The Impact Alpha | April 27, 2020

The 10x challenge: Pandemic is a chance for impact investors to step up by an order of magnitude – or more  

David Bank
ImpactAlpha Editor

David Bank

ImpactAlpha, Apr. 27 – The impact-tech crowd will stir up some innovation. The network for local loans will rally small businesses. The popular mobilization for relief and renewal may be mass as well as virtual. 

There will be determined ecosystem-builders scrambling to protect fragile ventures in fragile countries. The climate crowd will seize the opportunities of a dramatic drop in carbon and the demise of oil.

And there will be system-change of some sort as the world restarts from an historic disruption. 

All such efforts must be ramped up. “We are all impact investors now,” we wrote earlier this month. “There has long been talk of growing impact investing from the billions to the trillions. The time is now.”

Billions to trillions represents thousand-fold growth, several orders of magnitude. Certainly, the scale of the challenge calls for a response of that scale. The capital is there, among institutional asset owners, giant asset managers, high-net-worth family offices and even retail investors. 

But growth of even a single order of magnitude would send a signal that private investors won’t let this crisis go to waste, that they will make this s**tstorm matter

With due deference to the 2x Challenge among development finance institutions to boost investments in women, it’s time to 10x impact investing. 

The Impact Alpha: Let’s make this s***storm matter

Leadership moment

“Investors that do have capital to deploy, they want to be part of the response to the crisis, the recovery coming out of the crisis and ultimately investing in a more resilient system that can better weather the shocks coming out of the crisis,” the Global Impact Investing Network’s Amit Bouri told ImpactAlpha in a podcast interview

The crisis, he said, represents “a real moment of leadership” for impact investing. Impact investors have not only incubated the necessary and compelling logic, but the best practices, innovative structures and even investment products for the new financial system to come. 

Yet for all its pre-pandemic momentum, impact investing is the dog that has yet to bark. 

The pandemic has certainly put a spotlight on investments and their impact. Public health and public policy represent the mobilization of public capital for public good. Trillions in ‘stimulus,’ ‘bailouts,’ ‘liquidity’ and ‘easing’ represents public capital for private goods, the rescue of companies and markets. And there’s no shortage of investors (and senators) who are playing the markets and pocketing the profits – private capital for private good.

ImpactAlpha’s corner of “the beat” is private capital for public good (hat tip to Bridges Fund Management’s Brian Trelstad for crisply framing it up in our early “brain trust” call that helped us set our rudder in the suddenly choppy waters). 

We’ve watched the scramble by emerging market by fund managers to keep their entrepreneurs and enterprises afloat, the heroic community development financial institutions who are mobilizing loan channels, the quick pivots of portfolio companies to pandemic response and the rapid emergence of social bonds to tap the capital markets for countries and companies.

We keyed on “universal owners” of some of the world’s biggest pools of institutional capital because they have started to take responsibility, not only for their own vast portfolios, but for the sustainability of “the system” as well. Owners of everything don’t want everything to tank.

Four ways for universal owners to live up to their name in the COVID recovery

But the examples of private investors stepping up are notable mostly for their rarity so far. The Nonprofit Finance Fund began offering no-interest loans for New York-based non-profits weeks before federal aid began flowing, standing up a $29 million fund supported by the Ford Foundation in less than a week. Ceniarth and two other family offices injected $10 million into rural CDFIs working in impoverished areas to expand their lending capacity and plug gaps in the overloaded federal Paycheck Protection Program. Google committed $125 million from its balance sheet to provide low-cost, deferred interest loans to CDFIs via the Opportunity Finance Network. ImpactAssets expects to reach $143 million in impact investments through its donor-advised Giving Fund by mid-year, more than its investment totals for all of last year.

Those efforts are nowhere near the scale of the immediate challenge, much less needed responses that are broader and longer-term.

“The crisis galvanized people to action,” Bugg-Levine told ImpactAlpha. “What is stopping us from acting with the same urgency and upending usual processes for addressing all the other lingering crises such as climate change, the carceral state, the racial wealth gap, African American maternal mortality and voter suppression?”

The last tally from the Global Impact Investing Network showed impact assets under management reached an estimated $500 billion. That’s still a cool half-billion off the 2020 estimate a decade ago from the GIIN and J.P. Morgan that impact investing could attract $1 trillion. Even a trillion now feels quaint.

The messiness of the field is a cause for celebration, not concern. There is no need to agree on the most promising investments. Asset managers and portfolio managers can simply ramp up the strategies they have already vetted and diligenced. Those out-year plans for the eventual scale-up? That outyear is 2020.

If world governments can mobilize trillions for public health and economic relief and recovery, so too can global investors. 

Big Path Capital has convened a series of promising ‘summits.’ Catalyst-at-Large Suzanne Biegel has brought together gender-smart funds and investors. Mission Investors Exchange, in a digital version of its biennial conference, is lining up foundations around place-based investing and more expansive use of their expansive endowments. The Global Steering Group, newly led by Cliff Prior, is convening calls among impact investing’s multiple field-building organizations. SOCAP has announced a series of new virtual offerings. At Duke’s Case i3 initiative, Cathy Clark’s team has assembled a database of funds and efforts. Sorenson Impact Foundation and Village Capital created a database to match investors looking to support “big, urgent ideas” with entrepreneurs responding to COVID-19.

Can impact stand up in real time?” asks Prudential Financial’s Anthony Berkley, who has helped convene dozens of investors and others on bi-weekly calls to identify COVID-related investments across asset classes. “If not, the consequences could be dire.”

Impact Step Up Call

A number of impact investors have asked ImpactAlpha to convene an Agents of Impact call to help raise the collective ambition. “We believe impact investments can play a vital role in the economic recovery from the COVID crisis and beyond,” say Encourage Capital’s Ricardo Bayon and Jason Scott, who are helping to organize this week’s Call. We’ll be announcing additional participants all week.

“Can we bring existing and new efforts together to develop even deeper and more effective ways to channel capital to individuals and businesses most in need?” they ask. “Can we design and build a more inclusive and resilient financial system that will outlast the pandemic?”

ImpactAlpha’s Agents of Impact Call No. 16 is for anybody working to accelerate the arrival of that new financial system. Bring your initiatives and inspiration to  The Call, Thursday, April 30 at 10am PT, 1pm ET, 6pm London. RSVP today