Understanding Change

Change, in all of its permeations is perhaps the only consistent truth about our world,our lives, and the things we choose to fill them with. Periods of transition always bear opportunities to reflect on our societies as they were. Furthermore, transition presents an opportunity to engage the ways that the wisdom of disruption implores us to behave in the future. Transition is the time where we begin to construct a New Normal.

It would be remiss to claim that the world at this moment, is the world that we have now transitioned which change is taking place, as well as what that means for the future. I am of the conviction that understanding change through disruptions (as a new reality continues to take shape) is an effective way to grasp the idea of a New Normal. For the purposes of this article, the extrapolation of a New Normal of impact investing will be predicated by two major disruptions: social unrest and economic downturn.

Social Unrest

Anticipating waves of protest

Prolonged demonstrations in the United States (the world’s financial power) and in China by way of Hong Kong (the world’s industrial power), reflects tensions between the way society is arranged, and how different members of society feel about this stratification. Without diverging into the actual content of these demonstrations, it is clear that there is a breakdown
in the social contract, and social unrest often gives rise to new societal forms.

It is important to note that China and the United States, as the pinnacle of international power, also serve as the foundation of what is soon to be the Old Normal. As states who may find themselves on the peripheries of power, influence and development begin to move in tandem with a New Normal, it is sensible to expect more periods of social unrest.

Unrest and Investment

Within these societies- the typical beneficiaries of impact investment- a new kind of narrative is forming, that the holders of capital must contend with. Indian author, Arundhati Roy writes in the Financial Times that: “our minds are still racing back and forth, longing for a return to ‘normality,’ trying to stitch our future to our past and refusing to acknowledge the rupture.”

Ultimately, the New Normal of impact investment, must achieve greater complementarity between the aspirations of people and the nexus between investing in society for greater economic returns. It must be the case that the underlying consideration of returns, such as greater market share, do not trump the genuine concerns of people across the world (now and in the future). It should still hold true in the New Normal that improving people’s condition, allows for economic and financial utility.

Economic Downturn

Many spectators and scholars alike are quick to point out that the world’s economic downturn preceded the advent of the COVID-19 global pandemic. The primary evidence of this view is the looming sovereign debt crisis. The Institute of International Finance reports that in 2019, the world reached the highest debt level ever, of US$ 253 billion- signalling a likely global recession, as borrowing (relative to total output) had become unsustainable. While this is true, the speed and scale of the wave of debt, and the inability of demand and production (the fundamental source of value in an economy) to keep up has been exacerbated by the spread of the novel Coronavirus.

Perhaps the icon, if not the catalyst, of the New Normal, the Covid-19 pandemic has seen economies in developing nations redirect its spending to social causes and seek more debt assistance to sustain their already frail economies. The picture isn’t any less grim in developed nations. Against a backdrop of trade wars between the United States and China, and an oil price war between Russia and Saudi Arabia (which contributed to negative oil prices for the first time in history), the world’s wealthiest nations were left without a market for their exports, and less security for otherwise standard financial activity.

Impact investment is at the heart of this watershed moment for the world’s economic and financial systems. Firstly, the New Normal, brought on by the virus and its conditions will make it incumbent on investors of all assortments to invest in economic recovery, outside of the sovereign. This requires there to be greater investment in development activity that seeks to rebuild society, contemporaneous to the search for a solution to the virus itself. The remaking of society, as a New Normal can be led by impact investors worldwide.

Secondly, the public health threat of Covid-19 has all but rendered human beings immobile, save for within their home nations. This presents a unique challenge for risk management and due diligence more specifically. It is increasingly difficult to meet investment prospects, assess infrastructure and gather data from outside the country an investor is situated in. Ultimately it creates a great opportunity for collaboration. Entering into partnerships with local organizations will allow international impact investors a greater degree of security, circumventing the threat posed by the virus. Additionally, setting up local subsidiaries and special purpose vehicles in countries where investment is headed exposes impact investors to statutory privileges and incentives that natural persons are subject to. This already begins generating a return on investment.

The term New Normal seems to reveal more than it conceals about the state of the world in general, and of the impact investment fraternity in particular. More so, as we enter into a world where we have to rethink everything, let us evolve impact investing into a vehicle for meaningful progress and truly mutual benefit.