OAM 431: Final Paper
Introduction
“The Impact Investing Market in the COVID-19 Context” report emphasizes
how the COVID-19 pandemic is not only a medical crisis, but also a social and
economic one. The pandemic simultaneously unveiled and worsened social
inequalities as well as impeded the ability for investors and businesses to
effectively operate. This has most dramatically affected impact businesses,
specifically those run by minority groups, as these businesses must remain
financially viable, yet also maintain their commitment to social enterprise and
impact despite facing additional social adversities.
Disproportionately Affected Populations
Underserved demographics have been disproportionately affected by COVID19. Particularly, youth, women, minority groups and those who work in
informal, or service sectors, have been distressed by the pandemic. The youth
are significantly impacted not only by schooling interruption, but also the
termination of meal access, typically provided by the schooling system.
Women, similarly, are burdened by school closures as they need to more closely
attend to their children’s needs.
Additionally, “women face a higher likelihood of domestic violence during
home confinement” (World Bank, 2020, p. 3) adding an extra layer of difficulty.
Socioeconomically susceptible populations such as migrants or refugees also
face greater challenges in getting access to good quality healthcare services or
resources, further widening the gap between the privileged and underserved
populations. Finally, certain sectors of economic activity are particularly
affected by COVID-19 such as the service sectors of transportation, retail or
entertainment, creating adversity for individuals working in these
sectors.Specifically, self-employed individuals and those who work in the
informal sectors do not have access to emergency response measures or social
security coverage, becoming particularly vulnerable during a pandemic (World
Bank, 2020).These specified populations are most exposed to “financial shocks,
food insecurity, lack of quality healthcare access, and predatory practices”
(Bass, 2020, p. 2), and impact investment can come into play in all four of these
areas and can make the biggest difference. In fact, according to the report, the
three sectors impact investors would be most interested in providing support for
are financial inclusion (74%), food security (69%), and health (61%) (Appendix
A). Interestingly, these three sectors are not only currently experiencing some of
the most acute financing needs but also would be highly effective in alleviating
the biggest pain points of the specified underserved demographics (Bass, 2020).
Course Concepts
The author emphasizes how the disparity between underserved populations,
specifically minority groups, and their more privileged counterparts in the world
of impact investing has grown with COVID-19. Panelists, LaVonda Brown and
India Hayes both acknowledged the social inequalities females and black
entrepreneurs face by stating that “.2% of all investments go to black social
entrepreneurs”. Minority entrepreneurs most often do not have a robust network
to draw on for professional development, advice, and donors.
Without access to these resources, entrepreneurs are forced to find alternative
routes to raise capital. Similarly, the report illustrates how now is the ideal time
to invest in minority entrepreneurs. This suggestion aligns with Michael
Porter’s ideology that companies, or investors, can move beyond corporate
social responsibility and gain a competitive advantage by including social and
environmental considerations in their strategies. By investing in minority social
entrepreneurs, especially duringa pandemic, companies not only could enhance
shared value, but also shift the imbalanced system to actualize social
entrepreneurial goals more effectively.
Critiques
While the brief showcases many of the strategies that impact investors have
been pursuing during the COVID-19 crisis, it brushes over a few topics that
may provide a more holistic insight. The brief mentions that many investors
were helping their investees navigate the complicated Paycheck Protection
Program (PPP) that was administered by the Small Business Administration
(SBA), but, while those loans helped many small (and large) businesses, the
authors did not mention the shortcomings of that program that we discussed in
class (Kurtzleben,2020). The data that we saw in class show that a significant
amount of funding was not effectively delivered to underserved groups where
the capital would have likely made the most economic impact (Appendix B).
Additionally, the brief mentions business model pivots as potential pandemic
responses. While opening up new business lines and pursuing different
operating models is an essential quality of agile enterprises, we are left
wondering how many of these pivots were forced and how the entrepreneurs at
the helm feel about the transition. Many of these socially-minded entrepreneurs
started their companies with a particular passion, and as they deviate further
from their initial goals, that passion may waver. Similarly, we wonder what
steps are being taken to ensure that these new business models are conscious of
long term goals and aren’t simply responding to COVID-19 related problems
that may or may not be around in 2-3 years. Pivoting businesses must ensure
that their pivots build onto their current passions and operations while aligning
with long-term trends created by the coronavirus (Guillén, 2020).
Though this brief primarily focused on small businesses in general, we find it
important to look more closely at social enterprises given our course material.
The brief delineates some ofthe forms of support that impact investors used
during the pandemic response including traditional loans, grants, and a shift to
more project related funding; but what does this transition period look like for
social enterprises? We know that many of them are facing severe liquidity
issues at the moment, but their social mission ought not be neglected during this
time. Alternative funding vehicles for social impact, like PRI’s, could be used to
make sure that social ends are still being reached. This crisis period could serve
as an inflection point for social enterprises, given their particular vulnerabilities
to COVID-19 related problems, by leveling the financial playing field (Boolkin,
2020). As impact investors evaluate their choices, the social impact that a
business provides could serve as an even more powerful differentiator, pushing
capital into more impactful areas.
Conclusion
The COVID-19 crisis took the world by storm and devastated many businesses
and people worldwide. Underserved communities have had to bear the brunt of
the devastation. Additionally, social enterprises have been particularly
vulnerable given their prioritization of impact, so it has been difficult for these
businesses to balance remaining financially viable while still creating valuable
social impact. This brief is an important source of information for how many
impact investors have been handling recovery and taking steps to build
resilience into future systems. There are still many questions left to be
answered, but wherever there is a crisis there is an opportunity. And investors
are uniquely poised to take advantage of these opportunities to help
communities that are in need and facilitate more impactful enterprises.