Updated: Apr 8, 2020
Impact investing can be difficult in the best of times. Being intentional about our investments requires an extra layer of mindfulness, resources, and time, all in an attempt to balance our intended impact with anticipated returns.
We can imagine the culminating effects from a pandemic, current market turmoil, and pending economic recession making impact investors think twice about their strategy. Some impact investors might lose sight of their impact intention in an effort to preserve returns.
However, communities that are typically the target of impact investing—those suffering most from inequalities—are the same that will be most impacted by this crisis. Since the beginning of March, one in five Americans have lost working hours or jobs. Some of the hardest hit populations are already disadvantaged: low-income households, women, people of color, people with disabilities, victims of domestic violence, elderly people, etc.
During this pandemic, hesitation to continue addressing inequalities, whether they are social, economic, or environmental, will only contribute to uncertainty surrounding impact investing. Losing sight of our long-term goals will likely contribute to the very inequalities we are trying to improve, threatening to reverse some of the progress we have made. Remaining confident is key to supporting our long-term vision of change. We can leverage our partnerships and expertise to continue supporting those who will be impacted most by the current crises.
Rather than retreat, let’s respond to this pandemic as an opportunity to continue catalyzing social change. Remaining impact driven requires us to begin providing solutions now to improve short, medium, and long-term recovery and resiliency.
Short term (1–6 months)
Increase grant spending. This is a time to support our existing partners and double or triple down our efforts and maintain resiliency among partners in our emerging markets. The 5% minimum payout rate for private foundations is a floor, not a ceiling. Ensure your existing grantees and their service areas are able to not just survive in the short term but also support recovery in the medium-to-long term. For investors, this moment could be an opportunity to provide grant dollars to help cover operations and obligations of your existing portfolio companies. Debt or additional equity might be attractive, but let's keep in mind how that will impact a company’s future growth plans and ability to fundraise. Investors need to provide comprehensive technical assistance to our on-the-ground partners to help them know what federal assistance they are eligible for, how to navigate the challenges of operating during this time, and how to start thinking about coming back online once social distancing restrictions are lifted.
Leniency on obligations. This applies to loans, rents, debts, etc. Impacted populations need flexibility to cover necessary expenses (food, shelter, health) while recognizing the limitations of relief funds. For credit providers, some areas to support your borrowers include loosening repayment terms (deferments or interest only payments), creating covenant headroom, amending terms, looking at rate reduction and/or refinancing, and even converting debt to equity (as an example). These changes could create enough runway for your borrowers to make it through the storm without having to take on additional debt. For grant providers, you can explore loosening use requirements to allow grantees to use dollars for operational purposes. Look into temporarily reducing the reporting burden or making the grant process easier for existing grantees. These solutions will provide your grantees with easier access to grant funding to maintain and expand their mission work, without having to worry about covering operational costs, thus preserving your impact.
Collectively, we can continue to support our intermediaries and partners on the ground in the short term to allow them adequate time and resources to recover and deliver long-term systematic societal changes.
Medium Term (3–12 months)
Collect, analyze, and model data around your impact areas. We can use data to help uncover areas of impact portfolios that are most at risk. We can use this crisis to collect and analyze data to inform policymakers and future capital allocation. Effective policy and use of capital will contribute towards more efficient and equitable recovery, while improving our preparedness for future crisis relief.
Focus on outcomes. We can continue pushing for outcomes, such as those reflected in social bonds and other social impact incentives. The impact investing industry can combine its pay for success expertise with outcomes to focus government relief efforts on creating sustainable change. This is about more than response. We are targeting solutions to fixing systemic social challenges where outcomes will be critically important to recovering equitably.
Support innovation. Crises bring an opportunity to innovate and evolve existing societal structures. For example, look at how the cholera outbreak changed the urban landscape of London, turning it into the very scene that evokes nostalgia among city dwellers today. We can use this market disturbance to foster lasting change.
Investors: How can you support your portfolio companies to come up with solutions that support the short-term operations but also open up a new business line? How can we take learnings from this pandemic to make our urban areas healthier, safer, and more accessible?
Grantors: Looking beyond the existing capacity of your intermediaries, how can you support your grantees in providing lasting change? What changes can you advise to your partners to help improve efficiency to create lasting societal change?
Seeking innovation inspiration? Look into markets being disrupted. How could we build impact foundations into the future of supply chains, bureaucratic technologization, health-tech, food-tech, and enterprise systems?
There’s room for the impact investing community to take a long-term view into the types of policy shifts required to speed-up recovery and improve resiliency for the communities most at risk. Now is the time to work collectively, leveraging data and our community partners to make catalyzed, lasting, systemic social changes.
If you are interested in learning more about these suggestions and how you can respond to the crisis through data-driven solutions, please reach out to email@example.com.
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By Kyra Clarke, Senior Associate