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

ImpactAlpha, March 24 – For the sake of all those who are suffering and will suffer, the pandemic disruption must become the sustainability disruption.

Some kind of disruption has figured in every scenario for global progress, from the race to net-zero carbon emissions to the achievement of the Sustainable Development Goals. The notion was so commonplace that eyes rolled when entrepreneurs would tout their “disruptive” innovations and pop theorists would call “tipping points.” 

But the world’s shift from extraction and inequality to regeneration and inclusion was always going to require some kind of screeching of the brakes and quick three-point-turn in another direction.

The brakes have screeched. Time to pivot.

“We’re facing a complete economic reset opportunity,” says Cynthia Muller of the Kellogg Foundation, who joined a call of ImpactAlpha’s braintrust to chart that pivot. The consensus among the few dozen impact investing leaders last week: Seize the opportunity for system-change.

“Unshackling GDP growth from the destruction of the planet is what this generation needs to figure out,” said Elizabeth Littlefield of Stonebridge Group. Muller sees an opportunity to “right-size” policies to fully include communities, especially of color, in the eventual upswing. Caprock Group’s Matthew Weatherley-White sees the opportunity to splice a new gene into the social and economic narrative, “resulting in a different culture.”

Coming home to roost

The environmental disruption – in a good way – is all around us, with clear skies over Los Angeles and clear water in Venice and carbon emissions set to fall faster this year than was ever thought possible. The social disruption is harder to parse, with “all the issues of social inequality coming home to roost,” as Equilibrium Capital’s Dave Chen put it on the call. The third factor in ESG, and arguably the linchpin, is governance, sometimes called leadership, which is even more of a wildcard.

The immediate frontline of system-change is the massive package of spending and loans being hashed out in the U.S. House and Senate. Trillions more are in play around the world. From universal basic income to banning corporate stock buybacks to flexible financing for small and growing businesses – even nationalization of oil companies – once-niche ideas have moved from the sidelines to the center ring of debate about “the new capitalism.” 

The relief package will no doubt contain a heavy dose of public investment in private good. The opportunity, says Brian Trelstad of Bridges Fund Management, is “to reframe impact investing as private investment in public goods, whether they are for public health or climate sustainability resilience.”

Immediate battles over worker protections, airline bailouts and the future of fossil fuels will set the stage – and build the constituency for – a bigger shift that rebalances power in the economy and society. A “green stimulus” could unleash massive private investment as well. 

Six months before COVID-19 burst upon us, corporate CEOs committed themselves to valuing and respecting multiple stakeholders – employees, communities, suppliers and customers. The era of shareholder primacy was already dead; the corona crash should put a wooden stake through its heart.

Local, inclusive and entrepreneurial: How stakeholders are taking back capitalism in 2020

The agenda of global cooperation – the prevailing ethos only five short years ago – included concerted efforts to fulfill the Paris agreement and avoid the most catastrophic effects of climate change. From there, we would go on to meet the 17 Sustainable Development Goals, including good health and well being (No. 3), decent work and economic growth (No. 8) and sustainable cities and communities (No. 11) – the fabric of resilience we so value now. 

That agenda was variously estimated at $2.5 to about $4 trillion a year, as documented in dozens of reports and country plans. The collective public is about to unleash at least that much and likely more. Despite the losses, private capital is ample and low-cost. The mythology of “market-rate” returns just exploded. Here comes the cash. All capital is catalytic capital now, and it is impact alpha that will drive outperformance.

“We’ve learned from this crisis and so many others that by the time we figure out what’s happening, a lot of the wheels are already set in motion,” says Rehana Nathoo of Spectrum Impact.

The coronavirus has exposed the fragility and brittleness of legacy finance. Agents of impact have spent decades piloting the sustainable and inclusive alternatives the world needs now. Let’s make this disruption an inflection point and march on to 2030.

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