Adjusting climate risk, housing rehab in Mexico, affordable housing for teachers, rural-revival investing, seeking inclusion alpha at Kresge Foundation



Greetings, Agents of Impact!

Signals: Ahead of the Curve

Risk, adjusted: BlackRock and Mercer signal the repricing of climate risk. Investors’ portfolios may get a jolt from a sudden “repricing event” that recalibrates the risks of climate change, according to a new report from Mercer. In a sequel to “Investing in a Time of Climate Change,” the global consultancy suggests the market isn’t fully pricing the “physical risks” of climate, from floods, hurricanes, rising seas, crop failures and more. That, in turn, has caused mispricing of climate-related “transition risks,” such as new regulatory and other mandates that strand or devalue assets like coal and pipelines. Such transition risks may have gone down in recent years as prospects for meaningful global climate mobilization have faded. The longer policymakers and companies delay, however, the more rapid the low-carbon transition will need to be. Possible triggers include physical damages, policy action or shifts in market sentiment. Even long-term impacts that seem small on an annual basis can get repriced quickly on a net-present value basis. “In reality, sudden changes in return impacts are more likely than neat, annual averages,” Mercer advises.

  • Mispriced risks. BlackRock, the world’s largest asset manager, drilled into municipal bonds, commercial real estate and U.S. utility stocks in a deep-dive study of physical climate risks. The report, “Getting Physical,” suggests vulnerable cities could see their economies sag, raising risks for municipal bonds. Securities backed by commercial real estate face losses as properties are hard hit by floods and storms. Shares of the most climate-resilient utilities already trade at a premium to climate-vulnerable utilities. Such vulnerabilities were exposed in January when PG&E filed for bankruptcy after devastating California wildfires. Investors still are discounting risks already lurking in their portfolios, BlackRock suggests.
  • Imperative and opportunity. Keeping global temperature rise well below the 2⁰ Celsius limit called for in the Paris agreement “is most likely to provide the economic and investment environment necessary to pay pensions, endowment grants and insurance claims over the timeframes required by beneficiaries,” Mercer’s Deb Clark writes. That is, nearly all asset classes and regions do better under a 2⁰ scenario versus 3⁰ or 4⁰. Perhaps even more compelling are the investment opportunities in mitigation and adaptation that represent what Mercer calls a “low-carbon transition premium.”
  • Sign of the times. Big food companies urged the U.S. Congress to adopt climate policies to reduce carbon emissions. “Climate change impacts our companies, and we have a business imperative to reduce emissions,” wrote Danone, Mars, Nestlé, Unilever and other companies in the Sustainable Food Policy Alliance. One proposal: Establish a carbon pricing system. Also on the list: clean energy deployment, resilient infrastructure and investing in U.S. workers and communities most impacted by the costs of climate change. “We know that the farmers in our supply chains are shouldering the burden of adapting to increasingly severe and volatile weather as a result of climate change.”
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Dealflow: Follow the Money

Adobe Capital and IGNIA exit Mexican home rehab startup Provive… Provive acquires abandoned homes in Mexico and fixes them up, then helps families secure financing to buy them. Attracted to the Tijuana-based company’s model for community regeneration, IGNIA invested MX$44 million ($3.3 million) in Provive in 2011 from its first fund. Adobe Capital invested four years ago via its Social Mezzanine Fund I. Adobe exited, and IGNIA partially exited, their investments following Provive’s debt financing from an unnamed international bank. Adobe’s Rodrigo Villar told ImpactAlpha that Provive restored more than 6,600 homes for 30,000 individuals, and quintupled its revenues over the course of Adobe’s investment. “Provive has proven to be a highly successful company in the field of urban regeneration of low-income communities,” said IGNIA’s Fabrice Serfati. Read on.

…while Landed scores $7.5 million to help teachers buy homes. The housing finance startup raised $5 million last year from the Chan Zuckerberg Initiative to help teachers buy homes in the high-priced Bay Area communities where they teach. Now it has closed $7.5 million in Series A financing from venture capital firm Initialized Capital. Since launching in 2015, Landed says it has helped educators in San Francisco, Denver, Los Angeles, San Diego and Seattle buy homes collectively worth more than $100 million. Landed fronts 10% of buyers’ down payments. Teachers put up another 10% – and offer Landed one-quarter of the profits if and when they sell. Landed is expanding into higher education as well. Here’s more.

Signals: Ahead of the Curve

The rural revival is investable. Rural-lens investors are putting money into agribusiness venture capital funds, municipal bond funds that raise money for rural counties, community development finance institutions that fund health care services in rural communities and more. “Investing to revitalize rural America,” a new brief from Cornerstone Capital, highlights investable rural opportunities across asset classes that can direct capital to rural job and business creation, infrastructure development and healthcare opportunities. A big one: Broadband infrastructure. Online public finance platform Neighborly recently launched the ‘Broadband Opportunity Fund’ to accelerate the deployment of fiber broadband networks in rural Opportunity Zones. More.

  • Rural dealflow: Bain Capital’s Double Impact fund acquires tech employer Rural Sourcing.

Kresge seeks inclusion alpha with pledge to invest 25% by ‘25. The Troy, Mich.-based foundation committed to invest one-quarter of its U.S. assets in female- and diverse-owned managers by 2025. Diverse money managers demonstrate equal or better performance than their peers but manage just 1.1% of $71 trillion global assets under management. “We believe that diversity of thought, background and beliefs leads to better investment decisions and returns,” said Kresge’s Robert Manilla. “Our efforts to diversify our investment managers is not only the right thing to do, it’s the smart way to work.” More.

Agents of Impact: Follow the Talent

Pam Kostka is the new CEO at All Raise, which advocates for women founders and funders… Impact Finance Center seeks applicants for impact investing fellowships… Acumen America is looking for a senior associate in San Francisco… Edtech startup Kinvolved is hiring in New York.

April 11, 2019.

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