Generating Social and Environmental Impact in Latin America

Since coming to the fore in the late 2000s, impact investing has unlocked the potential of countless social entrepreneurs around the world. Despite this impressive growth, many enterprises across Latin America still lack access to the financing they need to combat some of the greatest challenges they face: poverty, climate change, and social inequity. During a plenary session at Confluence’s 11th Annual Practitioners’ Gathering, we discussed how social entrepreneurs are stepping up to address these colliding crises, and how we, as investors, can ensure they get the capital and resources they need to do so.

Raúl Pomares, Founder and Managing Director, Sonen Capital, started off by framing the importance of this issue and shared a video that put the potential scale of impact investing in Latin America into perspective.

Latin America: Diverse challenges in a diverse region

Raúl then moderated a discussion between Natalia Arango, Executive Director of Fondo Acción—a Colombian conservation trust that uses innovative mechanisms to mobilize international and domestic finance for climate action—and myself, Katie Naeve, Director of Impact and Partnerships at Root Capital, a nonprofit that uses blended capital to provide credit and capacity-building to small and growing agricultural businesses around the world.

While the challenges facing Latin America are as diverse and dynamic as its landscape, we began by sharing some common themes that affect the region’s 650 million residents—one-third of whom live in poverty.

Natural habitat degradation and climate change are accelerating species extinction, water depletion, and soil degradation across the region. These challenges impact local communities as food insecurity and water scarcity rise. The 25% of Latin American communities that depend on agriculture feel these impacts acutely through erratic rainfall, increased rates of crop disease, and disasters like the recent hurricanes in Central America.

These problems compound (and are compounded by) inequities between different groups. Economies in Latin America are particularly unbalanced for women, who earn fewer than 70 cents on the dollar and lack representation in organizational leadership. Women-led, mid-sized businesses in the region face an estimated financing gap of $93 billion. Similar barriers exist for indigenous groups and those living in rural areas.

These inequities are particularly clear when we look at limited access to quality education and training. The lack of educational opportunities hurts children and stymies enterprise leaders seeking to strengthen business skills, such as financial management and governance, so they can contribute more to local economies.

But Latin America is more than the sum of its challenges. In fact, when we invest in local community-led solutions, the promise of the region is boundless.

Building a greener future for the next generation

During the panel, Natalia explained how Fondo Acción views investments in education and community-led solutions to the climate crisis as key to preserving a better future for children. Local entrepreneurs are already developing and implementing green growth solutions: climate-smart agriculture, carbon sequestration, clean energy, responsible tourism, and so much more. By resourcing these efforts, we can ensure they’re having a deep impact in Latin America and on the air we all breathe.

Specifically, Fondo Acción focuses on nature- and market-based solutions that bring together unlikely partners to collaborate for ecosystem preservation. Take carbon markets, for example:  multinational corporations can offset their greenhouse-gas emissions by equipping indigenous communities with the resources they need to preserve their ancestral land. These types of innovative solutions are abundant in Latin America, but require financing to make them a reality.

Meanwhile, according to Natalia, new tools promise to make high-quality education a reality for millions. Access to electricity and digital schooling are unlocking new doors for young people across Latin America, and by accelerating these efforts, we can close the education gap.

In our discussion, I spoke about the power of agricultural businesses and rural women to confront the challenges facing farming families. The World Bank found that growth in the agricultural sector is up to four times more effective at reducing poverty than growth in other sectors. But small and growing agricultural businesses face a $170 billion financing gap. Root Capital works to close this gap so that local businesses can access premium markets, pay higher prices to farmers, boost farm productivity, and support the economic empowerment of women.

That last part is critical. Research shows that if all countries in Latin America had rates of gender parity as high as the best-performing country in the region, GDP would increase $1.1 trillion by 2025 (14% higher than current projections). Women are already stepping up in Latin America—between 2000 and 2010, women’s increased participation in the labor force decreased extreme poverty by 30%. But to maximize growth in the region, we need to ensure that investments are targeted to the unique needs of women and girls. Accordingly, Root Capital recently launched an initiative to mobilize $25 million to women-led and gender-inclusive businesses across Mexico and Central America while building a stronger approach to gender-lens investing across the sector.