According to reinsurance giant Munich Re, 2011 produced the highest number of natural disasters in recorded history, following what had already proven to be a decade of unusual weather. The high-impact events in recent years have varied from the earthquake in Haiti to the earthquake and ensuing tsunami in Japan, the extreme drought in the southern United States that has caused serious water and crop shortages to the floods in Pakistan and Thailand. Desertification is growing particularly in areas of the developing world even as populations increase exponentially, which will put a strain on the world supply of both food and water. The consensus of scientists is that global warming has contributed to these unusual global weather patterns. It follows that climate change has potentially disastrous economic consequences for affected areas in the long term.
Humanity is unable or unwilling to acknowledge or predict extreme events that deviate from normative precedents, which is a phenomenon that Nassim Nicholas Taleb influentially called a black swan. Yet while it may be impossible to predict black swan events, it is important to prepare by envisioning how resources could be reorganized to better support disaster-impacted communities after they occur. Out of destruction is wrought the possibility for new opportunities. Instead of attempting to rebuild what has passed, society could be redeveloped to pursue a more sustainable future. What infrastructure is needed to inspire entrepreneurs to re-envision a more sustainable society while simultaneously reinvigorating the local economy? How can community leaders make sure that local businesses will be a part of the recovery? Current experiments being conducted by pioneers in the impact investing movement may provide a means to address these concerns. Impact investment funds can provide local entrepreneurs and community leaders with access to financing that will enable them to participate in the redevelopment of their local community rather than relying on external direction from governments or large aid organizations to bolster the economy in the long term.
How could impact investment be used as a strategy to transform post-disaster reconstruction into sustainable redevelopment? Local businesses are often displaced by external organizations such as the government, aid organizations, and large businesses before they can re-open their doors following a high-impact event. This trend has medium and long-term negative economic consequences for the local economic ecosystem that can inhibit full recovery and detract from the opportunity for sustainable redevelopment. If developed and promoted through public/private partnerships, the use of an impact investment strategy for economic recovery may reinvigorate local economies in a way that could be scaled to address redevelopment globally.
Edgewood Insights 