On March 20th, ILX, in collaboration with Finnfund, hosted an engaging event in Helsinki to explore the investment opportunities that emerging and frontier markets offer to impact-driven investors. The hybrid event, held both online and in person, attracted a diverse audience of investors, industry experts, and stakeholders committed to sustainable and impactful investment practices.
The seminar featured insightful discussions on the current trends and future prospects of investing in emerging markets. Key themes included the role of private sector investments in driving sustainable development, the opportunities of investing in these markets, the challenges investors face, and the critical role of Development Finance Institutions (DFIs) and Multilateral Development Banks (MDBs) in mitigating risks while enabling impact investments.
You can view the full recording here
Opening Remarks: The Case for Impact Investment
The event started with an introduction by Satu Santala, Managing Director of the Nordic Development Bank (NDF). She emphasised the urgency of impact investing to counteract the worst effects of climate change, not just to preserve nature, but also highlighting that the economic damages from surpassing the 1.5-degree global temperature threshold would be five times higher than the estimated climate finance needed to prevent such an outcome. Satu then elaborated on NDF’s blended finance portfolio, which directly contributes to the UN Sustainable Development Goals (SDGs), particularly in climate action. She underscored the capacity of blended finance in bringing together public, philanthropic, and private capital to drive development and impact-oriented activities. This approach, she noted, is about thinking of risk, return, and impact, with development finance institutions playing a crucial role in enhancing impact capacity.
Development Finance Panel: The Role of DFIs in Emerging Markets
A panel discussion followed, focusing on the role of MDBs and DFIs and their ability to source investment opportunities with risk-adjusted returns and measurable impact. Moderated by Heikki Cantell, General Counsel and Secretary General of the Nordic Investment Bank (NIB), the panel featured Daniel Borrego Cubero, Head of Debt Mobilisation Product Development at the European Bank for Reconstruction and Development (EBRD), and Jaakko Kangasniemi, CEO of Finnfund. The panellists explored how MDBs and DFIs, mandated to promote SDGs, have extensive expertise in financial structuring and impact evaluation. However, they emphasised that projects cannot focus only on impact, but must also be financially viable and manageable in terms of risk.
Daniel highlighted EBRD’s capacity to co-finance projects in a portfolio basis, ILX being their biggest co-financier, and predominantly operating as a debt provider. Meanwhile, Jaakko emphasised Finnfund’s ambition to attract private investors into areas such as digital infrastructure and renewable energy, particularly in Africa. The discussion also touched on EBRD’s experience in mobilising $25 billion through their B-loan program and how ILX serves as an example of the type of partnerships they looking to continue.
The panellists acknowledged that one of the greatest challenges for these institutions is to mobilise institutional investors and private capital, which is crucial for their impact mission. MDBs and DFIs have the necessary local presence, investment pipeline, and due diligence processes, and they also serve as enablers for private partners at various financing stages. They aim to generate profit – not necessarily maximise it – but do so transparently, ensuring robust data-sharing practices while safeguarding confidentiality. They have a long track record of projects, special relationships with the countries of operation, and preferred creditor treatment (PCT) that makes them the perfect partners for long term impact investments that also safeguard reputation.
Pension Fund Panel: Private Sector Perspectives on EM Investments
Shifting the focus to private institutions, another panel delved into the objectives and experiences of pension funds investing in emerging markets. Moderated by Seela Sinsalo, Head of ESG at United Bankers, the panel featured Erkko Ryynänen, CIO of Alternative Investments at OP Asset Management, and Eeva Toivonen, Head of Responsible Investment and Portfolio Manager at Church Pension Fund Finland.
The discussion underscored the critical role of private capital in financing development initiatives and achieving the SDGs. Pension funds invest in emerging markets for diversification across asset classes and geographical locations, as well as the potential for attractive returns. The panellists highlighted investments in microfinance and local currency markets as viable strategies, but they also acknowledged the inherent volatility of these markets. However, they argued that the high growth potential justifies the associated risks, particularly when investment institutions collaborate with partners like Finnfund, which provide expertise and additional resources.
The primary barrier to pension fund investment in emerging markets remains the perception of risk and concerns over whether returns will meet expectations. Despite this, panellists emphasised that the opportunities in these markets are too significant to ignore. They noted that, for successful investments in emerging markets, long-term investment strategies are essential and fund managers need to ensure transparency, provide robust data, and clearly demonstrate the impact achieved through the projects.
Fund Panel: Investing in Emerging Markets Through Structured Funds
The final discussion explored the role of investment funds as vehicles for financing emerging market opportunities. Moderated by Kristiina Karjanlahti, Chief Economist and Head of Business Development and Partnerships at Finnfund, the panel featured Manfred Schepers, CEO of ILX; Hanna Loikkanen, CIO of Finnfund; and Rego Ostonen, Portfolio Manager at OP Asset Management.
Each panellist introduced their respective funds and shed light on their impact investment methodologies. Discussions covered the ILX Funds, the OP Finnfund Global Impact Fund, and the Digital Access Impact Fund, illustrating how different structures can help mobilise private capital and facilitate impact-driven investments in emerging markets. They acknowledged that where to allocate these funds within the asset owners perspective remains a challenge, as well as it is evolving over time. However, increasing transparency and data availability can enable better comparisons between emerging market investments and other private credit asset classes, encouraging institutional investors to have an additional look at this asset class.
Addressing the balance between impact and returns, the panellists emphasised that while returns remain a primary objective, significant progress has been made in measuring and demonstrating the tangible impact of these investments. As the landscape continues to develop, innovative funds such as the ones presented will be key to mobilise private capital toward impactful and sustainable investments in emerging markets.
Conclusion
The event concluded with a reaffirmation of the immense potential that emerging markets hold for impact investors. While challenges still remain, the insights shared by these industry leaders underscored that with the right risk mitigation strategies, innovative finance approaches, and transparent reporting mechanisms, institutional investors can play a pivotal role in driving sustainable development while achieving competitive financial returns.
As the demand for impact investing grows, collaborations between DFIs, MDBs, pension funds, and investment funds will be key to unlocking new opportunities and ensuring that capital flows where it is needed most.