Impact investing could answer many government’s pressing questions

IMPACT investing is moving from the margins into mainstream debate. The global market size for impact investment between 2012 and 2022 is estimated to have increased from $ 500 billion to $1.2 trillion, an indication that impact is emerging as a new benchmark of investment value. 

It is no longer just the work of philanthropies or a handful of forward-looking investors; impact investment is a practical approach to financing solutions capable of driving progress across diverse themes from gender equity and the just transition to climate action, while delivering financial returns.

Although impact investing practice has been around for decades, scaling an ecosystem to maturity presents both opportunities and difficulties.

Among these challenges are building investor confidence, incentivising participation from a diverse set of investors, and building a robust pipeline of investable projects. 

Equally important is directing impact investment toward activities that grow the economy, like building infrastructure, so that capital not only delivers social and environmental returns but also strengthens the foundations of sustainable economic growth.  

The next generation of investors want more than financial returns and are looking to expand the value that their capital can unlock for society and the environment. 

Whilst evidence points to the increase in capital invested in creating measurable impacts, it is still a drop in the ocean compared to the scale of need. If the impact investment space is to reach its full potential, governments will need to play a far greater role, not only as regulators, but as the biggest spender on social and environmental priorities.

Government spend is currently framed as public expenditure or service delivery, not investments expecting returns- the opportunity lies in the reimagining of government spending drawing in more capital and scaling impact. 

The government's role rests on a set of enablers: political support, policy frameworks, pooling of capital, performance measurement, pipeline development, and partnering. Individually important, these elements collectively lay the foundation for a more robust impact investing ecosystem as outlined below.

Political support sends a clear signal from the highest levels of government reassuring investors, reducing perceived risks, and establishing impact as part of the mainstream economy.  

When leaders place impact investing on the national agenda, they do more than endorse an idea, they create confidence.

Policy support provides the framework for impact investing, offering rules, incentives, and legal clarity that bridges intention and implementation, turning commitments into real investment.  

By creating pathways for participation, governments make it easier for capital to flow where it can achieve real impact.

The most catalytic role, however, lies in pooling capital. The government has the unique ability to build investor confidence by blending funds in ways that spread risk and align different mandates. 

Each context is unique, demanding tailored approaches that blend resources for maximum social and financial return. Too often, the role of philanthropy in blended finance is overlooked, missing the chance to make projects more attractive to other investors and amplify the lasting impact of philanthropic capital.  Equally important is the role of patient capital, which can absorb early risks and provide the long-term stability needed to unlock investment flows.

Performance measurement drives continuous improvement and gives investors the confidence to commit and allows governments to shift the focus from expenditure to results, creating accountability and building trust among investors who want to see evidence of change.

Another critical enabler is pipeline development. Governments sit at the centre of demand, constantly delivering on a country’s social and environmental priorities. Including government initiatives in the impact investing landscape means tapping into a pipeline that is nearly market-ready, with projects primed to absorb funds at scale.

Finally, none of this works without partnering.  Governments cannot solve systemic problems in isolation. By working with philanthropies, private investors, and development finance institutions, they can combine resources, scale, innovation, and risk appetite in ways that no single actor could manage alone.

Taken together, these enablers give governments the tools not just to support impact investing, but to lead it. The prize is significant, resulting in smarter use of public budgets, new flows of private and philanthropic capital, and the chance to deliver solutions at scale. 

The “P” architecture: political support, policy frameworks, pooling of capital, performance measurement, pipeline development, and partnering, offers government an approach that can strengthen the impact investing ecosystem but also finds alignment with the Global Impact Investing Network’s (GIIN) core principles of intentionality, generating financial returns, measurability, additionality and risk-return alignment. 

By taking the lead, governments can transform impact investing into a force that delivers real, lasting change at scale.

Jayakody is a board member of Impact Investing South Africa, with Bertha Centre for Social Innovation & Entrepreneurship as Secretariat, and a senior professional with the National Treasury’s City Support Programme.