This op-ed was originally published on ImpactAlpha.
In the early years of impact investing, trailblazers demonstrated pathways to invest while embracing risk and financing markets ignored by traditional capital. Yet, fifteen years after the field’s founding, most impact investors are not deploying the amounts of catalytic capital required to move the needle on financing for sustainable development.
J.P. Morgan and the Rockefeller Foundation launched impact investing 15 years ago as a new “asset class” designed to generate positive social and environmental impact while taking financial risks and making returns. Impact investors offered agile structuring, patient capital and flexible terms to secure impact-aligned deal pipelines.
The impact investing field played a catalytic role by absorbing risks and remaining open to accepting lower returns in exchange for achieving impact outcomes and building markets for mainstream investors. With the rise of blended finance five years later, impact investors were viewed as a key catalytic capital source in blended structures to balance risk-adjusted returns.
Since the field’s founding, it has grown to include more investors seeking double bottom-line returns, proving the case that impact and returns are not mutually exclusive. However, in our current climate of diminished foreign aid and increased opportunity to direct private investment to developing markets, there’s no greater time for impact investors to embrace taking risks.
Instead, it seems most shy away from investing in ways that intentionally mobilize the larger commercial capital required to increase investment flows and rapidly scale up impact outcomes.
The state of play
According to GIIN’s latest annual impact investor survey, more than three-quarters of respondents targeted risk-adjusted, market-rate returns. The remaining investors strategically allocated to concessional flexible returns across the market-rate to capital preservation spectrum. This trend has remained consistent even though demand for catalytic investing with flexible terms continues to rise, especially with the global decline in Official Development Aid.
In the GIIN’s 2024 survey, nearly 70% of respondents agreed that blended finance plays a role in de-risking transactions for impact investors. Yet less than half of respondents had participated in a blended finance deal. Among those who did, the most common strategy was through market-rate investments – allocating 39% of blended finance capital in safer investment tranches and only 13% in subordinated debt and 5% in first-loss capital.
In my work leading Convergence’s Blended Finance Accelerator, I have observed these trends firsthand. Our 2025 State of Blended Finance report found that 65% of all concessional capital ($5.1 billion) was supplied by mainly public sources, including development finance institutions and government agencies. Conversely, impact investors’ annual investments in blended structures over the past three years accounted for just 6% of capital commitments to blended structures (approximately $400 million) and primarily took the form of senior equity and debt positions. More than 80% of these investments were made on commercial terms with minimal participation in concessional roles such as first-loss or subordinated capital.
In short, impact investing in 2025 has largely come to resemble traditional commercial investing in seeking top-quartile returns. More than half of emerging market-focused investors reported challenges balancing financial risk/return expectations alongside impact expectations. They have begun to lean on development finance institutions and multilateral development banks to invest risk capital and take more junior positions, making it safer for impact investors to participate commercially instead of catalytically.
What leadership looks like: Truly catalytic impact investing
Despite the field’s overall reluctance to take catalytic positions, there are bright spots. Known for prioritizing flexible risk and return parameters as well as historically taking catalytic first-loss debt positions, Ceniarth tops the list by number of investments, having participated in 10 blended finance deals (totaling $16.7 million) over the past three years.
In terms of capital deployed, BlueOrchard leads with $46 million invested in blended transactions during the same period, partially allocated in riskier positions such as junior equity and unsecured debt.
Meanwhile, Calvert Impact Capital is recognized for its catalytic structuring and anchor risk-sharing roles. The organization regularly takes subordinated positions to absorb first losses — a move critical for attracting development finance institutions and institutional investors to blended transactions. Its investment in the Off-Grid Energy Access Fund, which mobilizes capital for distributed solar solutions across Sub-Saharan Africa, exemplifies this approach. These actors demonstrate what catalytic impact investing can look like in practice to make blended transactions scalable. More impact investors should embrace this risk-tolerant role.
To reclaim their leadership role, impact investors could offer more out-of-the-box thinking. For example, they could take pooled pari-passu positions with development finance institutions and multilateral development banks, enabling large, risk-intolerant investors like pension funds to invest more in emerging and developing markets. Impact investors could also capture stronger data on additionality, such as their contribution to mobilization plus achieving impact-aligned returns, establishing crucial benchmarks and widening the field’s definition of impact potential.
The field’s pursuit of mainly market-rate returns and increasing stability may be crowding out the commercial capital impact investors need to attract — a critical halo effect not to be underestimated.
Looking toward the next 15 years, impact investors should carve out more space for intentional risk-taking and increase portfolio allocations to highly catalytic positions in blended transactions to rapidly accelerate the original mission and vision of the field.
