region share a focus on issues related to financial inclusion, biodiversity, waste management, and gender equity. Some but not all of the nations are concerned with pro-climate business solutions. Brazil stands out for its work on helping aging populations. Ecuador’s impact investing community stands out for its efforts around aiding the nation’s poorest people.

The vitality of impact investing in countries across the region greatly varies. Some nations struggle to sustain initial growth. Some just manage to keep afloat. Others are rapidly growing.

It is clear that the public sector could play a more significant role across the region by establishing policies, building infrastructure, and helping to scale investments. The region must continue to professionalize the field to help ensure the success of impact and sustainability enterprises.

While there is much impact investment interest in Latin America as a whole, most infrastructure, bond issuances, and funds focus on one country. This presents a significant opportunity to develop a diverse range of investments that would cross national boundaries and offer varied risk profiles and leveraged scale. A few areas stand out as the best place to direct regionally focused efforts. For one, the incentives that help firms make the leap toward social and environmental goals need to be expanded and refined. Individual regions also need more education and training in impact investing.

Exactly how Latin America moves forward remains unclear, but it will certainly require strong collaboration among governments, financial institutions, development banks, universities, and investment managers.


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