There has been lots of talk recently on whether the coronavirus crisis will spur a green recovery. Governments around the world are questioning the ability to ‘build back better’, but will they succeed in this? In fact, the determination to use this lockdown period as an opportunity for environmental change stretches far beyond this choice that governments are facing.
Since the Rockefeller Foundation first coined the term in 2008, Impact investing has gained significant traction. One of the reasons for this, is because it is a win-win form of investment. One does not have to give up returns to make an incredible impact.
Impact investing really started taking off after the financial crisis in 2008 and 2009. In many ways it takes a crisis for people to change their way of thinking and begin analysing experiences in greater detail. Many people use crises as a period of deep reflection; to reflect not only on their individual experiences, but also others and the world around them. For many, the longer this goes on, the more people’s attitudes and outlooks will change.
Impact investments have for a long time been thought of as producing both financial returns whilst making a positive impact. In many cases, people tend to think that there is some charitable and philanthropic element to impact investing. However, over more recent years there is a growing acceptance that making money and doing good can sit side-by-side. In fact, it’s been doubling in popularity every year. This is evidenced by a recent study with KPMG that showed how impact investments globally assembled $268 billion in 2017 and are poised to cross $468 billion by 2020.
Similarly, a recent report by Imperial College London and the International Energy Agency (IEW) has found that over five years in the UK alone, investments in green energy generated returns of 75.4% compared to just 8.8% for fossil fuels. It also highlighted how green stocks have performed much better during the global pandemic compared to fossil fuels, thereby accentuating the volatility of the oil, coal and gas markets. Black Rock reported that 94% of a widely-analysed global sustainable indices outperformed their parent benchmarks in the first quarter of 2020.
Impact investments are proving to be more resilient in the downturn and yet you still retain all the impact it is having. These are after all the companies of the future; companies’ that are specifically solving environmental problems, using technology to scale while ensuring that we have a planet that sustains us and future generations.
As we have become more in touch with nature during the lockdown period, it is without doubt that more and more people have become aware of the types of change required, and the extent to which we must address them if we are to live on this planet. This begs us to question whether the coronavirus will be the catalyst towards more socially responsible investing? Will we see a shift for the entire industry?
Well we have already begun to see systemic shifts. According to The Global Family Office Report 2019, the vast majority of family office’s around the world have diversified impact portfolios by investing most often in education (45%), agriculture and food (45%) and energy and resource efficiency (43%). Over the coming decades more than $30 trillion in assets will be transferred to millennials and generation X - the largest and wealthiest generation the world has ever seen.
With this unprecedented amount of wealth transferring from one generation to the next, families of wealth can have a tremendous impact in shaping the recovery by investing in a way that creates more economic opportunity for vulnerable people, but also ensures that sustainability and inclusion are at the forefront for a green recovery.