Evita Chiang Zanuso , Head of Strategic Partnerships, Katapult Foundation & Lead, Impact Investing Academy
At our recent annual Katapult Future Fest Investor Day, I convened a discussion with Lise Lindback, Tharald Nustad and Amit Bouri to discuss the mega and macro trends affecting impact investors. What do these trends mean for those of us who care about having an enduring positive impact on people and the planet?
I hope the 5 key themes we explored with our community of impact investors will give you food for thought.
We don’t have all the answers but we certainly want to be on a journey to learn, develop and improve as we work towards a better future.
- We are living through a polycrisis
The confluence of multiple and inter-related crises – pandemic, climate change and war is with us. These challenges affect entire systems that we have come to rely on. The worsening drought due to climate change in East Africa means up to 20 million1 people are facing hunger and famine. This has been exacerbated by the Russo-Ukrainian war as we see soaring prices of food due to disruptions in food supplies and energy costs. Covid shutdowns in China have disrupted global supply chains, leading to shortages and growing inflationary pressure around the world. We are experiencing the vulnerability of the interconnectedness of our world. For investors, it may be tempting to reassess risk and withdraw from “higher risk countries”, and invest closer to home in perceived less risky countries. However, just like the butterfly effect in the chaos theory, a perceived small event taking place on the other side of the world can have a material impact on us.
- Digitalisation is here to stay, creating opportunities and risks
Technology and digitalisation have created huge opportunities – both in terms of reach (think health tech that enables a doctor to see many patients in a day) and a way to reduce costs (such as through automation). Covid lockdowns around the world have further accelerated tech adoption and this is unlikely to abate any time soon; despite looming regulation in the tech sector and valuation corrections of tech stocks in both public and private markets. As impact investors, we are mindful of the growing digital divide between those who have access and those who don’t. How can we ensure the most disadvantaged are not left behind? If we as impact investors don’t think about this and act, who will? Similarly, as Artificial Intelligence (AI) becomes the norm, how do we counter the surveillance capitalism we are experiencing as well as the lack of transparency and biases that exacerbate real world inequalities?
- Impact washing at risk of creating a serious backlash
We increasingly see fund managers marketing Environmental, Social and Governance (ESG) and “sustainable investment” products, with over $500 billion going into ESG funds in 20212. In many cases, these products are considering the ESG as risk factors, integrating ESG assessment into processes mitigates financial risk by professional fund managers. Whilst financial risk is the primary concern, the marketing of these products towards investors paints inflated pretty pictures of positive impact and changing the world. Increasingly, there is a genuine risk of ESG and sustainability becoming tarnished because of impact washing, over-claiming impact and generally poor practices as demonstrated in the recent Deutsche Bank and DWS investigations. These practices may lead to a serious backlash from investors, with lack of trust resulting in a retreat from these products. There is a real urgency for leadership – for those who are investing to lead by example. In providing clarity and transparency on what their investments are trying to do, and by holding funds accountable for delivery on ESG factors, impact investors can present best practice.
4. Building resilience to withstand future uncertainties
The poly crisis we are experiencing has shown us the importance of building greater resilience at multiple levels. We need greater resilience at individual, household, company, community, national and global levels, across sectors and geographies to withstand further shocks and uncertainties in the future. Rather than approaching this as an investment theme, it may be better applied as a lens across our investing activities as a whole. This will likely require us to adopt systems thinking, which goes beyond just thinking about individual investments.
5. For those who care about enduring impact, systemic change is needed
Many investors who care about impact are not just looking at individual transactions within a portfolio but how individual businesses they are investing in and supporting affect the interconnected systems in which they operate. There is recognition that social dynamics and environmental factors influence financial markets. Unless we have long term social stability and ecological sustainability, there will be market disruptions. Investors need to connect their investments to broader needs in the world. How might that work? Connecting investments to science based targets that are required to achieve the Paris Climate Accords, looking at needs at a community level and ensuring stakeholder voice is heard in product design and decision making, are examples of this in action. We need to foster a world that works for all people and the planet and to do that investors ultimately need to redefine what success is. Not only looking at financial outcomes but also the impact we are having through our investments and even adopting new economic frameworks such as Kate Raworth’s Doughnut Economics.
As impact investors, the current malaise we are experiencing is an opportunity for us to think deeply about how we can and should use our capital. I would love to hear from you if any of the topics we discussed resonated with you. Get in touch at firstname.lastname@example.org
I will leave you with a quote from the Financial Times article written by Arundhati Roy mentioned by Amit Bouri in our discussion.
“And in the midst of this terrible despair, it offers us a chance to rethink the doomsday machine we have built for ourselves. Nothing could be worse than a return to normality.” Arundhati Roy, Author, Novelist and Social activist, “The Pandemic is a Portal” Financial Times 3rd April, 2020
1UN News: Worsening drought in Horn of Africa puts up to 20 million at risk 19 April 2022
2JP Morgan Asset Management. ESG Outlook 2022 The future of ESG investing