TGIF, Agents of Impact!
Stakes in the ground. The 50-year anomaly of “shareholder primacy” may be coming to an end. The shift makes even more salient the principles and practices pioneered by impact and sustainable investors and entrepreneurs (see No. 1, below). Big private equity firms, many of which are raising 10-figure impact funds, will be pressed even more strongly to demonstrate measurable social benefits (see No. 2). Efforts to empower individual and small-business borrowers, such as Kiva’s digital-identity protocol (see No. 3) and Tala’s“everyday life” credit scoring (see No. 4), strengthen those stakeholders’ claims to equitable finance and access to capital. The Earth itself is even gaining stakeholder standing. After all, says Anuj Shah of KKS Advisors, today’s fund managers are going to be exiting their next fund in seven to 10 years, when “the world will care a lot more about sustainability than it does today” (see No. 7).
– David Bank, editor
Featured: ImpactAlpha’s Big 7
1. Rise of the stakeholders. Shareholder primacy is “legacy.” The new normal: stakeholder capitalism. This week’s pledge from nearly 200 CEO members of the Business Roundtable to hold corporations accountable to customers, workers, communities and suppliers as well as shareholders, reflects a fundamental shift in business and finance. Stakeholder capitalism has moved from radical fringe to official policy for major asset owners, major asset managers and, now, major corporations. “To the cofounders of the ‘B Corp’ movement, this view of the role of business in society isn’t new,” write B Lab’s Jay Coen Gilbert, Andrew Kassoy and Bart Houlahan in Fast Company. Separate “benefit corporation” legislation in 37 U.S. jurisdictions allows corporations to make themselves legally accountable to stakeholders. Mechanisms for enforcing such accountability will be key, including accountability to, yes, shareholders. The Business Roundtable and some of its CEO signers have at times worked to mute shareholders’ voices on issues like climate risk and executive compensation. ImpactAlpha’s takes on stakeholder primacy and corporate accountability.
- Backtracking. The Business Roundtable supported the U.S. Securities and Exchange Commission’s vote this week to make life more difficult for proxy advisory firms, which often support shareholder resolutions advocating enhanced environmental, social and governance, or ESG, performance and reporting.
- Impact accountability. ESG and impact are at the heart of the emerging ‘stakeholder value’ accounting system. Impact investors have pioneered methods for managing and reporting impact on stakeholders. More than a dozen impact management and accounting practitioners lay out the elements in Stanford Social Innovation Review.
2. Private-equity giants spin up billion-dollar impact funds. Even if it meets its goals, Apollo Asset Management’s inaugural impact fund would be a $1 billion speck in a $72 billion private equity portfolio. But with other big private equity firms raising $1 billion here and $1 billion there, we are talking about real money. KKR, with $206 billion total assets under management, is said to have reached its own $1 billion target for its Global Impact Fund. Al Gore’s $22 billion Generation Investment Management has closed its $1 billion Sustainable Solutions Fund and TPG Growth (part of the $70 billion TPG) is in the market with a second, $3 billion Rise Fund after its $2 billion Rise I. Partners Group, the $91 billion Swiss private equity manager, launched its Sustainable Development Goal-aligned fund last year; the $512 billionBlackstone Group has announced an impact infrastructure, real estate and private equity initiative; and $130 billion asset manager Ares Management is said to be raising a “climate infrastructure” investment strategy to back projects tackling climate change. What it all means.
- Impact watch. Apollo will face particular scrutiny. “Apollo Global Management has a history of investing in businesses that prey on low and moderate income people,” according to the Private Equity Stakeholder Project. The February report cites investments such as OneMain Financial, one of the nation’s largest subprime installment lenders; Apollo Education, which owns for-profit University of Phoenix; and Inspire Communities, a developer and owner of manufactured housing communities.
3. Kiva enrolls Sierra Leoneans in a protocol for financial inclusion. Part of the crowdfunded lending platform’s next act is to help bring some of the 1.8 billion un- and underbanked adults worldwide into the formal banking system by helping them establish credit histories. This week Kiva and the government of Sierra Leone launched Sierra Leone’s National Digital Identity Platform, a blockchain-based data recording initiative that links individuals’ national identity numbers to digital transactions, including healthcare, social and financial services. The platform will enable all 5.3 million adults in the country to build digital financial footprints by recording financial transactions that otherwise happen informally and offline. “You have rich financial lives way down in the economic pyramid. It’s just not being recorded anywhere,” Kiva CEO Neville Crawley told ImpactAlpha (see, “Q&A: CEO Neville Crawley wants Kiva to change systems as well as lives”). “We’re not trying to make an alternative system, we’re trying to improve The System.” Inclusive economy.
4. Agent of Impact: Tala’s Shivani Siroya. A stint at the U.N. Population Fund exposed Tala founder and CEO Shivani Siroya to the realities of financial exclusion. She began making micro-loans of around $300 out of her own pocket to small and informal business owners. To decide who to lend to, she used “daily life” information from the people she had gotten to know. “The answer was easy in my mind, almost unconscious,” she says. “Mutual trust,” she decided, was the missing piece in the financial inclusion equation. This week, Tala scored $110 million in fresh funding to expand lending in India; it also operates in Kenya, Tanzania, the Philippines and Mexico and now serves more than four million customers (see, “Tala clinches $110 million for inclusive micro-lending and alt-credit scoring”).
Tala’s “alternative” complements Kiva’s “systems” approach to bringing the unbanked into the formal financial sector. Indeed, Siroya’s early out-of-the-box thinking about what makes someone credit-worthy could ready millions of borrowers for formal financial services. Siroya’s path began in traditional banks like Credit Suisse and UBS. After her work with the population fund, Siroya launched the micro-lending platform in 2014, using data from potential borrowers Android devices as underwriting criteria. In the past year, Tala tripled its lending volume to $1 billion. “Our system is not all that different from a digital credit card or a working line of capital,” she says, “but for an untapped population.” – Jessica Pothering
- Share Shivani Siroya’s Agent of Impact story on Instagram.
- Follow the talent with ImpactAlpha’s weekly report on career moves, job openings, events and opportunities.
5. Deals of the week. Stay on top of the dealflow all week long on ImpactAlpha.com. A few that stood out:
- Personal finance. Ladenburg Thalmann backs Newday’s platform for financial advisors.
- Inclusive economy. Blokable secures $23 million for affordable modular housing… Immigrant social platform Homeis raises $12 million.
- Inclusive fintech. Tala clinches $110 million for inclusive micro-lending and alt-credit scoring (see No. 4, above).
- Farmer finance. AgDevCo backs DekelOil in the Republic of Côte d’Ivoire.
- Innovative finance. Beneficial Returns offers impact incentive in loan to ATEC Biodigesters.
6. Policy incentives for impact investing. Governments “have a unique power to accelerate systemic change by giving innovation a hospitable place to seed and scale,” writes Amit Bouri of the Global Impact Investing Network in the latest edition of ImpactAlpha’s What’s Next series. Bouri cites France’s “90-10 rule” (mandating that companies offer employees access to savings funds that invest in “solidarity-based enterprises”); rules in South Africa and Brazil that require companies to report environmental, social and governance, or ESG, data; and U.K. requirements for disclosure of gender pay-equity performance. Where else has policy succeeded in catalyzing impact investment? Where has it failed? We’ll round up policy suggestions next week. For the wonks.
7. Ten emerging trends in sustainable investing. “It’s hard to know exactly how a tipping point is measured,” writes Anuj Shah of KKS Advisors in a blog post charting emerging trends in sustainable investing. “But we boldly posit that we’re past it.” Among the trends: Sustainability-linked loans that come with a lower cost of capital. Environmental, social and governance, or ESG, engagement is adding value for asset managers. And private equity managers sees the long-term value in sustainability. “The biggest driver of the changes we’ve experienced over the past decade is the availability of data,” writes Shah. Dig in.
Thank you for reading and have a wonderful weekend.
– Aug. 23, 2019