Five ways impact investors can deal with the Covid-19 dilemma
The coronavirus isn’t just affecting social businesses and charities – it’s also a concern for those investing in them, who may face reduced income themselves and an uncertain pipeline. How can they best respond, in a way that lives up to their role as true impact investors? Sung-Hyui Park and Louise Harman from UK law firm Bates Wells share insights from a recent discussion with social investors.
The current and future economic impact of the pandemic will create numerous challenges for impact investors, as their investees struggle to meet payment and other obligations.
That was the topic of a recent roundtable, ‘Dealing with Distress – the Impact Investor’s Dilemma’, which we at Bates Wells hosted jointly with EVPA (the European Venture Philanthropy Association).
Core to the discussion was the question of what makes an impact investor different – in how they uphold their values during difficult times, and how they continue to support the positive social and/or environmental impact created by investees, while trying to balance their own responsibilities to other internal and external stakeholders.
Peter Cafferkey, UK and Ireland lead at EVPA, chaired the conversation, while we set the scene with a legal and practical overview of how impact investors might take a collaborative and creative approach during this period.
The topic was brought to life by two case studies. Nick Temple, CEO of Social Investment Business, described how the UK’s Resilience and Recovery Loan Fund (RRLF) aims to provide struggling charities and social enterprises with emergency coronavirus-related loan funding. Martin Lawson, head of impact and innovation at social investment firm Resonance, also shared a number of practical ways that Resonance is supporting its investees.
Below are five tips for untangling the impact investor’s dilemma, as shared in the session.
1. Use this time as an opportunity to innovate
All the speakers suggested using the current situation as an opportunity to act creatively and flexibly. This could include updating social impact metrics to reflect changes in beneficiary profile or needs arising from the pandemic, or being open to waiving or delaying payments as long as certain impact metrics have been met. Temple noted that forming the RRLF had provided Social Investment Business with a great opportunity to try out new “accelerated data gathering and assessment” processes, and Lawson shared that new challenges had encouraged Resonance to consider new solutions, such as facilitating ‘mutual credit’, which involves “non-cash trading, on a mutual basis, within trusted networks”. The firm is planning to pilot this in south-west England.
2. Don’t underestimate the importance of non-financial support
Although financial support for investees – in the form of deferral of payments and/or providing additional capital – is often vital, what is equally important is the non-financial support that impact investors can provide to their investees. Building on the above theme of innovation, Lawson explained that Resonance had helped some of its investees to recognise that current conditions represented “a real opportunity to do a digital pivot”, and supported them towards this goal. As we noted, not only can impact investors provide individual non-financial support directly to investees, they could also provide a forum to facilitate sharing of challenges, information and potential solutions between investees in their own portfolios.
The RRLF created condensed application, due diligence and approval processes, and did away with detailed impact metrics requests
3. Widen and deepen your networks and collaborations
Speakers highlighted the importance of collaboration and networks, and the strong potential for this to grow. Lawson was encouraged by the degree of “bonding within and between groups, linking across networks” that Resonance was seeing. Such collaborations could be used to support investee organisations generally – for example, with over 30 UK social investors and Good Finance together issuing a statement in April on their response to Covid-19. There is also scope for impact investors to work with government and other funders to establish new programmes and share knowhow and resources with the wider sector.
4. Streamline processes for investees wherever possible
A key theme that came out of Temple’s RRLF case study was – during a period when time and staff resources at both investors and investees are highly stretched – to “streamline processes as much as possible”. For the RRLF, this included creating a condensed application, due diligence and investment committee approval process, so that applications could be reviewed and funds deployed swiftly. It also meant doing away with “incredibly detailed” impact metrics requests and keeping this “minimal”, so that charities and social enterprises using RRLF funds can focus on tackling their immediate challenges.
5. Be flexible and agile about your own investment strategy and approach
Speakers also considered how ‘the impact investor’s dilemma’ necessarily includes some reflection about how the practices and strategies of impact investors may themselves have to evolve, to ensure their own financial sustainability. Lawson emphasised the importance of spotting new opportunities and innovations, and Temple shared the importance of being flexible and responding quickly, particularly given the constant uncertainty. In RRLF’s case, this included ensuring that all relevant data is closely monitored, to help investors get a clear picture of which types of sectors and organisations are affected in different ways. All the speakers acknowledged the importance of this flexibility in investors’ longer-term investment strategies. In the midst of this, the ongoing challenge will be – as Cafferkey highlighted, referring to the EVPA Charter for Investors for Impact – to balance these internal considerations with the constant imperative to keep beneficiaries, and impact, “at the centre of the solution”.
- Louise Harman is partner and co-head of the impact economy team and Sung-Hyui Park is senior associate in the impact economy team, at law firm Bates Wells
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