Veteran impact investor Sylvia Wisniwski says the market is evolving amid the turbulent geopolitical environment. Michael Hurley reports
With the world "at a critical juncture", movements of the geopolitical tectonic plates are transforming where and how investors allocate for impact, says Sylvia Wisniwski, co-founder, CEO and managing director of emerging markets impact investor Finance in Motion.
Finance in Motion, an emerging market impact specialist, manages some €4 billion of assets. It claims to have deployed about €9.5 billion in capital since its launch in 2009, and has worked with 221 financial institution 'partners' including Deutsche Bank, Santander and Citibank.
Its existing funds include the Green for Growth Fund, a €1.1 billion strategy that invests in renewable energy, and energy and resource efficiency, in Southeast Europe, Eastern Europe, Caucasus, Middle East, and Africa, with other strategies focusing on themes such as forestry and financing small businesses.
Wisniwski is a leader in the impact space, with more than 30 years of experience in this or related work in international development.
Speaking to Environmental Finance at the firm's headquarters in Frankfurt, she reflects on how the market is evolving, in response to cuts to aid budgets which are leaving blended finance structures seeking bigger allocations from pension funds and insurers. At the same time, 'energy security' is rising up the agenda, diverting much-needed investment from environmental and social projects in emerging markets.
Aid cuts leave deep wounds
Last year, US President Donald Trump announced an immediate freeze on all US foreign aid.
Cuts from Germany, France, Canada and the UK were compounded by US Aid cuts, causing a projected 17% fall from 2024, according to the Organization for Economic Cooperation and Development, leaving multilateral institutions who have been the driving force behind swathes of impact projects severely underfunded.
"Blended finance is looking to reach much bigger scale, much earlier"
Asked what effect this has had on impact investments, Wisniwski says "it's not a straightforward answer".
"If you read the Global Impact Investing Network's recent statements, they see this as an opportunity [for impact investing] ... there is less aid, but the social and environmental challenges remain.
"However, I would be cautious to say impact investing can be a substitute for the gap left, for example, by US Aid being shut down."
Impact investors seeking market-rate financial returns perform a different function to those providing grant funding and therefore require different types of projects or those later in development, she explains.
The cuts have harmed investment structures that 'blend' public and private finance, with "blended finance now also under pressure".
"With budgets decreasing, we see that blended finance is looking to reach much bigger scale, much earlier," Wisniwski says.
"That then means that you want to do more impact with less catalytic capital, so you need to play more according to what the private investors ask for, and you need to deploy these larger pools of capital.
"You cannot deploy this in just any asset strategy and in any country: if you raise a €1 billion fund, you need to target the countries that can absorb this."
This tends to mean emerging markets-focused impact managers like Finance in Motion are drawn more to infrastructure projects such as wind farms, she explains.
"On one side, it puts good pressure on everyone to say, 'with less catalytic capital, we need to achieve more' – that's positive, and we see many large asset owners taking an interest now because they better understand the blending process.
"At the same time, it reduces the spectrum [of projects and countries] where you can invest," she laments.
"I would expect that we will see also the first [major] impact investors coming from emerging markets"
Meanwhile, some observers argue that, for the impact market to reach sufficient scale and draw the biggest investors, it should "give up" blended finance.
"This is still difficult when we talk about emerging markets, I must say. Blended finance will still be relevant for years to come."
The involvement of large asset owners including Allianz and Zurich in such structures is cause for optimism, Wisniwski argues.
Recent initiatives include Allianz Global Investors launching an emerging markets private credit fund that uses a blended finance structure, after raising more than two-thirds of its $1 billion target.
Wisniwski also flags Brazil's Eco Invest programme, launched in 2024 to attract foreign capital, strengthen local capital markets, and reduce currency risk for climate finance investments.
Benefits of the approach promoted by the country's government include the use of an auction process, which means the process for fundraising is "very quick", she says.
Family offices
Pension funds and insurers represent an important source of capital for Finance in Motion's funds.
However, they are tightly regulated and increasing price pressures mean they tend to demand lower fees – which is sometimes hard to square with the extra cost associated with impact projects such as impact due diligence and reporting, Wisniwski observes.
Set against this is the increasing involvement of family offices, which "have much more flexibility" including relating to the size of investments they can make and where these can be made.
This is a sign of the "broadening" impact market, which is fuelling Wisniwski's optimism about the years to come.
Transition finance is "a hot topic" and Finance in Motion wants to "accompany our value chains in their transition"
"We will see other players coming in, other investors from other regions. I would expect that we will see also the first [major] impact investors coming from emerging markets.
"I'm very optimistic the investor ecosystem will broaden."
Asked what impact opportunities excite her, Wisniwski says climate mitigation and adaptation projects remain "an enormously big area" of focus.
"We've seen how, over the last few years, 'energy independence' has become increasingly important, to have control of energy sources – renewables, climate adaptation and resilient agriculture projects play into this.
"We are also looking at decarbonisation strategies, including how to [store] carbon and at the same time generate returns. We're active in the timber space, for example, and we combine this with novel instruments like carbon credits.
"The last COP in Belem contributed a lot to provide more stability to the carbon credit system. The rules are much clearer and we see enormous opportunities there to do more," she says.
The UN climate conference COP30 agreements included the end of the Clean Development Mechanism, a carbon crediting system used since 2001, thereby clarifying that the market should instead use the Paris Agreement's Article 6.4 mechanism.
Targeting €1 billion for climate transition
Finance in Motion is targeting transition finance as an expansion of the impact investor's climate investment theme, partly to attract large asset owners that require large investment opportunities, Wisniwski reveals.
It aims to raise €1 billion ($1.2 billion) for a fund to invest in companies in sectors with high energy consumption, such as food production, metals and glass manufacturing.
It will prioritise working with these companies to decarbonise their operations, Wisniwski says, adding that it wants to "accompany our value chains in their transition".
The fund will use 'blended finance', combining catalytic capital from foundations or public bodies to attract private financial institutions including pension funds and insurers.
Transition finance is "a hot topic" and enables Finance in Motion to target investments globally that tie into its thesis of emerging market impact, she explains.
SFDR 2.0 – an opportunity for impact?
Wisniwski is less optimistic about the potential impact of a planned overhaul of the EU's Sustainable Finance Disclosure Regulation (SFDR).
"It's not helpful to create a market if you constantly change the rules of the game –particularly if the changes are so radical," she says.
The proposed overhaul would see the current Articles 6, 8 and 9 replaced with those that denote funds targeting objectives varying from 'ESG basics', 'sustainable' and 'transition' investments.
"Recognition should be given to the practice of impact investing," the Commission proposal says, effectively suggesting it should be a sub-category within those for 'sustainable' and 'transition' funds. But Wisniwski is not enthused by the prospect of the creation of an 'impact' label.
Asked whether recognising impact investing in the SFDR for the first time will be positive for the market, she says "this is still to be seen", pointing to the need to wait for more detail to come when so-called 'Level 2' regulation is published to flesh out what has already been proposed.
"As we also know from the Omnibus last year ... even the 'Level 1' regulation [to adopt the proposals] is not yet approved," she adds, citing the fraught process that led to widespread cuts to EU corporate reporting and due diligence rules last year.
"What do we do with our current products [when the EU overhauls the SFDR]? It's not only creating operational burden and red tape, but it's also confusing"
She is more complimentary of the proposal to establish a category for transition finance, however.
"We like this a lot because impact investing has sometimes been seen as a niche, platinum standard ... with transition finance we bring it closer to reality that we still have a lot of 'brown' [polluting] sectors.
"You generate valuable impact in making companies or sectors less 'brown'.
"I found this a little arrogant, when people said otherwise," she adds, dismissing critics who argue funds targeting positive impact should not invest in companies that are highly polluting.
For Wisniwski, this calls to mind earlier wrangling surrounding the EU's taxonomy of sustainable activities – the centrepiece of the bloc's sustainable finance framework.
The Commission included some nuclear and natural gas energy generation activities in its taxonomy, prompting fierce criticism from many sustainable finance professionals.
Nuclear and gas were initially deemed too risky environmentally to include, but observers said industry lobbying was influential in changing the outcome – a process Wisniwski says resonates with the current debate about how investments in defence companies square with sustainability and impact objectives.
"Up to now, it was clear that defence is excluded, and mining is excluded [from such strategies] but this is also starting to shift – even in the world of development finance, with multilateral development banks running raw material funds and the European Investment Bank creating a unit that deals with defence investments."
Finance in Motion excludes defence-related investments, she notes.
"As a citizen, I see the need for investment in defence. When I was young, I participated in the protests [in the 1980s] against stationing the Pershings [nuclear-capable missiles systems] in Germany.
"Now, under the new reality that we're facing with Ukraine invaded by Russia ... I see what could also happen to wider Europe.
"When I speak as an impact investor, I still feel we need to be very careful what we're touching and what we're not touching.
"For us, investing in the weapons sector or directly investing into mining is not something we would do."
Read also: