Over the past week, the global dialogue to center stage at the World Economic Forum expressing deep rooted concern over risk of upcoming economic chaos. Key threats to economic health of the world include slowing China, rising U.S. interest rates, crashing commodity prices, and jittery emerging markets.
However, many leaders have expressed comfort on how the world is more economically resilient now. The article outlines the less leveraged financial system, the increased insulation of emerging markets from crashing US interest rates and how tumbling oil prices (while undoubtably disastrous for some) are triggering a rising middle class due to increased consumer demand.
In my opinion, although the article has wonderfully captured the traditional reasons to remain positive about global economic health - it fails to mention one powerful tool the world has this time that it did not have as part of its 'resilience ammunition' in our last war against recession in 2009: Impact Investing. Impact investing refers to investments that seek positive social returns over and above financial returns. The global market size was ~$46 billion in 2014 and is expected to have a 55% growth rate over the next 5 years - reaching ~$1 trillion in 2020. These investments are often channeled to high impact sectors like clean energy, sustainable agriculture, affordable education and healthcare, access to water and sanitation, among others.
Investors enjoy having these assets in their portfolio because they diversify the risk - these sectors have low (sometimes negative) correlation with traditional asset classes (like oil and gas). You see companies like Shell investing in clean energy projects in Africa, you see Unilever partnering with Acumen Fund to make their supply chain in Latin America more sustainable and you see Bill and Melinda Gates Foundation investing (not donating - INVESTING) in financial inclusion in Bangladesh. This dual lens through which we view the world has made us stronger.
To find out more about the thought leadership from Davos, click on the article below. To find out more about how impact investing is changing the world, follow me on Twitter: @NatashaGarcha
Yes, the global economy is facing a dangerous cocktail of risks. But there is room for optimism too. But leaders at the World Economic Forum in Davos say that if handled properly, these scary events could actually bring the world back to normality.