#ESGOptOut: An Idea Whose Time has Come, and More from Day Two of #SOCAP16

What if…. the institutions that hold the vast bulk of the world’s investment assets, were to splice environmental, social and governance considerations into every phase of their investment process? That would change not only the products they produce, but our financial system itself, said Matthew Weatherley-White, a founder of Caprock Group. That proposition still meets resistance from many investors, but a simple flip could change that. Rather than “opting in” to such reporting, Weatherley-White proposes that investors be required to opt out if they don’t want to take that approach. 

Take the example of organ donation. Countries that automatically enroll all citizens in organ donation programs have higher rates of organ donation than counties where people have to opt-in, simply because of the added step of having to opt-out.

“Rather than ask people to fight their behavioral and cognitive biases by asking them to opt in, let’s ask the financial markets to embrace implied consent,” said Weatherley-White, who first lofted the idea in a provocative post. ““If we made ESG the opt-out setting, the system would change fundamentally and irrevocably.” (Maura Dilley)

socap-day2A $5 Billion Impact Fund? Maya Chorengel, a partner at Elevar Equity, suggested that within five years, someone will have raised a $5 billion impact-focused private-equity fund. “If you look at the market and the need, there is need for a lot more capital than that,” Chorengel said in the morning plenary session at SOCAP. “I think we’ll get there in the right way.” 

Given the generally small size of today’s impact funds, Chorengel’s forecast might seem an exaggeration. But with this week’s announcement that TPG Growth, part of the giant TPG private-equity group, is seeking to raise a $1 billion Rise Fund, the idea is not so far-fetched. Not coincidentally, TPG Growth is partnering with Elevar, and Chorengel will devote most of her time to raising the new fund.

The growth trajectory is ambitious, but not outlandish. Elevar last year closed its third fund at $74 million. Chorengel was joined on a plenary panel by Nancy Pfund of DBL Partners, which earlier this year closed a $400 million fund and Dave Kirkpatrick of SJF Ventures, which closed its third fund at $94 million. “Having funds that are much larger will enable institutional investors — like pension funds — that need size and scale,” Chorengel said. “Our hope this will open doors for more institutional investors coming into the market.” (David Bank)

Investors hit a $1 billion impact investing milestone, two years after making a $1.5 billion impact investing pledge at the White House. The pledge was made in June, 2014 by twenty-nine private funds, foundation programs and endowments, investment banks, small family foundations, and nonprofit organizations. Yesterday, impact investing researcher Cathy Clark used the SOCAP stage, a new infographic and a post on ImpactAlpha to announce results of commitments: over $1 billion has been deployed to through 367 investments. Clark noted that though “the set of impacts targeted and achieved are nearly impossible to report in the aggregate,” the impact of roughly two thirds of the dollars deployed is being tracked with third party impact certifications. (Dennis Price)

U.S. Latinos can be #ParteDeLaSolution. Calvert Foundation, Kiva and the Latino Community Credit Union, in partnership with Univision and Fusion, launched #ParteDeLaSolution, a new call to action to U.S. Latinos to use their financial power to boost social justice and economic empowerment in Latino communities in the U.S. and aboard. “The new movement aims to introduce a new meme—that Latinos can use their own capital, no matter what the amount, to be part of the solution,” says Felipe Arango, a partner at BSD Consulting, who is leading the initiative on behalf of the three financial institutions. #ParteDeLaSolution asks Latinos to invest in Latino communities through Calvert’s Vested.org, lend to Latino entrepreneurs through Kiva, and create economic opportunity by placing their savings in the Latino Community Credit Union. (Dennis Price)

The evolution of solar energy technology suggests the development trajectory of new battery storage technology. Developing better, more cost-effective and long-lasting battery storage capability is critical to the viability of using renewable energy on a large scale, and it’s becoming a bigger focus for companies and clean tech investors alike. “The analogy with solar is a good one,” said Alex Luce of CalCharge, a public-private partnership focused on energy storage, told a packed room at “Solar + Batteries: the Next Impact Investment Frontier”. Just as solar tech developers helped drive down the cost of solar panels through mass production, Luce said some companies (read: Tesla) are trying to do the same with batteries.

Battery storage has a long way to go, but this approach could be an enabler; it is certainly a sign of the times, noted Danny Kennedy of the California Clean Energy Fund. “We’re now in a tech world, rather than a resource world. Resources are bound by scarcity—the more you use them, the more expensive they become,” he explained. “With tech, the more you use it, the cheaper it becomes.” (Jessica Pothering)

Think like meat. How do veggie-friendly foods gain acceptance in among meat-loving consumers? When Seth Goldman’s “plant-protein hamburger alternative” Beyond Burger—as much a mouthful as the product itself—moved from the dairy refrigerator to the meat section, its sales went up by 44 percent. Goldman deduced that this was because people are creatures of (buying) habit, and therefore selling his product was more dependent on how customers associated the product with other goods rather than what it’s actually made of. The moral of the story? In order to feed the future with sustainable foods, like plant proteins, we have to understand our biases before encouraging new shopping and eating habits. (Maura Dilley)

Beyond food security. Sustainable foods are an important piece to building resilient agricultural systems. “Resilient agriculture can reverse climate change in 25 years,” stated Gregory Landua of Terra Genesis International. “There is no technical barrier to reversing climate change, the only barrier is markets and willpower.” Markets respond to consumer willpower, and in the case of agriculture, large-system change is dependent on conscientious consumption. Landua cited poet and ecologist Wendell Barry, who encouraged America to think of eating as an agricultural act. (Maura Dilley)

Mainstream investors can have impact, too. “Both impact and non-impact investors can be interested in deals that result in social good, and that’s fine,” noted Joan Larrea, CEO of Convergence, an online matchmaking platform that seeks to facilitate investor access to so-called “blended finance” deals—many of which have strong social good components. Blended finance seeks to galvanize private capital for development, by balancing high-risk capital with lower-risk capital to level returns that meet private sector expectations. Unlike impact investing, however, blended finance does not require an explicit intent of investing for impact. Convergence is testing this approach to development finance with its platform, which allows investors with different objectives—including purely commercial—to search for blended finance deals that meet their investment needs. (Marina Leytes)

Should fund manager compensation be tied to impact? Often managers’ compensation is tied only to financial returns, similar to traditional private equity funds. In recent years, tools and methodologies to assess impact have become more sophisticated, making it easier for fund managers to implement impact-based compensation structures. And while it’s not yet industry practice, a few impact funds like Core Innovation Capital, Vox Capital and Media Development Investment Fund are “putting their words where their mouths are” by linking their compensation structures to both financial performance and impact outcomes. For more information and case studies, check out “Tying Fund Manager Returns to Impact” by Transform Finance in collaboration with Marina Leytes.

Disclosure

Follow what’s happening at SOCAP on the conference livestream: http://socap16.socialcapitalmarkets.net/

Related News

2 Responses

Leave a Reply

Trackbacks/Pingbacks

  1. #Dealflow 9.21.16: d.light’s D Round, $17.5M for Medical Credit Fund, Global Goals for Hedge Fund Chief | Impact Alpha
  2. Billionaire’s Ball: Deconstructing the $2 billion RISE Fund | ImpactAlpha

Copyright 2017 IMPACT ALPHA. All RIGHTS RESERVED.