Stockholm (NordSIP) – As impact investors from around the world gathered in Copenhagen for this year’s edition of the Global Impact Investment Network (GIIN)’s Impact Forum, it became apparent that the frontier of sustainable investments is attracting increasingly mainstream investors across an increasingly wide and deeper field.
Of the many sessions held throughout this event and of the many stimulating conversations we had, three panels on financial tipping points, the opportunities in the global south and the blue economy stood out as particularly stimulating.
Financial Tipping points: more than just the Earth system
In a panel with GIIN CEO and Co-founder Amit Bouri, Head of Climate Risk & Strategy at KPMG Bridget Beals discussed the financial implications of the our continued stumbling over planetary boundaries.
According to Beals, the financial industry’s inability to price risk correctly is the fundamental reason we are seemingly failing to finance the transition. Noting that only US$1 trillion of the needed US$250 trillion is being channelled to tackling climate change, Beals warns that “the economics of net zero do not stack up.”
This issue of mispricing risk is neither unique to climate change nor new, according to Beals, who points to how unprepared the world was to cope with the COVID-19 pandemic and with Russia’s invasion of Ukraine as examples of other failures. Climate risk is not linear and the fair value assessment of assets can shift very quickly, as was the case with the two other crises, she warns. Beals argues that we should start thinking of the insurance industry as a bridge to understanding those risks, noting that in some places climate change has already crystallised in the form of prohibitively expensive or unavailable insurance.
However, climate change is not merely about CO2 emissions. Although Beals is encouraged by the ability of the climate debate to have given nature and biodiversity a platform to become mainstream sustainable and impact investment topics, she warns that ecosystem collapse is occurring at an alarming pace.
These developments are not abstract or compartmentalised from human experience. One cannot care about social welfare without internalising environmental risks. The collapse of something as seemingly innocuous as bees could have significant effects on pollination, which would affect harvests and dislocate countless communities across the world. As the population increases rapidly where the climate refugees relocate, tensions will emerge between old and new communities as those environments might not be prepared to sustain the new population total. As these tensions materialise in social, political and ethnic fractures, they will inevitably transform into conflicts. Beals warns that the world needs to be prepared because the economic scale of climate-change consequences would dwarf all other so-called existential crises.
The Changing Landscape of Impact in the Global South
A later session gathered four asset managers to consider the impact environment for investors in the global south (e.g.: sub-Saharan Africa, Latin America and South-East Asia), the changes they’ve witnessed, misperceptions and learned lessons.
Both Roopa Kudva (Pictured, second from the left), Partner at Omidyar Network India and a member of the Board of GIIN, and Kenny Nwosu (Pictured, centre), CEO of Morsaf Capital in Sub-Saharan Africa, emphasised how much the asset management community has evolved. Kudva points towards what she calls “the changing face of the Indian entrepreneur”. Where in the past they were cosmopolitan, elite educated and English speaking, they are now local, probably have not gone to university and are likely to be most fluent in regional languages. This new entrepreneurial ecosystems facilitates a direct knowledge of the conditions and needs on the ground which was simply not there before, according to Kudva. Echoing a similar change at his end, Nwosu reflects on the fact that he was the only African in the Africa investment team when he started working.
Investors’ perceptions have also changed. Patricia Sosridjojo (Pictured, second from the right), General Partner at Seedstars Internation Ventures, remembers how difficult it was to to get allocation to Indonesia, when now the country is considered one of the most developed ecosystems in EMs. Daniel Izzo (Pictured, first from the right), Founder and CEO of VOX Capital in Brazil, echoes this feeling, recalls that when he started reactions were not particularly positive: investors’ reactions to an impact pitch would alternate between condescendingly thinking it was cute and ignore it, laugh or be angry.
In this new, more engaged and mature impact ecosystem, opportunities abound. Izzo describes an investment opportunity to finance sustainable agriculture by funding the recovery of degraded pastures in the Brazilian Amazon and Cerrado regions. Kudva discusses the cheer scale of returns available to investors opportunities willing to tap the opportunities available in India, which has matured to a point where investors no longer need to worry about their ability to exit positions. “We have invested US$450 million. We have made exits from 26 companies equivalent to US$250 million,” Kudva explains.
The Blue Economy – Time to Stop Making Excuses
Having been introduced by a pre-recorded presentation by Sir Richard Branson of Virgin fame, Phillippe Cousteau (grandson of the famous Jacques Cousteau) Co-founder of EarthEcho International and Karen Sack, Executive Director of the Ocean Risk and Resilience Alliance (ORRA), emphasise the role of the Oceans as mitigating global warming. According to Sack, if it weren’t for the oceans acting as heat sinks, average global temperatures would be 50⁰C instead of the present 17⁰C.
Both panellists discussed just how underfunded underwater conservation is and how paradoxical this is given that two-thirds of the planet is covered in water and that the majority of biodiversity resides in our oceans.
The economics of ocean conservation are also complicated. Sack (Pictured, second from the left) mptes that traditionally, “small land-large ocean” states, like Palau (with an exclusive economic waters zone the size of France), need to pay for diesel imports with foreign currency. The foreign currency is acquired via exports such as tourism and fishing, both of which can be detrimental to marine ecology if not managed properly. However, these mechanisms are not always enough, a situation which is complicated by the fact that many of these countries do not qualify for international assistance. But there is hope. Sack points to the recent blue bonds issued in Barbados, the Seychelles, and Mexico as an example of alternative funding sources for the blue economy.
Cousteau (Pictured, first from the left) notes that the blue economy should look beyond sustainability. “We can’t just sustain the way things are. We need to restore,” he argues remarking that we need to pay more attention to restorative industries. Cousteau argues that there is evidence from Mexico to suggest that certain restorative activities (e.g.: diving) often make a stronger contribution to the economy than degrading activities, like fishing.
Another issue both panellists agreed on was that we need to stop making excuses for not investing in marine ecology. Sack notes that she often hears “there are projects but not fundings” or “funding but not projects” or that private investors are waiting for public sector investors and vice versa. “It’s a cop out,” Sack argues. Cousteau adds that scale is an issue that also comes up. Investors claim that their mandates do not allow them to invest in such small projects. They both warn that these dynamics can leave investors paralysed, waiting for each other, but if no one gets started nothing will happen.
Oceans can regenerate, the panellists tell us, but they need help and human interference is particularly destructive. Noting that sharks have returned to areas where the USA tested nuclear weapons in the past, Cousteau warns that “people are worse for marine ecology than nuclear Armageddon.”
