Aug 04 2021
Impact Investing in India Requires a More Holistic Approach

India needs USD 960 billion annually to meet its UN Sustainable Development Goal (SDG) targets by 2030 – USD 565 billion when accounting for government spending. Considering this massive financing gap, mobilising finance from the private sector is vital for the country to achieve its SDG targets, including in the key areas of job creation and economic growth, sustainable cities, and gender equality. It is also important that private sector capital is deployed in high-impact sectors and low-income geographies, and that it strategically complements public finance.

A study commissioned by the UK government, and carried out by Palladium in collaboration with 3ie, shows how private sector capital can be better leveraged in India to create greater social and environmental impact. Crucially, the study’s authors argue, impact investing in the country requires a more holistic approach. Better collaboration between government, businesses, and investors would mean that money invested would go much further.

“No one actor determines whether an economy is inclusive, whether it is green,” explains Carolijn Gommans, Senior Manager, Green Finance at Palladium. “The same is true for investments that have a social or environmental purpose. Governments need to put in place policy frameworks to incentivise the right behaviours, companies need to see the business opportunities and provide services that are more inclusive or green, and finance providers need to invest in these businesses.”

But India faces barriers to such public-private collaboration.

“Even though we’ve seen a rise in private finance for social and environmental impact, there is still a popular understanding that the responsibility to support the underserved communities and to address environmental issues only lies with the government,” explains Amit Patjoshi, National Lead for India at Palladium.

“But contrary to this understanding, there is in fact huge potential for businesses in providing affordable services and products that support the inclusion of women and the poor, and that align with environmental concerns. And if the economy is not inclusive and doesn’t take care of the environment, eventually these will become problems for businesses and threat to their growth as well, the stakeholders need to work towards mitigating this together,” Patjoshi adds.

The barriers to collaboration in impact investing are not insurmountable.

“By talking with a lot of different stakeholders and trying to understand their various perspectives, it is possible to create change in a way that works for everyone,” Gommans argues. Incentives of the government, businesses and investors can be realigned in a way that brings them together to work towards the same goals, and in this way maximises the value of investments.

The learning brief Investments and technical assistance together can strengthen India’s march to achieve SDGs, which is based on the UK government-funded study, dives deeper into recommendations on how to ensure that money invested makes a meaningful impact and helps the country achieve the SDGs. It considers key barriers such as incorrect risk perceptions, lack of effective impact finance instruments, and poor data and evidence on impact investments.

The brief also provides recommendations for governments and donors, the private sector and financial institutions, including on how to combine technical assistance with impact investing, using a systems change approach to maximising impact.

Download the report and contact for more information.