ImpactAlpha’s Big 9: Behind the story, soil wealth, alternative proteins, sustainability alpha, Agent of Impact: Erik Schiemann



Greetings, Agents of Impact!

Themes and memes. Agents of impact are “infecting the host” across the food and beverage industry (see No. 2below) and on Wall Street (No. 5). At big corporations like GE, spinning out the disruptive innovation is sometimes the best way to let strategies for social inclusion and environmental regeneration thrive (No. 4). Watching how social and environmental impact worms its way through the financial machinery is one of ImpactAlpha’sobsessions. On next week’s Agents of Impact Call No. 10, we’ll take a tour through the big themes driving ImpactAlpha coverage. RSVP today for The Call, Thursday, Aug. 1st, at 10:00 am PT / 1:00 pm ET / 6:00 pm London. Spread the word: Impact is contagious!

Speaking of impact-driven value-creation: ImpactAlpha is hiring a Director of Growth to drive subscription marketing and grow recurring revenues so we can serve our growing community of Agents of Impact even better. It’s an opportunity for a media-savvy growth expert to jump on one of the hottest trends in business and finance. Please send great candidates our way. Join ImpactAlpha’s team.

– David Bank, editor

Featured: ImpactAlpha’s Big 9

1. Soil wealth, and community health, attract investors. A new report demonstrates the investability of regenerative agriculture – farming practice that builds soil health and fosters resilience on farms and in communities. In “Soil Wealth,” the Croatan InstituteDelta Institute and Organic Agriculture Revitalization Strategy identify more than 50 U.S.-based investment vehicles, with nearly $50 billion in assets, that target regenerative practices in their ag investment strategies. “Investors speak the language of risk,” Delta Institute’s David LeZaks told ImpactAlpha. “When you start to manage systems for increasing soil health and having bigger stocks of carbon in the soil, those systems are inherently less risky and more resilient to extreme weather and climate change.” Soil carbon.

2. Plant-based food is taking market share, and attracting capital. The “better-for-you” food movement is driving demand for plant-friendly food. So is “better-for-the-earth.” As the carbon footprint of legacy meat production becomes more glaring, even Big Food is hedging. Entrepreneurs are getting ahead of the curve. Accelerating sales of plant-based food and meat alternatives drove overall growth for U.S. food retailers last year. U.S. food startups attracted $1.5 billion in investment capital last year; dairy and animal-based protein alternatives raked in $400 million. “The economic, environmental and health benefits associated with a plant-centric diet has enabled startups to gain traction,” Food + Tech’s Ryan Williams told ImpactAlphaAlt protein.

  • Real impact? “Just because it’s not meat, doesn’t mean it’s a planetary panacea,” writes Anna Lappé of Real Food Media. Lappé is alarmed by the genetically engineered soy in Impossible Foods’s veggie burger. Impossible CEO Pat Brown says the company, which has raised more than $400 million, is committed to consumers and the planet, including through the genetically modified soy. Says Lappé: “The troubling track record of just such soy is at odds with that commitment.”

3. General Electric’s cautionary tale of stranded assets. GE “is a case study in how rapidly the global energy transition away from fossil fuels travels up the economic chain and destroys value,” says the Institute for Energy Economics and Financial Analysis. The firm’s missteps in the energy market are detailed in a new report that tallies the value-destruction of GE’s ill-timed acquisition of Alstom’s thermal power division in 2015, just as thermal demand began to soften. GE lost $193 billion, or 74% of its market value from 2016 to 2018. The authors call out GE’s largest shareholders, including BlackRockVanguardState Street and Fidelity, for failing to grasp the global transition to clean energy. Climate smarter.

4. Agent of Impact: Erik Schiemann, Distributed Solar Development. Disrupt or be disrupted. One of the few bright spots in GE’s story of value destruction (No. 3, above) is the spinout of the company’s unit that designs, builds and operates distributed solar and energy storage solutions for commercial customers. The new firm, Distributed Solar Development, will be owned 20% by GE and 80% by a renewable energy fund managed by BlackRock. Schiemann, a longtime GE executive, faced a classic “innovator’s dilemma” in nurturing GE Solar within the corporate giant since 2012 (the concept, popularized by Harvard’s Clayton Christensen, tries to explain why even successful legacy companies often lose market leadership to disruptive technologies and nimble startups). Distributed Solar used products not made by GE and brought its parent company no big customer service contracts. Some GE executives considered distributed solar power a threat to the company’s traditional power business. “There was a lot of debate about what I was doing,” Schiemann says. “I argued that if we don’t try to disrupt our own business, someone else will.”

The case study should inspire other sustainability intrapreneurs trying to “infect the host” at large legacy companies. Solar was a tiny part of GE’s renewable energy business, compared to wind and hydro. As head of a standalone company, Schiemann says he’ll get lower-cost capital, lower transaction costs, quicker execution and the ability to own some of the projects he develops. Customers, he says, get one throat to choke. Distributed Solar plans to quadruple its own annual project pipeline, to 400 megawatts, in five years. BlackRock, which already has invested $5 billion in more than 250 solar and wind projects totaling 5.2 gigawatts of capacity, will get deeper access to “the tremendous growth potential in the U.S. solar industry,” BlackRock’s David Giordano said in a statement. Follow ImpactAlpha on Instagram.

  • Follow the talent with ImpactAlpha’s weekly report on career moves, job openings, events and opportunities.

5. Goldman Sachs: ESG has risen to the C-suite. Inclusive growth and climate transition have become significant drivers of growth, risk, and operational efficiency for businesses and investors, and thus for Goldman Sachs, says John Goldstein, who will lead the firm’s new Sustainable Finance Group. Questions about environmental, social and governance factors, or ESG,and sustainable finance came from both large clients and senior colleagues at Goldman, Goldstein says. “These questions had risen to the C-suite and those executives wanted the same rigor, insight, and capabilities supporting them on ESG and impact that they sought on any other business or investment topic.” The new unit was coordinate sustainability across Goldman’s financing, advisory, risk management, asset management and investing businesses. Sustainability alpha.

6. Late-breaking: Swell shuts down its retail impact investing platform.The company said it was “not able to achieve the scale needed to sustain operations in the current market,” and is ceasing operations Aug. 30. Customer acquisition has been a challenge for new entrants in retail impact investing, despite market demand for accessible sustainable investing options. Ethic, in contrast, raised $13 million to help advisors build custom sustainable investing portfolios. Ethic’s focus on advisors and institutions that already have clients may make for an easier lift than converting customers to a new platform. ICYMIRetail platforms for sustainable investing struggle to differentiate themselves – and to attract customers.”

7. Deals of the week. Stay on top of the dealflow all week long on ImpactAlpha.com. A few that stood out:

  • New power. Knight Foundation awards $50 million to study tech’s impact on democracy… Frontiir raises $30 million to expand internet access in Myanmar.
  • Impact tech. German mobility company FlixBus closes $560 million for global expansion… SteamaCo raises $5 million for off-grid energy monitoring.
  • Innovative finance. London Zoo partners to bring pay-for-success to animal protection.
  • Building blocks. Franklin Templeton’s social infrastructure fund investsin hospitals, schools and care facilities.

8. Managing investment risk in the world’s poorest countries. Investments in Angola, Senegal, Myanmar, Bangladesh, Zambia and other low-income countries carry real and perceived risks that keep much private capital on the sidelines. Public and philanthropic investors are blending commercial capital with risk-mitigating and concessionary instruments. Credit and risk guarantees attracted 63% of the $9 billion in private capital mobilized through blended finance in least developed countries between 2012 and 2017, according to the UN Capital Development Fund. “While the risks are higher in these contexts the return on investment could potentially be higher and the impact greater,” write Cordaid’s Izabella Toth and Romy Miyashiro. “Access to finance can contribute to inclusive local economic development and hence to greater stability.” Catalytic capital.

9. Making ESG data meaningful. Employee health and safety is a “material ESG issue” for nine out of 11 sectors included in the Sustainable Accounting Standards Board’s industry-specific framework. Yet, a sample of 50 Fortune 500 companies found at least 20 different ways of reporting employee health and safety data. The analysis, from Harvard Business School’s George Serafeim and Sakis Kotsantonis of KKS Advisors (Serafeim is a co-founder), highlights the complexity in producing reliable and comparable data about corporate environmental, social and governance, or ESG. Serafeim and Kotsantonis have some ideas for improving ESG data. Benchmarks for progress, for example, should be absolute, not relative. “Setting pre-defined ranges of performance for ESG metrics provides a way to assess the real impact of a company to the external world,” the authors say. Better ESG.

– July 26, 2019

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