WORLD ECONOMIC JOURNAL discretionary spending , and often resilient during economic downturns , making it a sound business strategy in uncertain times . A 2019 GIIN study supports this , with 87 % of FEM investors seeking risk-adjusted , market-returns surveyed found their “ investments meeting or exceeding financial performance expectations .”
At Sturgeon , we view financial and impact returns as complementary and mutually reinforcing , rather than contradictory and competing priorities . This aligns with a strategy coined Impact Alpha , recognising that the integration of impact objectives into the investment process can add value across our portfolio , and ultimately enhance overall investment performance . Impact considerations can provide unique insights not yet valued by the broader market and promote additional rigour in operations , stakeholder engagement and risk management . This impact approach empowers companies to better understand their customers , design more effective businesses , build authentic brands and attract new talent and capital .
From a macroeconomic perspective , FEMs are typically characterised by capital scarcity , combined with higher economic and demographic growth , and an emerging consumer class . This dynamic presents an attractive opportunity for investors to capitalise on economic development while being rewarded for leveraging their capital — the scarce resource . Capital gaps , both in volume and type , are particularly pronounced in frontier markets , where investment opportunities often lack track records . FEM-focused impact investors , like Sturgeon Capital , play a crucial role in bridging this gap by funding underdeveloped financial markets and acting as catalysts for attracting further investments from mainstream investors .
Although research in this young market segment is still limited and evolving , and not every investment will guarantee high returns , many believe that these markets have the potential to outperform investments in more developed economies over the long term .
The impact investing sector is full of compelling success stories , as witnessed by Sturgeon Capital ' s portfolio . These narratives highlight how impact investors strategically deploy their capital , showcase global entrepreneurs with innovative ideas , and illustrate how end consumers and other stakeholders have benefitted from novel solutions .
Emerging market-focused impact investors ’ asset allocations by geographic region
Emerging market-focused impact investors defined as allocating at least 75 % of their impact AUM to emerging markets . This data excludes five outlier organisations based on AUM . Respondents may allocate to multiple regions . Source : GIIN 2023 survey
Emerging market-focused impact investors ’ asset allocations by sector
2
At its core , impact investing challenges the traditional notion that financial returns and social and / or environmental impact are incompatible – impact investors seek a financial return on capital , albeit across a spectrum that ranges from below-market-rate to risk-adjusted market rate . An increasing number of asset owners and investors are recognizing the advantages of incorporating impact considerations , moving away from the trade-off mindset regarding investment performance and purpose-driven goals . In fact , according to the 2023 GIINSight Series , 74 % of impact investors target risk-adjusted market-rate returns . At the same time , many companies are offering products and services where positive value creation is intrinsic to the business model . When such businesses grow and achieve commercial success , so does their positive impact . Studies such as the 2021 Net Impact Report by the Upright Project , conclude that impact is definitely not at odds with profit .
Emerging market-focused impact investors defined as allocating at least 75 % of their impact AUM to emerging markets . This data excludes five outlier organisations based on AUM . Respondents may allocate to multiple regions . Other sectors include waste recycling , social tourism , aquaculture and cross-cutting lenses that apply across sectors , such as quality jobs , circular economy and climate solutions . Source : GIIN 2023 survey
43