By: Staff Writer
February 24, Colombo (LNW): While Sri Lanka courts foreign investors to stabilise its fragile economy, insights from Japan’s impact investment evolution highlight both opportunity and caution.
Speaking in Colombo, Masataka Uo of the Global Steering Group for Impact Investment emphasised that capital markets must evolve beyond profit maximisation. His call to activate the “invisible heart” alongside Adam Smith’s invisible hand reflects a broader ideological shift redefining investor responsibility.
Japan’s market expansion from $ 200 million in 2016 to $ 115 billion in 2024 signals investor appetite for purpose-driven assets. Yet this transformation unfolded against a backdrop of deep structural strain: an ageing society, escalating living costs, and mounting fiscal deficits. Facing limited government capacity to solve social challenges alone, Japan turned to private capital mobilisation.
For Sri Lanka, currently constrained by debt restructuring and fiscal consolidation, this model holds appeal. Traditional development financing is narrowing, and concessional funds come with policy conditions. Impact investing presents an alternative pathway blending financial returns with measurable social benefit.
But Japan’s experience also reveals systemic prerequisites. When GSG Impact Japan began in 2014, awareness of impact investing was minimal. Even ESG frameworks lacked traction. Progress required a decade of coordinated engagement among regulators, banks, institutional investors, and development agencies.
Legislative reform in 2017 unlocked dormant financial assets for social deployment. Collaboration with Japan’s Financial Services Agency created a structured study group of over 100 institutions, eventually formalised into an impact consortium. Additionally, regulatory revisions at Japan International Cooperation Agency facilitated greater private capital participation in overseas development initiatives.
The key takeaway for Sri Lanka is institutional alignment. Without credible measurement standards, transparent reporting frameworks, and policy incentives, impact capital risks remaining rhetorical rather than transformative.
Moreover, Uo warned that asset growth alone is insufficient. Despite rapid capital mobilisation, Japan has yet to see proportional social innovation in everyday life. This gap underscores the challenge of translating finance into grassroots change.
For Sri Lanka, impact investing could stimulate entrepreneurship, green infrastructure, and inclusive growth. Yet success depends on building trust among investors, regulators, and communities. Weak governance or inconsistent policy could deter long-term commitments.
Japan’s journey illustrates that impact investing thrives not merely on capital supply, but on ecosystem coherence. If Sri Lanka can synchronise government policy, financial institutions, and civil society engagement, it may harness impact finance as a strategic lever for recovery.
Otherwise, the promise of compassionate capitalism may remain aspirational rather than transformational.