Impact Investing in Latin America

Investment firms continue to show a rising interest in impact, creating an opportunity for capital to contribute to the transition to renewable energy. The World Economic Forum states that limited partners are increasingly allocating capital specifically for impact, energy transition, and sustainable solutions. In Latin America’s emerging markets, investors see opportunities for both impact and returns. Impact investing in Latin America grew more than tenfold in a decade, reaching $25 billion in 2022. Countries like Mexico, Brazil, Colombia, and Chile are at the forefront with projects in agriculture tech, climate tech, and public health, to name a few. 

For decades, Latin America has made investors nervous. Political instability, hyperinflation, commodity collapse, and natural disasters are a few of the reasons why investors see high levels of risk. Furthermore, many countries in the region offer inconsistent regulatory frameworks, high financing costs, and poor infrastructure. Despite these challenges, many look to the area and see opportunity.

One company that navigated these challenges and drew attention from investors is Bright, a solar provider operating in Mexico that works to make it easier for homes and businesses to buy and install rooftop solar. In conversation with Bright CEO Jonah Greenberg, he described how the company serves as a connector, providing financing and partnering with installers to reduce friction in the solar adaptation process. Greenberg says Mexico has plentiful sun, high electricity rates, and lower labor costs, making it an excellent opportunity for solar. Investors agreed, and in 2023, the company raised $32 million in its Series C funding round. Leonardo DiCaprio, First Round Capital, Y Combinator, and the IFU are among its investors. Bright is now Mexico’s number 1 financier of distributed solar and is eying expansion into the commercial sector.

Since 2018, nearly $16.8 billion in private capital has been mobilized in Latin America and the Caribbean. These funds will generate 3,000 Megawatts of renewable energy capacity, showing how investment in companies like Bright continues to grow. As impact investing continues to ramp up, it’s essential to understand what is and what is not an investment worthy of the title. The Global Impact Investment Network (GIIN) says impact investing is marked by an intentional desire to contribute to measurable social and environmental benefits.

Companies that fit this description are what Justin Schwartz looks for. Schwartz is a managing partner at IMPAQTO, an Ecuadorian company that works to support Latin American entrepreneurs in the Andean region. IMPAQTO Capital, the company’s investment arm, is a fund that uses flexible capital to support the growth of innovative, early-stage companies that address social and environmental challenges. Schwartz emphasizes that the fund looks for companies that benefit vulnerable communities with impact goals already set into their business model. The fund’s investment thesis doesn’t focus on positively impacting middle/upper-class communities.

IMPAQTO Capital operates in what Schwartz describes as “the missing middle,” which refers to the gap in access to capital for small to medium-sized companies and early-stage startups. These companies tend to earn between $200,000 and $3 million in annual revenue, a range that is too big for microfinance but too small to access institutional equity capital or bank loans at favorable terms.

Impact investment is not charity; Schwartz emphasized that impact investing is still investing. The company expects to facilitate measurable impact and positive financial returns with each venture. Scaling impact and returns, Schwartz says, go hand in hand. If the effect is not increasing, returns are likely not growing, and vice versa. Some funds intentionally sacrifice returns to prioritize impact, but Schwartz doesn’t believe there needs to be a trade-off. There is an alignment in impact and financial objectives.

Investment in Latin America is often inherently tied to impact. Many business opportunities in the region principally address a social or environmental issue. Whether it’s bringing the internet to rural communities or finding more affordable energy solutions for businesses, investors looking to get involved in impactful social and environmental work see Latin America as a region of ample opportunities.