Is DeFi the Missing Key to Unlocking Impact and ESG Investing Potential?

The rise of impact investing is proof of a global shift in priorities

Impact investing, part of the broader Environmental, Social, and Governance (ESG) investing landscape, is an institutional response to the continued proliferation of investors who use to “do more” with their money. Impact investing prioritizes profit but doesn’t view it as an antithesis to positive social change. The Global Impact Investing Network (GIIN), a non-profit membership organization, has tracked the growth of this sector over the past 12 years and in its latest 2020 Annual Impact Investor Survey, estimates the industry size at a steadily climbing $715B. The report states:

What if we were the saviors we’re waiting for?

Impact investing, despite its potential, is still considered a niche asset class.

Despite impact investing’s stellar rise, there is currently a $7 trillion annual SDG financing gap. On paper, these are clinical figures, easy to brush aside as ‘just another big number’. But consider what failing at the SDGs implies: A world in which access to food, electricity, clean water and sanitation, gainful employment, and gender equality, to name but a few of the pressing issues society has yet to solve. By 2040, this gap could run a yearly deficit as high as $15 trillion. Add in the tremendous pressure on national monetary systems brought about by the Covid-19 pandemic that threatens to decimate already struggling economies and it’s a recipe for even bigger problems than those we already can’t handle.

To many in the global society, in the throes of late capitalism, it’s clear that social change happens not through aid but via industry. Commercialize a problem and it’s not long before an entire industry pops up around the solution. That’s why the Sustainable Development Goals (SDGs) are increasingly on the agenda at boardroom tables, especially as we race against mitigating the effects of climate change hurtling towards us. When it comes to the environment, the hands that bite (industrial pollution) seem destined to, ironically, be the hands that save, as large corporations rally together to “Go green”. However, the green in “eco” stimulates the green in “washing”, and in a stranglehold cycle, sustainability can also act as a thin layer of veneer atop marketing strategies meant to capture (or recapture) a new consumer generation demanding value-driven brands that prioritize the environment and an overarching sense of social responsibility.

The rapid expansion of DeFi creates a new wave of investors that interact with the financial services sector devoid of intermediaries. By decentralizing finance, private money — especially at the retail level — is rising in prominence to a scale hitherto unseen. Establishing a direct line between two parties thanks to trustless smart contracts frees up costs typically collected by banks and other financial services providers. This, as it turns out, may open up a whole new funding model for impact creation.

According to Jason Fernandes, crypto analyst and Chief Business Officer at NFT Technologies:

DeFi and the quest for meaning

DeFi is known for its liquidity. Even during the Q2 bear market in 2021, DeFi’s Total Value Locked (TVL) still rose by 13%. At the time of writing, the TVL is shy of $107 billion.

However, Kyle White, angel investor and COO of DeFi liquidity ecosystem Atom Foundation, believes that liquidity alone doesn’t qualify an idea, saying:

The great equalizer

Amit Kaushik, Portfolio Manager at quant trading firm SciFeCap and the author of The Crypto Investor maintains that decentralized technology can introduce greater equality to the financial world, stating:

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