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#Featured: ImpactAlpha Original
Blending finance to unlock capital for the 2030 global goals. To build its $150 million private equity fund to invest in frontier markets, Sarona Asset Management leveraged public funding to lower risks and thus attract private investors. That “blended finance” model is becoming increasingly important in mobilizing private capital to meet 21st-century challenges as articulated in the 17 U.N. Sustainable Development Goals. Sarona, an Amsterdam and Ontario-based fund-of-funds manager, invests in local private equity funds in emerging and frontier markets like Peru, Ecuador, Nigeria, Egypt, Vietnam, and Indonesia with high-impact and high-growth investments that are well suited to contribute to the 2030 global goals.
Private capital can indeed deliver public goods. We need much, much more capital from individual, institutional and other commercial investors to fill the estimated $2.5 trillion annual gap in financing for sustainable development. The good news: We increasingly know the blends that can attract it.
Read, “Unlocking blended finance for the 2030 global goals” by Dennis Price on ImpactAlpha.
#Dealflow: Follow the Money
U.S. robo-advisors launch socially responsible investing platforms.Betterment and Wealthfront, which collectively manage more than $15.5 billion in assets, are rolling out stock portfolios that screen for human rights, health and safety, environmental impact and strong corporate governance. Both firms are among the top five U.S. digital investment advisors, or “robo-advisors,” by assets under management. The sector has more than $100 billion in assets in the U.S. and could reach $2.2 trillion by 2020. So far, socially responsible and impact investing offerings have been limited to smaller advisors. “It’s something there has been a lot of pent up demand for,” says Dan Egan of Betterment, the larger of the two digital investment advisors. Betterment, based in New York, will focus on index-tracking; California-based Wealthfront will allow its clients to pick stocks directly.
Nesta’s Arts Impact Fund backs creative companies and art entrepreneurs. The arts and creative community has largely been ignored by impact investors. Nesta launched the Arts Impact Fund in 2015 to meet demand for loans among the arts community. The U.K. foundation has loaned£2.4 million ($3.1 million) to eight organizations from its £7 million Arts Impact Fund, doubling its portfolio. The new crop of borrowers include the Birmingham Royal Ballet, East London creative community and arts venue Village Underground, and Bradford-based performance venue Fuse. Nesta’s financial partners in the fund include Arts Council England, Bank of America Merrill Lynch, and the Esmee Fairbairn and Calouste Gulbenkian foundations. Nesta plans to finish investing with the fund in early 2018 and begin raising a new fund next year. (Listen to “Artists as Social Entrepreneurs” a Returns on Investment podcast with Upstart Co-Lab founder Laura Callanan).
Another European pension fund launches SDG and green bond funds.Luxembourg’s €17.1 billion ($20 billion) public pension fund is the latest to join the trend among European pension funds and institutional investors to align investments with the U.N.’s Sustainable Development Goals. Luxembourg’s Fonds de Compensation is developing a €50 to €100 million equity fund aligned with the SDGs and a green bond fund of the same size. The pension fund is looking to align investment with Luxembourg’s commitment to the Paris Agreement and support for the U.N.’s 2030 sustainable development agenda, according to Christian Würth, one of the fund’s advisors. Last week, Spain’s fourth-largest bank, Bankia, opened a fund to retail and institutional investors aligned around five of the 17 SDGs.
See all of ImpactAlpha’s recent #dealflow.
#Signals: Ahead of the Curve
Foundation leaders commit to U.S. impact investing push. Policies and other measures to advance impact investing in the U.S. will get a push from a new alliance of foundation presidents and investors, led by the Ford Foundation’s Darren Walker. The U.S. Impact Investing Alliance, officially launched today, traces its roots to the 2013 G8 meeting in the U.K., which established “national advisory boards” to tackle country level obstacles to impact investing. Even before the launch, the U.S. alliance co-hosted this month’s GSG Impact Summit in Chicago, a gathering of such bodies from around the world. “We will build on the momentum of recent policy advances — modernizing fiduciary duty, advancing outcomes-based funding, and empowering shareholder engagement — and we will seek out new opportunities to unlock impact capital,” Walker and the alliance’s executive director, Fran Seegull, wrote on LinkedIn. The 11-member board is heavily weighted toward philanthropic foundations, including the presidents of the MacArthur, Kresge, Heron and Sorenson Impact foundations and the Omidyar Network. The board also includes Ian Simmons, a principal of the Blue Haven Initiative, a family office, and Nancy Pfund, managing partner of venture capital firm DBL Partners. “Investors are increasingly interested in aligning their investments with their values, so it is important the field continues to evolve to meet that demand,” said new board member, Andy Sieg, head of Merrill Lynch Wealth Management.
The future of transportation in the U.K. is electric. The U.K. government is planning to ban all petrol and diesel powered cars by 2040. But growing market demand for electric cars may render that deadline irrelevant. Falling costs mean electric vehicles may undercut conventional vehicles by as early as 2025 in the U.S. and Europe. Electric vehicle ownership is expected to match conventional cars by the early 2020s. The price of batteries, currently the biggest cost factor in electric cars, could fall by 77% by 2030, fueling widespread affordability (pun intended!).
Considering the direction of the market, eliminating conventional cars by 2040 may not be much of a stretch. Critics panned the announcement by Prime Minister Theresa May’s government as a “smokescreen” and “too little too late” on emissions reduction. The U.K. is suffering from serious air-quality issues: 60% of Britons are regularly exposed to levels of air pollution that threaten their health. The government has earmarked £3 billion to improve it. £225 million of that will be channeled into municipalities to clean up pollution from diesel vehicles. (The country allocated an additional £1 billion for an Industrial Strategy Challenge Fund, which will support battery research and development among other initiatives.)
Other countries with equally bad or worse air pollution conditions have charted more ambitious plans to combat air quality through the vehicle market. India, for example, has set an ambitious goal to replace conventional vehicles with electric vehicles by 2030, 10 years earlier than the U.K’s goal and with more than five times the number of vehicles. While the rate of vehicle ownership is much lower in India, the country has 200 million registered vehicles, compared to 37.5 million in the U.K.
Onward! Please send any news and comments to TheBrief@impactalpha.com.