Mercy Corps Ventures’ Resilient Future Thesis

A person separating lentils from chaff.
Smallholder farming communities like Seema Chaudhary’s in Nepal are adapting to the impacts of climate change.
11 November 2022

In a world undergoing unprecedented change, Mercy Corps Ventures’ mission is to invest in and support founders who are building a more inclusive and resilient future. We work with entrepreneurs who leverage opportunities created by the current global transformation -- creating solutions that strengthen climate and financial resilience and enhance the capacities of people and markets to handle shocks, reduce risks, withstand disruptions, and build for a more equitable future.

We are living during a period with dramatic advancements in technology and connectivity across the globe, accelerating progress toward economic development and increasing purchasing power in emerging economies. At the same time, never before have we seen such extreme global upheaval, shocks, and instability.

Climate change, financial disruption, pandemics, and other stressors leave virtually no one untouched, with those in emerging markets bearing the brunt of negative impacts. However, we see both the opportunity and the threat posed by this transformation.

We see an opportunity to use this disruption to restructure existing systems and infrastructure to become more resilient and inclusive. As new markets are created, they can be designed to be more equitable and sustainable. However, we also see the risk and threat posed by these changes—to households, businesses, and markets. Adaptation is the differentiator in who survives and thrives in the wake of shocks and stressors.

Climate change is a key driver of many of the changes occurring at the global and local level, across every economy, sector, supply chain, and industry. Climate change is increasing the frequency and severity of droughts, heat stress, natural disasters, and patterns of rainfall and temperatures, as well as other extreme weather events. We are already seeing the effects of these changes, through a rise in conflict, migration, supply chain disruptions, and macroeconomic instability.

Alongside these challenges, climate change is also creating unforeseen opportunities. Evolving consumer preferences, technological developments, and new legislation are leading to the creation of new solutions, product categories, and market opportunities. For example, the costs of renewable energy technologies are decreasing while consumer preference for sustainable and transparent corporate practices is increasing. We are going through a fundamental shift in how people value land and natural resources, seen through the rise of tools such as carbon credits. As the global demand for food grows, so too does the business case for making these systems more efficient, equitable, and sustainable.

The pace at which emerging technology is advancing, and the scale and depth to which it is reaching frontier markets is accelerating global transformation. More than 1.1 billion financially excluded adults own a mobile phone, providing an easy-to-access and low-cost pathway to financial services previously inaccessible. In addition, the costs of smartphones and data have come down dramatically, enabling more people to engage with mobile internet, digital financial services, and e-commerce. It’s projected that by 2025, 40% of Africa’s population will be accessing the mobile internet and 64% accessing the internet via smartphones. In Latin America, 80% of the population is expected to have smartphones by 2025. The young demographic in these emerging market regions is leading to the rise of a digitally native population with increased spending power that is also making use of these technologies in new and exciting ways.

We are also entering an era with unprecedented levels of data creation and availability, driven by improvements in, and increased use and adoption of technologies in remote sensing, internet of things (IoT), and geo-spacial mapping. Machine learning, artificial intelligence (AI), and big data analytics are powerful ways to analyse and use this data for real-world applications.

The application of the open-source, decentralised technologies of Web3 are becoming more prevalent across a number of sectors. Their value is being proven through real-world use cases for underserved consumers. For example, Web3 has delivered promising cost reductions and transparency improvements in services such as remittances, savings, and credit products, as well as systems such as food production and distribution, and carbon credits. The number of developers and creators building on Web3’s open-source architecture, the variety of applications of decentralised technology, and the volume of end users realising its value are increasing rapidly. We are at a pivotal moment when these technologies are beginning to demonstrate impact, adoption, and integration across a number of industries and geographies.

As we reflect on these opportunities and threats, we are acutely aware that underserved and marginalised households, small businesses, and workers have the most at stake as we go through this transformation. These populations often lack access to inclusive and equitable resources, infrastructure, tools, information, and markets that could enable them on their path to prosperity and economic growth, and leaves them unable to adequately prepare, withstand, and respond to disruptions, becoming more common with climate change.

The impact of these disruptions on underserved populations is accelerating the existing injustice and widening inequality of today, and heightening the fragility of progress towards economic development and prosperity. This is already playing out: more than 130 million people could be pushed into poverty by climate change by 2030, and more than 150 million people have already been pushed back into poverty by costs associated with the COVID-19 pandemic.

Additionally, groups within underserved communities are disproportionately impacted, such as youth, smallholders, informal merchants, gig workers, displaced populations, and women. Looking at gender alone, women constitute 80% of people forcibly displaced by climate-related shocks in emerging markets, and they are more likely to die due to natural disasters. Women also make up the majority of the unbanked, with more than 770 million women excluded from the financial system.

However, due to dramatic advancements in technology, these communities are gaining access to resources like never before—resources that can increase their resilience to climate and financial shocks, and give them the ability to build for a better future. For example, financial account ownership increased 50 percentage points between 2011 and 2021, providing many more people with access to tools proven to impact resilience. These resources include platforms such as digital payments that enable faster access to financial support networks in times of shock, and accessible insurance products for mitigating and transferring risk. Globally, 60% of people have an internet connection, compared with 50% just two years ago. At a time when climate crises are multiplying, internet access is more critical than ever, whether for accessing fair and free markets to increase income for rural smallholders, or for weather forecasts and climate-smart agricultural practices.

Still, the increase in access to technology and resources is not enough. We must co-design inclusive solutions with underserved communities that address their needs. As many people are gaining access to mobile phones and connectivity for the first time, service providers are innovating to make these technologies more affordable, sustainable, and resilient. Markets and prices are being made more transparent and open with data, traceability, and transparency innovations, along with access to mobile. Fintechs are expanding access to important financial products and enabling innovations in alternative credit scoring, smart contracts, and mobile banking that ultimately reduce the costs of serving hard-to-reach populations.

Mercy Corps Ventures has deep experience investing in and supporting startups developing solutions for underserved users in emerging markets. Our portfolio centers around resilience-building solutions in adaptive agriculture and food systems, frontier fintech, and climate smart systems, and we invest at the early stages of innovation, providing ventures with capital, along with hands-on and strategic support to power them from seed to scale. This foundational growth is key for larger global investors and capital markets to grow these companies further.

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