TGIF, Agents of Impact! 

Help us help you amplify your impact. Join other Agents of Impact and ImpactAlpha’s team of editors and journalists for today’s virtual mixer. We’ll talk about how we cover our beats, what makes a good story and how we can better tell yours. Meet the ImpactAlpha editorial team, today, Oct. 18, at 10am PT / 1pm ET / 6pm London. Still time to register.

In today’s brief:

• Roundup: Mispriced, and misplaced, risk
• The Call: Preserving affordable housing 
• Agent: Shawn Lesser’s new path for men’s mental health

🗣 Where, oh where. Things aren’t always what, or where, they seem. Businesses located in “emerging markets,” an imperfect and somewhat archaic term, have long had limited access to affordable commercial capital, in large part due to outside perceptions of market risk in underinvested parts of Asia, Africa and Latin America. After four decades and more than 15,000 credit transactions worth half a trillion dollars, the quasi-public development finance institutions and multilateral banks that do lend in such regions know better – but have been reluctant to tell anybody else. Despite years of calls for market transparency, the full data set of loans known as Global Emerging Markets, or GEMs, has never been made public. That made GEMs’ release this week of aggregated, anonymous crosstabs a revelation, if not a surprise, as ImpactAlpha’s Jessica Pothering reported. “These results suggest that investing in firms located in emerging markets is not as risky as might have been expected,” concluded the International Finance Corp.’s Susan Lund and Federico Galizia. 

Imperfect information, often paired with received assumptions, not only misprices risks – it can create them. Perhaps because of its low-income tilt, affordable housing has been seen by many investors as riskier than luxury projects. The opposite is true, as affordable multi-family projects have higher occupancy rates, lower vacancy-related costs, and lower costs of capital, Multifamily Impact Council’s Bob Simpson explained in a guest post. The misperception limits the institutional capital available to preserve the affordability of hundreds of thousands of units at risk each year of being flipped to market-rate rents as rent restrictions expire, as we heard on this week’s Agents of Impact Call (see below). We also heard about solutions, from ROC USA, Grounded Solutions Network and Common Counsel Foundation, that aim to reduce risk by pairing affordability with wealth-building mechanisms that give low- and middle-income residents and communities an ownership stake, as Dennis Price, Roodgally Senatus and I reported. 

Likewise: The risk that credits in the voluntary carbon markets may not perfectly account for greenhouse gas effects pales in comparison to the risk of abandoning that market, which has become a vital funding source for clean cookstoves, solar lanterns, irrigation and other high-impact and low-carbon products, argued Acumen’s Amrita Bhandari and Carbon Solutions Group’s Daniel Sadik. In an exclusive excerpt from her new book, Impact Engine’s Priya Parrish explores what happens when impact investments flop – when “no matter how good the team or innovative the idea, the project just isn’t a success.” There may certainly be risks in the new generation of small modular nuclear reactors being eagerly embraced by energy-hungry tech giants like Amazon and Google, as Lynnley Browning reported. But so too are there risks in the continued burning of fossil fuels, as communities still reeling from hurricanes Helene and Milton can attest, As You Sow’s Andy Behar wrote in his latest Fiduciary Future column. “Hurricanes never hit us here,” neighbors told Behar’s colleague Kaylea Noce in Asheville, NC, which had been considered a climate haven. On a warming and unequal planet, risks are increasingly misperceived, mispriced and misplaced. – David Bank

The Week’s Podcast

🎧 This Week in Impact. Host Brian Walsh takes up ImpactAlpha’s top stories with editor David Bank. Up this week: Highlights from this week’s Agents of Impact Call on putting an ownership lens on housing affordability; how and why to restore trust in voluntary carbon markets; and Amazon and Google opt for the nuclear option in their drive to supply their power-hungry data centers with carbon-free energy.

• Listen to the new episode of This Week in Impact. Get the podcast in your feed by subscribing on Apple or Spotify.

The Week’s Agent of Impact

Shawn Lesser, The REAL: A new path for men’s mental health. Shawn Lesser was always a familiar sight in baseball caps branded “Big Path Capital,” the impact investment banking and advisory firm he founded with Michael Whelchel in 2007. These days, he sports caps emblazoned with “The REAL,” short for The REAL Mental Health Foundation, an Atlanta-based nonprofit he launched last year to use conversation and community to improve the mental health of men and their families. Returning to his impact investing roots, he’s rolling out a fund of funds he hopes can attract $200 million for emerging mental health funds and companies. “We are building the mental health ecosystem by applying the same approach that succeeded in impact investing,” Lesser said this week at The REAL Summit, which convened several hundred financial executives at Deutsche Bank’s headquarters in New York. 

Lost productivity due to depression and anxiety costs the global economy an estimated $1 trillion a year. Teletherapy, AI-based treatments and other healthtech innovations are fueling a global mental health market that is projected to reach $560 billion by 2030. Lesser’s fund, which he plans to pitch to global leaders in Davos this January, will co-invest alongside venture funds in mental health startups. “There is a pipeline,” Lesser says, “and a lot of them are here right now.” When Big Path Capital launched, “impact investing was just a concept. People didn’t know where to start, but we created a roadmap,” he tells ImpactAlpha. “With The REAL, we’re doing the same for mental health.” 

Two years ago, the father of two was admitted to the psychiatric ward at Emory University Hospital in Atlanta after a three-month battle with depression and anxiety attacks. His breaking point came during a work Zoom call. “I had a full mental breakdown where I was not functioning correctly,” Lesser recalls. “I couldn’t speak and I was suicidal. I was telling my wife: ‘I don’t want to be here anymore.’” Lesser, 55, fell deeper into depression at the beginning of last year when his Big Path partners bought him out of the firm. “I got some money. But like a lot of people, my company was my whole existence,” he shares. With support from his friend and mental health sponsor Brent Hert and others, Lesser checked into a treatment center and eventually made progress. He hopes to inspire others to take their mental health seriously. “Mental health affects everybody,” he says. “It doesn’t matter if you’re young, old, Black, green, white, or orange. Mental health doesn’t discriminate, and every human is affected.”

• Keep reading, “Shawn Lesser, The REAL: A new path for men’s mental health,” by Roodgally Senatus on ImpactAlpha.

The Week’s Call

Putting an ownership lens on the preservation of affordable housing (video). The gap in affordable housing is wide and getting wider. Rent restrictions on some 200,000 units of affordable housing are set to expire next year alone, growing to one million units annually by 2032. Much of the public discussion around addressing that gap is focused on the creation of new affordable housing, which is important. The theme of this week’s Agents of Impact Call was preservation of affordable housing, both rental and owner-occupied, which is existential. A whole set of solutions and financing mechanisms has emerged to try to mitigate the risk of losing stock, including transferring ownership to tenants themselves. Michael Lohmeier of Impact Community Capital, Ruth Gao of Robert Wood Johnson Foundation, Paul Bradley of Roc USA, Jazmin Segura of Common Counsel Foundation and Devin Culbertson of Grounded Solutions Network joined the call to unpack those solutions. 

• Deconsolidation. To take on private equity investors and commercial developers, emerging strategies involve pooling capital, bulk purchasing, and going local to compete on timing and speed. “We’ve got to step up and deconsolidate and remove these properties from the speculative real estate market, and get them in the hands of the local community,” in the face of private equity consolidation and rising wealth gaps, said Bradley of Roc USA, which helps mobile home owners form cooperatives to buy the land beneath their homes.

• Preserving home ownership. Done right, the mechanisms preserve affordability while creating pathways for intergenerational wealth creation for low-income homeowners. The racial homeownership gap has actually widened in the last 60 years, said Gao. The  Robert Wood Johnson Foundation is putting the preservation of homeownership on the agenda of funders and investors in order to “help families with existing properties preserve the assets, unlock and fully utilize the benefits of owning property, and be able to pass it down to future generations.” To do that, the foundation is looking for solutions to home repair costs, lack of affordable insurance coverage, foreclosures and the “tangled titles” that often burden heirs’ properties.

• Local ownership. Community ownership strategies can “help preserve affordability by lowering barriers of entry for low-income residents,” said Segura of Common Counsel, which is raising a fund to help community-led organizations in California buy land and housing to take them out of the competitive market and preserve affordability. Grounded Network Solutions recently completed the acquisition of a portfolio of 283 affordable units in Minneapolis and will begin transitioning those to ownership by seven community land trusts – and over time to individual owners as well. The goal: “Capturing not just the stability and the anti-displacement, but capturing wealth-building potential,” said Culbertson. With effective implementation, “owner after owner after owner can be in that place and have the opportunity to live in that community, do it affordably and build wealth.”
  
• Scale and structure. To attract institutional investors, innovative models must find scale and structure, says Lohmeier of Impact Community Capital, which raises capital from the large insurance companies including Allstate, Farmers, Nationwide, Nuveen and Pacific Life to invest in keeping rental units affordable. Said Lohmeier: “We would welcome opportunities to do deals that aren’t traditional rental structures, if we could find the right scale to have it be repeatable.”
  
• Read the recap, tap the rich set of resources shared on the call, and watch the replay. Robert Wood Johnson Foundation supports ImpactAlpha’s homeownership preservation coverage. 

The Week’s Dealflow 

In deal news this week: New York’s Ember Infrastructure, Sydney’s Virescent Ventures and Montreal’s Diagram Ventures notched funding milestones that bring the collective amount raised for their climate investment funds to more than $650 million… Kataly Foundation charted an equitable bond strategy as it looks to spend down its reserves… And Fearless Fund backed Black woman-led ecommerce startup Zimi.Catch up on all of this week’s dealflow reporting on ImpactAlpha.

The Week’s Talent and Jobs

💼 See and share a dozen new impact jobs posted this week on ImpactAlpha’s Career Hub and view hundreds of more jobs in impact investing and sustainable finance. Have a job listing to post? Submit it here.

Blythe Burkhart, previously with Goldman Sachs, joined Blue Earth Capital as a growth equity analyst… Impact Finance Belgium tapped Pierre Harkay, formerly with the Belgian Investment Company for Developing Countries, as CEO… Dara Parker, previously with the Vancouver Foundation, replaced Adam Bendell as CEO of Toniic. Bendell will assume the role of president.

Jason Wingard, a professor at Harvard, joined the Social Finance Institute as a senior advisor… Impact Charitable welcomed Payton Hoops, previously with Cause Strategy Partners, as client and project manager… Blue Earth Capital added Ben Gusenburger, previously with Partners Group, as a transaction lawyer… Jamie Rowles, previously with Founders Forum Group, joined Regeneration.VC as partner.

That’s a wrap. Have a wonderful weekend. 

– Oct. 18, 2024