Guest Articles

Tuesday
November 17
2020

Josh Knauer

Reversal of Fortune: Five Ways Biden’s Win Will Boost Impact Investing in Emerging Markets

However it turned out, everyone knew that the U.S. election results would bring significant change to America. In the world of finance, the markets have already responded positively to the news of President-elect Joe Biden. Biden’s victory will impact different industries in different ways, but one particular economic sector that will get a major boost is impact investing.

Under the isolationist policies of the Trump administration, it became much more difficult for impact investors to operate in emerging markets. Travel/visa restrictions, inconsistent federal investment in emerging market economies, vacancies at embassies, and a general retraction of U.S. policies intended to help emerging countries all made impact investing work more difficult in these markets. That was a stark difference from what was happening when I was a science and technology advisor for President Obama, who had a robust policy for global development initiatives that helped U.S. companies grow in emerging markets. During that time, impact investors were one of the groups benefiting tremendously from good relations with countries worldwide, and from the Obama administration’s efforts to:

  • “Alleviate poverty, and advance global commitments to the basic welfare and dignity of all humankind.”
  • Create policies and funding “focused on sustainable development outcomes that places a premium on broad-based economic growth, democratic governance, game-changing innovations, and sustainable systems for meeting basic human needs.”
  • “Increase […] investments and engagement in development-focused innovation by seeking and scaling up potential game-changing development technologies such as vaccines for neglected diseases, weather-resistant seed varieties, and clean energy technologies.”

Over the last four years, the Trump Administration’s chaotic approach to international trade policythreats to gut international economic development budgets and lack of leadership on helping emerging economies hurt the impact investment community. All of the values the sector holds dear – from economic justice and community-based decision-making, to governance, green infrastructure and safe food systems – were eroded if not wholly devalued. Plus, the U.S. government’s shift toward isolationist policiesdefunding of many green infrastructure programs, and failure to deal with the pandemic dampened impact investors’ ability to expand their work in these emerging markets.

As we look toward the incoming Biden administration, we can expect that it will reverse course on this isolationism. But I believe the Biden administration will give the sector’s work in emerging markets an even more significant boost. Below, I’ll discuss five key reasons why.

 

Green Infrastructure is the Financial Future

Under a Biden presidency, impact investors will be able to see their investment dollars go further within their portfolios of green infrastructure-related companies. Biden has already announced a $2 trillion plan to develop the green economy, which will provide a significant boost to renewable energy. And this impact will extend beyond just solar and wind to other green technologies like green chemistry, geothermal, bioenergy, hydrokinetic energy production, energy storage, green transportation, green building and many more. These are the emerging technologies that startup companies have a hard time investing in on their own. History has proven that federally funded research from a wide range of agencies (Defense, Energy, NASA, the National Oceanic and Atmospheric Administration, the Environmental Protection Agency, etc.) is an economic driver for change and innovation. Biden will bring the might of this type of economy-driving research that has, in the past, created innovations like the Internet, GPS and smartphone technology. Once we rejoin the international community in the Paris Agreement and beyond, our commitments will be matched and met by many other countries. As a result of this, doors will open to impact investors who work in emerging economies. For example, I’m confident that the impact investment support work done by Jumpscale (where I work as a General Partner) in Ecuador, Brazil, Kenya and beyond is going to experience a renaissance of growth in impact as a result of Biden’s agenda.

 

Stability is Good for Business

The first lesson in investing is to reduce risk. The destabilization of government institutions, knee-jerk reactions among political leaders and policy chaos are risky: They cause markets to wildly fluctuate and tend to scare off investors. Throughout Biden’s campaign and even during his first speech as President-Elect, he has projected an image of stability, empathy and thoughtfulness that has been missing for the past four years. Biden also has decades of experience working across the aisle in the legislative and executive branches of government, which will help him bring more stability to American society and the global economy. Consistency, predictability and stability are the hallmarks of good business.

 

Improved International Relations Opens Doors in Emerging Markets

We’ve already seen world leaders congratulate Joe Biden, as cities around the world celebrate his election in gestures of support that we’ve rarely witnessed before. The re-establishment of strong diplomatic and financial relations with our allies worldwide will help impact investors tremendously. Sound policies will help to reinforce both positive investments and positive outcomes in those countries. Cooperation with our allies will help to stabilize emerging economies around the world, which will reduce the risk of working in those countries. It will become easier to find and invest in the innovative impact companies that exist around the planet, yielding global solutions for local (and international) problems.

 

Re-emergence of Science-Based Decision Making Restores Confidence

The past four years have seen an erosion of trust in the scientific institutions and processes that help guide future innovations for the planet and our society. Conversely, during my time with the Obama administration, I saw the rebuilding of science-based inquiry and research which was gutted by the Bush administration, with R&D sponsored by the federal government leading to innovations that were shared with the private sector. Biden has always been a big proponent of science-based decision making and research. Regardless of which party controls the Senate, we’re about to see a massive new federal investment in scientific and technological innovation that will rival the incredible leaps we’ve achieved in the past.

 

Effective Pandemic Management Will Allow Industries to Resume Business Practices

It is not possible to overstate how much damage has been done to America’s people and economy due to the Trump administration’s lack of leadership in marshalling an effective federal response to the spread of COVID-19 in the country. Entire industries have been economically devastated, and private equity investors have had to deploy capital to try to save their existing investments, which reduced their ability to make new investments. Additionally, investors’ inability to travel meant they were unable to strengthen relationships or conduct due diligence in foreign markets, leading to a slow-down of innovation. In many emerging markets, a handshake and looking somebody in the eye are essential parts of the process. I expect that within the first six months of the Biden administration, we will see a more rational, science-based and empathetic response to the pandemic. It will lead to a clearer path towards rebuilding our economy, while moving societal norms in a much more positive direction.

While I know there is a major focus on rebuilding America after the last four years, we must also understand that our vital role in the global economy also has to be restored. Our economic and ecological systems are so interlinked that our very future depends on a thriving, just and green global economy. Impact investors deploying capital to those ends will experience less risk, greater impact and increased financial returns in this new administration.

 

Josh Knauer is General Partner at JumpScale.

 

Photo courtesy of jlhervàs.

 


 

 

Categories
Energy, Finance, Investing, Technology
Tags
clean energy, emerging markets, government, green business, impact investing, impact investors, innovation, sustainability, technology