Arowana Impact Capital

COVID-19 and Impact Investing:
Embracing the ‘New Normal’

The coronavirus disease 2019 (COVID-19) pandemic, the greatest challenge the world has faced since World War Two, has turned the world upside down. To stop its spread locally and globally, countries all over the world have imposed varying degrees of lockdown activities, together with modified socialisation practices aimed at reducing virus transmission risks. It has indeed changed the way the people do things, creating what has now been termed the “new normal.”

This “new normal” has likewise affected economic activity globally, presenting unique challenges that businesses have had to work around. While small enterprises have been most affected – struggling to survive during government-imposed lockdowns – even the big, established ones have been forced to adjust. Of the companies included in the Fortune 1000, 94% are also experiencing operational disruptions because of COVID-19.

This means that impact investors – including their portfolio companies – are also facing similar difficulties as other businesses and companies. The Bridgespan Group, a leading social impact consultant and advisor to non-profits and NGOs, philanthropists, and investors, has said that in these uncertain times, “they … are facing tough decisions about short-term responses and longer-term effects.”

The fact is that everybody should start buckling down, as the situation is not expected to end anytime soon; a University of Minnesota study, published in May 2020, mentions that, “we must be prepared for at least another 18 to 24 months of significant COVID-19 activity.” This means it can no longer be business as usual, and that we must embrace this “new normal” as the new reality.

Photo from the Department of Transportation Philippines

Impact Investing in the New Normal

Before the COVID-19 pandemic, the impact investing landscape was already showing vital progress over the years – albeit still falling short of targets. The United Nation’s (UN) Sustainable Development Goals (SDGs) for example, since their launch in 2015, were already USD$3 trillion behind per annum prior to the pandemic. “What this means is that we are nowhere near – and probably never were – completing our targets by 2030,” explains Arthur Wood in an article in the Global Geneva, a public interest global journalism publication.

These figures, however, should not be a source of discouragement. If anything, this pandemic calls for more urgent action in order to sustain the progress that has already been made, either by supporting the SDGs or facilitating COVID-19-related impact investments.

For instance, several impact investing networks recently launched the Response, Recovery, and Resilience Investment Coalition (R3 Coalition), to streamline impact investing efforts aimed at the social and economic consequences of the pandemic, such as healthcare and financial services. The R3 Coalition is managed by the Global Impact Investing Network (GIIN), and supported by various foundations, such as the David and Lucille Packard Foundation, Ford Foundation, John D. and Catherine T. MacArthur Foundation, Open Society Foundations, Rockefeller Foundation, and Sorenson Impact Foundation.

GIIN CEO Amit Bouri has emphasized that the current pandemic “underscores the need for bigger and better collaboration,” as impact investing is “more important than ever,” and called on impact investors to “lean into the moment.” Amit also points out that, “this crisis will have a profound impact on economic development generally, and specifically how we think about the difference between business and investing in society and the planet.”

The current situation therefore presents a significant opportunity to drive major changes in the investment landscape. According to Ronald Cohen, Chairman of the Global Steering Group for Impact Investment, should assets be invested in activities minimising harm and generating impact, this movement would be transformative.

The more obvious course now is to aim investments towards COVID-19 responses that generate impact. The Bridgespan Group offers three ways to help investors safeguard the impact of their portfolios and investments during this new normal:

  1. Provide portfolio companies with frequent, honest communication. It’s the portfolio companies that ultimately will deliver – or struggle with – financial and impact objectives. Communication with portfolio companies should be prioritised.
  2. Focus on people first, especially the most vulnerable. Ensure that portfolio companies are taking effective health and safety measures for their leadership, staff, and customers and clients.
  3. Double down on impact-management advice and support. Elevate management advice and hands-on tactics to help portfolio companies through the crisis, as this will put them to the test. 
Photo from Rappler
 

Recover Amidst the Crisis

Notably, UN Secretary-General António Guterres said that “the current crisis is an unprecedented wake-up call. We need to turn the recovery into a real opportunity to do things right for the future.” The period of recovery presents an opportunity for economies to create more sustainable, resilient, and inclusive societies. As the plan for a post-pandemic recovery starts, the UN Secretary-General proposes six climate actions aimed towards healthier economies:

  1. The huge amounts of money to be spent on recovery from the coronavirus must deliver new jobs and businesses through a clean, green transition.
  2. Where taxpayers’ money is used to rescue businesses, it must be tied to achieving green jobs and sustainable growth.
  3. Fiscal firepower must drive a shift from the grey to green economy, empowering societies and people to be more resilient.
  4. Public funds should be used to invest in the future, not the past, and flow to sustainable sectors and projects that help the environment and the climate. Fossil fuel subsidies must end, and polluters must start paying for their pollution.
  5. Climate risks and opportunities must be incorporated into the financial system as well as all aspects of public policy making and infrastructure.
  6. All need to work together as an international community. 

As the world continues to face its greatest challenge since the Second World War, countries and societies are being called to unite their efforts once again to overcome – and eventually, rebuild and restart – what the COVID-19 pandemic has disrupted.

While our current “war” is with an invisible enemy, societies will have to respond in the same way as those during the Second World War did. “Wherever we can, however we can, we must meet this unprecedented challenge as generations of business leaders have before us,” asserts Kenneth Chenault, chairman and managing director of General Catalyst, and Rachel Romer Calson, chief executive and co-founder of Guild Education.

And because the work of rebuilding and restructuring the economy – and the way businesses do things under the “new normal” – is now an urgent global undertaking, everyone has, in one way or another, become impact investors. Once investors have seen the benefits of greater cooperation, we can then slowly begin to solve this unprecedented challenge of economic collapse brought about by the COVID-19 pandemic.

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