Photo Credit: Markus Winkler
When the Global Impact Investing Network (GIIN) conducted their 10th annual survey in February of 2020, the world was on the precipice of a global pandemic, the consequences of which are still unfolding. In April, GIIN released additional survey questions on how COVID-19 might impact future allocations and risk assessments, revealing that despite significant uncertainty, investors have maintained their positive outlook.
Impact investment provides capital to often ignored sectors such as sustainable agriculture, renewable energy, conservation, and microfinance. Those surveyed by GIIN this year represent ~USD 404 billion of impact investing assets across the world and included Palladium's capital advisory team (formerly Enclude, a founding member of GIIN).
Despite the economic implications of COVID-19, 57 percent of survey respondents reported that they are ‘unlikely’ to change their plans to commit capital to impact investment in 2020. Another 15% responded that they are ‘likely’ to commit more capital in 2020 than initially planned.
Palladium's Preeth Gowdar has seen a shift in how impact investors are investing in 2020. “Many private sector investors are being a bit more conservative in terms of deploying capital,” he observes. “Are they pulling back from the market in a huge way? No. But at the same time, a lot of investors are pressing ‘pause’ on what they’re doing, and in some cases they are markedly re-focusing on near-term COVID-19 relief rather than business-as-usual impact investing.”
Gowdar describes an atmosphere of tentative growth and while deals are still closing, many investors are choosing to focus on funds or companies they already know or have worked with in the past “Many teams are tentative about making brand new investments in things they can’t easily get to know. They can’t fly-out to spend substantial time with the people or operations that they would invest in. Investors are hesitant to buy into something new just based on video calls.”
He adds “As intermediaries we are working to help investors explore alternative ways to do due diligence and keep capital flowing—for example, sharing due diligence results between co-investors. Innovative approaches to due diligence will serve the market and the planet in the future. Even when travel resumes, we can all think differently about what is most important to do in person, and what is not.”
This is in line with the findings of a new GIIN survey conducted in July, on how the impact investing market is practicing due diligence in the context of COVID-19. Seventy percent of respondents reported that they were planning on deploying capital to investees already in their portfolio, but 52 percent cited challenges in their ability to conduct due diligence quickly.
Impact Investing is building resilience
A vast majority of respondents (69 percent) to the annual survey described the impact investment market as ‘growing steadily’. Combined with the 88 percent of respondents reporting that they had met or exceeded their financial expectations, there’s an indication that the industry’s improving performance over the past ten years has motivated investors and inspired further growth in the market.
Nonetheless, Gowdar notes that there’s room to grow and COVID-19 is exposing those areas. “Impact investing is a powerful tool to rebuild the world in a better and more sustainable way,” he explains. “As governments and donors wind-down emergency recovery efforts, it may be up to impact investing to build long-term resilience and sustainability outside of short-term donor funding and subsidies.”
According to GIIN’s survey results, further development of the market is based firmly in investor motivations, and the top three motivations investors reported were based on making an impact. Nearly all respondents reported that ‘impact is central to their mission’ and ‘their commitment as responsible investors’ are ‘very important motivators.’
GIIN Co-Founder and CEO, Amit Bouri, echoed this sentiment and shared his hopes for impact investing’s role in rebuilding the economy in a statement, saying: “The global impact investing community can help rebuild into a more inclusive, more resilient, and more sustainable future. We can shape a recovery that improves the lot of all the world’s citizens. We can lead the way toward a transformed financial system that honours the role of every stakeholder – from workers to the planet itself.”
COVID-19 exposed many broken systems, including global food security, healthcare technology, and more, but according to Gowdar, now is the time for impact investors to act to improve upon those systems.
“There’s an opportunity now to make the world better - to invest in food supply chains, healthcare and financial services, and make them truly localized so that they’re not dependent on long, disruptable supply chains. When the next crisis happens, we’ll be prepared.”
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