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#Featured: World Economic Forum in the Spotlight
Inclusive growth lights up exclusive Davos. “Inclusion” is the word du jour at this year’s annual meeting of the World Economic Forum in the Swiss Alps. Inclusion of women. Inclusion of refugees. Inclusion of the poorest 3.6 billion people, who combined have as much wealth as 42 billionaires. But truly inclusive growth will take more than words. While advanced economies grew by an average of more than 5% between 2012 and 2016, “inclusion” — as measured by living standards, environmental stability and future indebtedness — grew by 0.01%.
Populist reaction, which rattled the denizens of Davos at last year’s gathering, appears to be on the wane, as evidenced by President Trump’s attendance this year. Successful governments in the 21st-century will build markets not walls, reduce risks rather than raise tariffs. Fading as well are narrow notions of shareholder primacy, as evidenced by BlackRock CEO Larry Fink’s recent directive to corporations to find their social purpose, fast.
Dare we say those shifts are bringing major players roughly to where impact investors have been for a decade or more? Making investments that maximize social and environmental, as well as financial value. Measuring the impact of those investments in not only earnings per share, portfolio returns or GDP growth, but in truly inclusive prosperity. We’ll be watching throughout the week for the best ideas for moving forward. For starters, check out the proposals in 2030 Finance below to vastly expand blended finance for the Global Goals.
#Dealflow: Follow the Money
Partech Ventures launches fund for African tech. The investment firm has raised €57 million ($70 million) toward a €100 million fund to back growth-stage African fintech companies. The fund, called Partech Africa, will invest €500,000 to €5 million in ventures focused on financial inclusion, online and mobile consumer services, supply chain management and “digitization of the informal economy.” Cyril Collon, general partner of Dakar, Senegal-based Partech Africa, says tech venture capital in Africa is expected to reach $1 billion by 2020, up from $367 million in 2016. The fund’s investors include the IFC, European Investment Bank, and corporate backers Orange and JCDecaux Holding.
WISErg raises $19.2 million for food waste technology. The Seattle-area company collects unconsumed food from grocery store chains and converts it to organic, water soluble fertilizer at a nearby facility. The fertilizer is sold at Whole Foods and other retailers. “There is so much food waste that is an untapped resource at this time,” WISErg’s CEO Brian Valentine said. “The more people that can figure out how to process it and utilize it instead of dumping it or burning it, the better.” WISErg’s Series C round was backed by Laird Norton Company and Second Avenue Partners. The company will use the funds to build a second facility in California to serve farms in the region and test a new collection model.
ERC Eye Care secures $1 million for affordable care. ERC offers affordable eye care to low-income patients in Northeast India through hospitals in Assam. India faces a shortage of eyecare specialists, making access to care difficult, particularly for rural and low-income patients. ERC has two clinics in Assam where patients can see specialists and get glasses for less than $1 and cataract surgery for less than $20. (Half of the world’s cases of blindness are caused by untreated cataracts.) The $1 million ERC has raised will be used to build two new clinics and extend care into villages through mobile health vans. Ankur Capital and Ennovent led the round with funding from several other investors arranged by Impact Investment Exchange (IIX)
#Signals: Ahead of the Curve
Drain the oil to reduce risks. It may feel good to dump those fossil fuels in your investment portfolios. But what will it do to your investment portfolio? There’s some evidence to back up the proposition that portfolios without coal, oil and gas stocks outperform those that do contain fossil fuel investments. Recent research from index company MSCI shows that its broad stock index, ex fossil fuels, outperformed its conventional index in five of the last six years. Of course, investors who dump oil and gas investments must choose solar, wind and other alternative stocks with care, and buckle up for what could be a rocky ride. But the future of fossil fuels is likely to be even rockier, argues Nia Impact Capital’s Kristin Hull, who makes the case for fossil fuel divestment on ImpactAlpha.
#2030 Finance: Long-termism
Finding the right blend to finance the global goals. Public officials and development bankers need to stop treating private investment as one-size-fits-all. If they want to effectively use limited public monies to crowd in private capital from banks, insurance companies, pension funds and private equity firms to meet the Sustainable Development Goals, they’ll need to understand the differences between private investors. A working paper prepared by Convergence, the Toronto-based development deal platform, found, for example, that banks and wealth managers prefer investments above $400 million. Insurance companies go for investments in the $100 million to $200 million range. Sovereign wealth funds are moving more money into private equity and infrastructure. Financial services, energy and climate finance have drawn the most institutional capital; there are still too few opportunities in equities and listed bonds.
The report, commissioned by the Blended Finance Task Force, a project of the Business and Sustainable Development Commission (the folks that framed the Global Goals as a $12 trillion business opportunity), offers some ideas on how to boost private development capital to $4 trillion or even $5 trillion. Today, institutional investors, who manage most of the world’s private finance, invest only about 1% of assets, or about $2 trillion, into blended finance in developing countries.
“Even where a social, environmental, or impact mandate may be of interest, there is a lack of willingness to sacrifice financial returns in favor of those impacts,” the report says. “Public and philanthropic funders should communicate in the language of institutional investors and focus on the credible, commercial investment opportunities that are presented by the Global Goals.” A few suggestions: Create mainstream asset types like investment-grade bonds and notes. Collect and disseminate data on the returns for the commercial layers of capital in blended finance transactions. Collaborate on a few well-proven blended finance solutions to promote standardization and reduce complexity.
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