Greetings, ImpactAlpha readers!
#Featured: Open Mic
Mitigating the material risks of domestic violence. Violence against women is pervasive in the Pacific Islands, where the incidence is some of the worst in the world. What would the future of Fiji, Vanuatu or Samoa look like if there were a 50% reduction in domestic violence? And can finance play a role?
Finance is (or should be) fundamentally future oriented. Investors make bets today based on their visions of the future, whether that’s a moon shot or a culture shift. How would a clear scenario of a future shift in gender patterns shape how and where to invest today? When it comes to domestic violence, investors need to understand that this isn’t just a social issue, to be addressed by nongovernmental organizations, but one that presents material risks to them and shapes how and where to invest today. (See how an Australian initiative is helping investors make big bets on women in Indonesia, the Philippines, and Vietnam).
The challenge: How to use financial tools to better understand how culture and social structures associated with domestic violence are related to the current and future performance of an industry, a sector or a specific company.
Read “Using tools of finance to address domestic violence against women in the Pacific” by Joy Anderson of the Criterion Institute on ImpactAlpha:
#ICYMI: Brief Highlights
Blockchain, meet the 2030 goals. Brooklyn-based ConsenSys has put up $50 million and tapped social financier Kavita Gupta to hunt for blockchain solutions to global challenges. “This announcement could signal a shift in perception of blockchain tech from a get-rich scheme to solution-centered for real problems,” tweets Capital One’s Jason DePerro. (Read more)
How big companies are turning to small businesses to expand their reach — and their impact. Impact — e.g. creating good jobs and improving community well-being — is the new badge of honor for multinational companies. But big business hasn’t lost sight of securing supply chains and distribution routes, and reaching new markets. For many large companies, the path to both impact and better business runs through small businesses in emerging markets. (Read more)
After the rains stop. The sheer devastation of hurricanes and flooding around the globe, including Irma, whose wrath continues to unfold, has heightened — if only temporarily — awareness that the risks from climate change-accelerated storms and disasters have arrived. In two parts, ImpactAlpha has profiled ambitious experiments in flood control, housing and infrastructure, and water and sanitation are helping cities become more resilient. (Read part 1 and then part 2)
#Dealflow: Follow the Money
Red Cross launches war-zone rehabilitation bond. The international aid group has created what it’s calling the first humanitarian impact bond, a $27.3 million private placement to finance services for people with disabilities in conflict zones. The Red Cross will use the funds to build and run three new physical-rehabilitation centers in Nigeria, Mali and Democratic Republic of Congo, “providing services for thousands of people,” the organization said in a statement. If the Red Cross hits targets for efficiency — the ratio of people that receive mobility devices per aid professional — “la Caixa” Foundation and the governments of Belgium, Switzerland, Italy and the UK will pay back investors with a return. Kois Invest helped structure the bond, which was backed by New Re, a part of Munich Re Group, and other institutional and private investors brought to the table by Bank Lombard Odier. The Red Cross has come under fire recently for how it spent donations after Hurricane Sandy and other disasters. Perhaps the new bond can improve efficiency, accountability and — most important — outcomes. Devex has a nice write-up on the new bond.
Mars pledges $1 billion to tackle climate change. Plenty of big companies have announced sustainability commitments (and progress) in light of the Paris climate agreement and U.N. Sustainable Development targets. Few have openly put a pricetag on what the pledges cost. With its $1 billion commitment, candy manufacturer Mars aims to reduce its carbon footprint by 60% by 2050. Barry Parkin, Mars’ chief sustainability officer, told Business Insider that he doesn’t think collective effort on “the big issues” is moving fast enough. “You have to completely change the way you operate your business and you have to completely change how you source your products,” he said. $1 billion represents about 3% of Mars’ sales last year. It will go to building wind farms and increasing its renewable energy capacity, and towards improving sustainable sourcing in its supply chain — fish and cocoa in particular.
Billion-dollar B Corp acquisition. Natura, the Brazilian cosmetics company and certified B Corp for its ethical and sustainable practices, acquired the Body Shop from French cosmetics company L’Oréal. Natura generated $2.5 billion in revenues in 2015. Combined, the two firms and Aesop, an Australian skincare brand also owned by Natura, have operations in 70 countries, 17,000 employees and an independent sales force of 1.8 million. “We both share a same vision of cosmetics, advocating the use of natural ingredients, seeking to use our business as a platform to raise environmental consciousness,” said João Paulo Ferreira, Natura’s chief executive, on a June conference call when the bid was first announced. B-Lab, the nonprofit that administers the sustainability certification, says the acquisition was the first by a billion-dollar B Corp. To stay hip to people using business as a force for good, sign up for B the Change’s weekly newsletter.
See all of ImpactAlpha’s recent #dealflow.
#Signals: Ahead of the Curve
Pushing the bounds of who is creditworthy. If fallout from the massive cybersecurity breach at Equifax, one of three U.S. companies that rate consumer credit histories, doesn’t engulf the full credit-bureau system, simple out-datedness just might. “In a world flooded with information, we’re still relying on a tiny set of sensitive data to protect us from fraud,” writes Russell Brandom in The Verge. A hallmark of impact investing has been to look beyond traditional credit histories — which many poor-but-creditworthy customers and potential entrepreneurs lack — to other indicators of trustworthiness. Going back to the arrival of microfinance, social investors have sidestepped credit history and looked to such factors as a borrower’s community reputation and relationships. The latest case: Detroit-based Entrepreneurs of Color Fund. Instead of using FICO scores to assess loan recipients, the $6.5 million loan program that counts among its investors the Detroit Development Fund, JPMorgan Chase, and the W.K. Kellogg Foundation provides support before and after the loan to increase the likelihood of success. Over the last two years the fund has backed more than 40 entrepreneurs of color or businesses that primarily hire people of color, including Benkari Mechanical, the nation’s first licensed master plumber owned by an African American woman. The companies are credited with creating 420 jobs, and only $8,000 of the loans has been written off. Backers are looking to double the size of the fund and replicate it in other cities.
Future cities must be more dense and more green. Both are possible. Houston’s sprawl no doubt made Hurricane Harvey’s impact far more severethan had the city a more efficient and dense design. But there’s another reason for making our future cities dense and green: Rapid urbanization in developing economies could lead to unsustainable levels of greenhouse emissions unless cities adopt more efficient and dense urban designs, says a recent report from the Energy Transitions Commission (ETC). Cities contribute fewer greenhouse-gas emissions per person than more rural areas (though extensive suburbs can wipe out the climate benefits, according to a UC Berkeley study.) The average carbon footprint of households in the center of large, population-dense cities is about 50% below average, while households in distant suburbs have up to twice the average.
Unfortunately, urban density is moving in the opposite direction. Urban population is increasing around the world, not just in Houston but also in Lagos, Nigeria, or Mumbai, India — where recent monsoon flooding has devastated the city and region. But urban land area is expanding at a higher rate; the urban population of developing countries could double by 2030, while the area covered by cites could triple.
How to counter unchecked urban sprawl — and the resulting increase in greenhouse gas emissions — while making sure cities are better able to withstand the hazards of our climate-challenged world? Low-carbon transport systems are key, the ETC report says, making it possible to grow economically without expanding energy consumption. We might also take a look at thisSomali plan, with an initial focus on Mogadishu, that calls for long-term investment in urban livelihoods, services and infrastructure as a way to become more resilient in the face of recurring natural disasters.
“We simply can’t go on with haphazard urbanization — it hits the poor very badly,” said Rohinton Emmanuel, professor of sustainable design and construction at Glasgow Caledonian University. “Saying that we can’t afford to have space for greenery and parks is very short-sighted… no one has looked at the whole life cost of these things: how much does the flood event cost?”
That’s a wrap. Have a great weekend! Please send any news and comments to [email protected].