Pandemics, Impact Investing and ESG Investing

Even those lucky enough to have escaped severe COVID-19 illness in themselves or a family member have been dramatically affected by the pandemic.  The economic effects on the real economy are the severest of our lifetimes.  The effects are global, and disproportionately fall on the least advantaged among us.

This is the kind of crisis impact investing was built for.  The pandemic provides a clear example of the difference between ESG and impact investing.  As a simplified example, leading ESG-aware companies will find ways to keep their employees on payroll even as revenues evaporate.  Impact companies will deliver products and services that directly address the effects of the virus on society.  Both are necessary and inspiring, but they are different.  And by the way, companies that take economic assistance from the government to increase their profits even if their business is not threatened, depriving other more desperate small businesses of funding, should be classified as “causing harm” to people and planet.

Instead of asking only “how do I protect myself”, Toniic members are asking “how can I help?”  While Toniic exists to facilitate impact investing, most of our members are also philanthropists, and see the spectrum of grants, below-market rate investments, and market rate investments as a spectrum of capital through which they can contribute positive social impact.  Foundations who typically grant 5% of their assets each year are aiming to distribute more this year, in this time of acute need, even as they see their endowments dramatically reduced.  Family Offices focused on climate change or gender equity are seeing the immediate need now for direct economic assistance to portfolio companies due to COVID-19, and structuring or participating in short term debt facilities as lifelines for those enterprises.  High Net Wealth individuals are forming collaborations to evaluate the most efficient COVID-19 responses, and banding together in action.

And even as we focus on urgent response, it is in the DNA of impact investors to think about long-term sustainability.  We think about the “rebuild” aspect, the mechanisms by which we come out of this crisis with fundamentally more equitable and inclusive practices than we entered with.  The pandemic has reminded even the most insular of the radical interconnectedness of life on earth.  Of the awesome might of private enterprise to solve big world problems.  Of the undeniable recent track record that, faced with an existential threat, global society can respond in ways that were out of the question shortly before.  

As a result of this crisis, new opportunities will arise for impact investors and society. The crisis is driving change at a speed and innovation rate which was unthinkable months ago, and new economic and consumption models are being birthed. Work-from-home policies are becoming more and more acceptable, decongesting our streets and freeing up valuable time. Cities are starting to think about smart mobility schemes to reduce car use after lockdown to reduce air pollution, as studies hypothesize a correlation of air pollution with more severe Covid effects. Climate change is now perceived by more people as a more concrete and looming threat to our lives. People are buying less and spending more time re-connecting with each other, albeit virtually. Reduced consumption and more pressures on global supply chains may accelerate circular economy models. 

Even as we help our investees into the defensive crouch that will best ensure their survival, we look for the mechanisms by which a more inclusive and just form of capitalism will deliver a brighter future for the planet.

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