What The Inflation Scare Means For Impact Investing
The latest Consumer Price Index jump was more than a scare, the 5% headline inflation was the sharpest rise since 2008. It has put pressure on financial markets as many are concerned the inflation may not be transitory. Inflation tends to put pressure on businesses dependent on future cash flows which could be hard for companies tied to Environmental Social Governance (ESG) investing. However, this thinking could be backward. ESG and impact initiatives are center stage, drawing in all the attention and perhaps even driving prices higher. Banks need ESG to be a focus for many of their opportunities and are the only future cash flow business that looks to turn a profit. Finally, Biden’s stimulus package is ratcheting up inflation concerns, but ESG is the focus of new infrastructure proposals; the inflation generated will be secondary to the direct subsidies impact investing receives. In reality, inflation is most likely transitory, but if it isn’t, bonds won’t be the countercyclical haven, sustainable investing will.
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