N’Gunu Tiny, Founder and Executive Chairman of the Emerald Group on the future of impact investment during and after the pandemic.
How much of our world has COVID-19 really changed? With the pandemic ongoing, a global death toll of more than three million and enormous economic challenges facing the world, its impact is unprecedented.
While we continue to battle collectively against the virus, for the impact investment world COVID-19 has acted as a driver for change. Traditionally, impact investment stayed firmly with institutional investors and high net worth individuals. Now that it’s accessible for people who want their money to make positive changes through vehicles such as listed impact equity funds, it’s continuing to emerge as one of the great hopes for the future.
How this time of crisis has affected the future of impact investment
Impact investment is undoubtedly growing as a direct response to the pandemic. We see this through the surge of media headlines touting green deals and funding from around the world, particularly as we head towards the UK-based G7 climate summit in June. Policymakers appear to show more direction than ever before in terms of recognition of the need to channel funds into sustainable post-pandemic recovery plans.
Before the pandemic hit in early 2020, global leaders were already supportive of impact investment as a way to meet the United Nation’s Sustainable Development Goals (SDGs). At that time, there was a funding gap of about $2.5 trillion. Then the crisis hit, which begs the question as to whether impact investment is is till the answer we need.
The Global Impact Investing Network (GIIN) is dedicated to increasing the amount of impact investment around the world, and to making sure funding is used as effectively as possible. GIIN launched in 2009 with just 20 members, and today boasts a global network of more than 330 organisations from 48 separate nations. As such, the network is well placed to understand where impact investment is heading.
And according to the CEO and founder of GIIN, impact investment must increase substantially if the SDGs are to be met by 2030. This is the ambitious goal laid out by global leaders.
Impact investing has come a long way
The early days of impact investment felt as if it was a totally radical idea – the notion of investing money to specifically target the kinds of issues identified in the SDGs seemed revolutionary. But in 2021, the very scale of the market and the size of the impact investment sector shows clearly that there is enormous potential here.
I think that, broadly speaking, there is a constantly evolving and increasing understanding that in order to even contemplate a realistically sustainable future, then money must be invested in completely different ways.
People everywhere are experiencing the very real-life consequences of climate change, particularly in the hardest hit developing countries. And the pandemic has shone a stark spotlight on the inequality that still rages between the rich nations and developing countries, and also within the countries themselves.
And as the vaccine rollouts continue to ramp up in countries like the US, the UK and across Europe, we can see that developing nations lag far behind. New variants of the virus are presenting even more challenges to countries like India, with Governments that have failed to manage the spread of the virus. So, while there was already growing recognition from investors, organisations, financial firms and Governments that sustainable investment must be a priority, the pandemic has really brought this home.
Impact investing is going mainstream at a global level
Impact investing as a descriptor wasn’t conceived before around 2008. At the time, of course, values-driven investment or sustainable investing were terms that were starting to be used, it wasn’t until GIIN launched that the umbrella term of impact investing began to unite countries and strategies.
GIIN was able to bring together community developments in the US, social impact investing in the UK and micro-financing in developing countries. And since then emerging markets have become ever more vital in the growth of the impact investment market. India is now widely seen as a pioneer in developing workable and robust impact investing strategies. Similarly, in Kenya and further into East Africa, there are a number of thriving communities of investors and entrepreneurs leading the way.
Pre-pandemic, global progress towards meeting the UN’s all-important SDGs was inconsistent. Some of the progress was visible in some areas. For example, there was progress towards including women in business leadership roles, more children had access to formal education. However, even at the same time as these gains, the threat of climate change and the growth of food insecurity were rising.
And now, midway through 2021 and into month 15 of the global pandemic, there are a raft of enormous extra challenges facing the world. These challenges do risk setting back the progress already made towards the SDGs, as well as presenting new barriers towards equality and economic sustainability.
Acceleration of important sustainability trends
However, while the crisis of COVID-19 has slowed down some moves towards sustainability, it has also sped up some important trends. For example, traditional financial institutions and banks have become involved much faster than they would otherwise have done so.
While a few institutions such as JP Morgan have been showing interest in impact investing for years, today we can see evidence of a sustainable agenda from every major bank around the world. Furthermore, interest has spread to significant institutional investors, such as insurance companies and pensions funds. This is a profoundly important sea change in attitudes towards impact investing and just how much the world needs it.
Having the involvement of mainstream banks and institutions should be celebrated as the positive sign that it is for impact investing on the kind of scale that’s necessary to implement true change. Whether the impact of the pandemic on impact investment proves to be the tipping point remains to be seen. But it is an active and encouraging shift in the right direction, and it has taken a crisis for this to happen.
This is echoed by a recent statement from the UN Secretary General Antonio Guterres said that everything the world does during and following this crisis… “must be with a strong focus on building more equal, inclusive and sustainable economies and societies that are more resilient in the face of pandemics, climate change and the many other global challenges we face.”
To ward off the next crisis, we need to utilise impact investment as our most useful tool.