2030 Finance | November 3, 2017

Impact tax hacks, Milwaukee startups, China’s impact ecosystem, closing the 2°C climate action gap

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Greetings, ImpactAlpha readers!

#Featured: Returns on Investment podcast

Tax Hacks: Turning tax reform toward inclusive prosperity. Oliver Wendell Holmes Jr. called taxes “the price we pay for civilization.” In ImpactAlpha’slatest Returns on Investment podcast, our regular roundtable goes even further: how can the tax code be used to nudge investments toward a future we’d all want to live in?

“You have a leadership that can’t think beyond ‘less taxes,’” says Imogen Rose-Smith, an investment fellow with the University of California. Which makes it all the more important to break out of such narrow confines with smart, dare we say bipartisan, ideas. A few ideas lofted on the podcast (even if they may not fly in the halls of Congress):

  • An infrastructure bank capitalized with some of the hundreds of billions of dollars in overseas corporate (mostly tech) profits.
  • Capital-gains tax deferral in return for low-income or inner-city community development investments, along the lines of the bipartisan Investing in Opportunity Act.
  • A robot tax or, conversely, a payroll tax cut to end the tax advantages that androids currently enjoy over humans.
  • A “clean tax cut” that reduces taxes on profits from clean energy, cutting the cost of capital and making low-carbon energy even cheaper.

Tune in to “Tax Hacks: Turning tax reform toward inclusive prosperity,” a podcast conversation between ImpactAlpha’s David Bank, Liquidnet’s Brian Walsh and University of California investment fellow Imogen Rose-Smith:

Tax Hacks: Turning tax reform toward inclusive, sustainable prosperity (podcast)

Got an impact tax hack? Send it to [email protected]. We’ll publish the best ones!

#Dealflow: Follow the Money

TPG Growth invests in agtech venture Gro Intelligence. Can better data encourage more financial investment in African agriculture? Gro Intelligence scrapes information sources from governments, trade organizations and markets and standardizes the data so they can be indexed and searched. Data from multiple sources enables Gro to deliver greater accuracy, says founder Sara Menker. “If a country says [crop] production dropped, but all the signals indicate that the crop looked healthy, we’ll make corrections ourselves and notify the sources,” Menker says. Gro launched in 2014 and operates in New York and Nairobi. TPG Growth led Gro’s Series A round, amount undisclosed, which also include investments from Data Collective and several family offices. TPG Growth has $8.3 billion in assets under management and includes the $2 billion The Rise Fund, which has so far announced five investments of its own.

Mercy Corps backs LiftIt to ease last-mile distribution in Colombia. Logistics is often overlooked as an impact opportunity, but it’s critical for rural producers and small business to succeed. In Latin America, logistics costs can reach 40% of product value for small businesses, five times the level in OECD countries. Colombia-based LiftIt’s technology helps small-business owners manage cargo shipments by tapping a network of 500,000 independent truck drivers. The firm says it boosts the incomes of drivers, while providing quick quotes, shipment tracking, insurance, and same-day delivery for companies. The size of Mercy Corps Social Venture Fund’s seed investment in the company was not disclosed. The fund has also backed Agruppa, a Colombian agricultural supply-chain venture.

Northwestern Mutual and Aurora Health Care launch funds for Milwaukee startups. Life insurer Northwestern Mutual and hospital chain Aurora are eachallocating $5 million to support tech entrepreneurs in their home town. The Milwaukee area is home to several large corporations but lags other cities in small business activity, startup funding, and high-tech talent attraction and retention. “We need to harness our collective power to embrace innovation and new ways of working,” said John Schlifske, Northwestern Mutual’s CEO, in an interview. The insurers’ fund will target startups with early-stage investments of $100,000 to $250,000. Growth-stage capital of about $250,000 is in short supply for Milwaukee’s entrepreneurs, says Matt Cordio, president of Startup Milwaukee.

See all of ImpactAlpha’s recent #dealflow. Send deal tips and news to [email protected].

#Signals: Ahead of the Curve

‘Less talk, more action’ to boost impact investing in China. The philosophy behind impact investing isn’t lost on China, but the tendency to over-hype the sector could be. “The Chinese culture traditionally encourages less talk and more action,” says Tao Zhang, founder of Dao Ventures, a China-US consortium that has invested more than $200 million in social and environmental ventures in and outside of China. Even successful social ventures such as Landwasher, a waterless toilet company that has sold more than 10,000 toilets across China, aren’t sexy enough for typical venture investors. Such investors are “used to dizzying venture valuations especially in the mobile Internet sector,” writes Zhang in Philanthropy Impact. Other than development banks like International Finance Corp. and the Asian Development Bank, few investors in China identify as impact investors, he says. (Annie Chen’s Hong Kong-based family office, RS Group, is an exception). Zhang, who previously ran the global New Ventures program of the World Resources Institute, cites the example of Ecofroggy International, which provides recycled stationery products and environmental education for China’s primary school students, but struggled to attract investors at a recent entrepreneurship competition. “The concept of impact investing has yet to sink in with them, which is not uncommon with mainstream venture capitalists in China.”

#2030: Long-Termism

Closing the 2°C climate action gap by 2030. The 2017 Emissions Gap Report is out, and its conclusions are stark: The spread between what countries pledged last year in Paris to reduce CO2 emissions and the reductions needed to keep global warming below 2°C is “alarmingly high.” And if the gap isn’t closed by 2030, staying below that target is “extremely unlikely.”

So what needs to be done? Limit short-lived climate pollutants, such as methane and hydrofluorocarbons. Remove carbon dioxide from the atmosphere. Phase out coal. The authors note that the necessary reductions in emissions could be achieved by 2030 using available technologies. What’s more, a large part of the gap could be filled with only a half-dozen well-developed categories: solar and wind energy, efficient appliances, efficient passenger cars, tree-planting and stopping deforestation. “All these measures can be realized at modest or even net-negative incremental costs, and in most of the cases there are proven policies that can be replicated,” the report says.

The key is strengthening the Nationally Determined Contributions (NDCs), or national pledges that form the backbone of the Paris agreement. At next week’s COP23 gathering in Bonn, the focus will be on additional steps that G20 countries, including the U.S., the European Union, Japan, Mexico and the Republic of Korea can take to meet their current NDC goals. Brazil, China, India and Russia are on track to hit their less ambitious targets.

Onward! Please send news and comments to [email protected].