As the COVID-19 pandemic sweeps across the globe, the abrupt near-shutdown of the world’s economy has brought many deep-seated societal issues to the fore.
Healthcare disparities, inadequate living conditions, and unequal access to water and food have all contributed to the devastation caused by the virus, which has infected millions and killed hundreds of thousands worldwide.
In response, many impact investors have pressed for ways to offer help immediately, eager to make a short-term impact on reeling communities.
Investing in Long-Term Impact
As defined by the Global Impact Investing Network (GIIN), impact investments are those “made with the intention to generate positive, measurable social and environmental impact alongside a financial return.” Achieving these dual objectives often entails multilayered efforts and requires an extended time horizon.
Consider the United Nations’ Sustainable Development Goals (SDGs), an ambitious agenda established in 2015 for completion by 2030. A 2019 report produced by the Organisation for Economic Co-operation and Development and the Sustainable Development Solutions Network explains that achieving the SDGs will require broad public and private investment, along with coherent policies and governance frameworks. The report also cites the need for national objectives and benchmarks, along with effective measurement, monitoring, and feedback mechanisms.
Given this kind of complexity, time itself is an essential element, a point echoed by Gita Rao, an MIT Sloan finance faculty member and longtime manager of socially responsible portfolios. “Impact projects involve upfront costs with the benefits often accruing over the long term,” Rao explained in an MIT Sloan School of Management article. “Investors need to be patient.”
Addressing Short-Term Needs
Even if impact investing is traditionally a long-term strategy, the pandemic has underscored the value of nimbleness. Investors must address issues sooner rather than later to deliver short-term impact and prevent complications from spinning out of control.
Many have proven adept in adjusting to the new reality. For example, by mid-March, the World Bank’s International Finance Corporation had pledged $14 billion to expedite financing efforts with an emphasis on trade financing and working capital support. The Open Road Alliance launched a $40 million impact fund to back short-term bridge loans to social impact organizations worldwide. Village Capital and Sorenson Impact Foundation are using Village’s Abaca platform to facilitate faster connections between impact investors and mission-driven companies in need.
To frame the evolving COVID-19 landscape, the GIIN identified three stages of funding or investment:
- Response: Measures that address immediate needs such as personal protective equipment for front-line workers.
- Recovery: Efforts to support or restore current infrastructure such as temporarily easing terms on existing investments.
- Resilience: Initiatives that resemble classic impact investing efforts in addressing systemic challenges that require comprehensive solutions.
Ultimately, these three phases can help drive a virtuous cycle of impact that delivers benefits at all stages, as seen in select Resilient Cities during the coronavirus crisis. To achieve this virtuous cycle of impact, multi-tiered thinking is critical and remains relevant to impact investors as the ripple effects of the COVID-19 pandemic extend deep into the future.