No data, no deal? Impact measurement and capital flows to achieve climate-compatible growth
This report explores the challenges and importance of impact measurement and management (IMM) in directing capital to climate-friendly projects, particularly in emerging markets. Through investor interviews and case studies, it highlights the need for standardised IMM to enhance transparency, avoid ‘impact-washing’, and ensure equitable access to capital for underrepresented markets like Zambia.
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OVERVIEW
Introduction
The report investigates how impact measurement and management (IMM) influences investor decision-making and capital flows. With the impact investment market growing to US$1.1 trillion in 2022, the lack of consensus on IMM poses challenges for attracting investments to emerging markets.
Approaches and methods
Qualitative interviews with investors and literature reviews were used to explore how IMM influences capital flows. Findings indicate that while IMM strategies are advancing, inconsistencies exist across sectors. This report applies its findings to Zambia’s Constituency Development Fund (CDF) as a case study, where effective IMM could unlock climate finance for local projects.
Impact measurement and management
The report highlights that despite an increasing interest in IMM, there is little cross-industry consistency. While 90% of investors use IMM data to assess impact performance, 89% struggle with transparency and comparability, making standardisation a priority. IMM data helps identify investment opportunities, but gaps in project-level data often hinder funding, particularly in emerging markets like Zambia.
Investor perspectives
Investors interviewed acknowledged that poor IMM practices could entrench inequalities in access to capital. Some investees in emerging markets face IMM requirements that are too stringent, especially when imposed by investors from developed countries. The absence of technical assistance limits their ability to meet these demands, making it harder for underrepresented markets to attract capital.
Policy relevance
Policymakers are urged to standardise IMM practices and offer technical assistance to support investees. Governments could set regulatory principles that encourage transparency without excluding smaller enterprises from access to capital. The report recommends leveraging public funds like Zambia’s CDF to aggregate small projects and make them bankable for investors.
Case study: implications for Zambia’s Constituency Development Fund
Zambia’s CDF, expanded to US$200m in 2021, has the potential to attract private capital for climate-compatible projects. However, the lack of impact measurement and evaluation systems limits its effectiveness in demonstrating project outcomes. By establishing these systems, the CDF can create a pipeline of investable projects that align with investor expectations.
Conclusion
For Zambia, implementing a standardised IMM system could unlock US$17.2bn in climate finance by 2030. Policymakers and investors must collaborate to develop frameworks that balance transparency with the capacity of investees, particularly in emerging markets, to foster equitable access to capital.
