The UK is entering its second national lockdown with its economy already having gone through its roughest patch since the end of the Second World War World War. Times are tough for businesses large and small and for the growing ranks of the unemployed across the country. Before furlough has even come to an end, redundancies are at their highest level in over a decade. Moreover, those areas that have been through the severest lockdown measures to this point are set to endure the brunt of the coming financial pain. That is why impact investment, the notion of financial investment having benefits beyond money, is so crucial to restarting economic and societal activity in these areas.
Impact investing is defined as those investments which have a social and/or environmental benefit in addition to a financial return. It could be argued that most investments have wider benefits, in that most build companies, create jobs and generate wealth. However, it is clear that the need for investments aimed at restoring the social fabric of communities devastated by prolonged, severe lockdown measures will be vital.
Those areas that have already spent prolonged periods in the strictest tier of the UK’s new lockdown system will require the most support for an economic rebuild. There are likely to be thousands of skilled, available workers in these areas, freed up commercial space and, once the immediate threat of the pandemic has subsided, the ability and need to quickly establish businesses and economic activity. Impact investors can make this happen.
Much of the focus will be on the government and what they can do to stimulate growth and business activity in deprived, hard hit areas. However, it is beholden to businesses and individual investors to recognise the investment potential, both financial and social, of focusing on those hardest hit communities. These spaces are likely to be equipped with skilled local workforces, available commercial space and a communal desire to sow the seeds of economic recovery and opportunity in the wake of sacrifices endured together.
Individual wealthy investors have an opportunity to invest in businesses and social projects which can be at the heart of community recovery whilst also making a financial return. Targeting areas that have seen a higher number of businesses go under and the subsequent unemployment is a good example of how potential impact investors could operate.
It may seem like a riskier enterprise at first sight, but the past presence of commercial activity suggests the potential for demand to spring back. Imagine the social benefit of individuals and businesses injecting funds back into these areas. Arguably it is greater than any purely philanthropic gesture.
Longer-term, the potentially favourable business conditions in these areas will provide those who invest earlier with greater potential for reward. It will create a stronger loyalty to the business amongst workers and customers if they are perceived as one of the early supporters of economic regeneration. It also provides impact investors the opportunity to reshape commercial activity in the area to be more environmentally friendly, sustainable and greener.
As the country learns to pick up the pieces of this once in a generation crisis, impact investors have an unprecedented opportunity to put themselves at the forefront of recovery. By investing in troubled Covid hotspots, the impact of their investments will be clearer than any other part of the country, if they are looking for more than a simple financial return.