Beats | September 24, 2018

New financial products start to scale investments in Sustainable Development Goals

Dennis Price
ImpactAlpha Editor

Dennis Price

A few impact fund managers that have taken seriously the investment case for the U.N.’s Sustainable Development Goals are raising fresh capital that could scale up private investments in healthcare, education, agriculture, energy access and other SDG priorities.

BlueOrange, now known as Blue Like an Orange Sustainable Capital, has reached a first close of $100 million. Bertrand Badré, the former chief financial officer of the World Bank who launched the emerging-market debt fund manager last year, has ambitions to mobilize more than $1 billion for SDG-aligned investments in sustainable infrastructure, agribusiness, education, healthcare and access to finance.

The new funds are targeting the opportunity for annual cost savings and revenues from SDG-related investments. A report from the Business and Sustainable Development Commission said that opportunity in just four sectors – energy, cities, food and agriculture and health and well-being  – could reach $12 trillion by 2030.

Blue Like an Orange aims to close the financing gap for small and mid-size business lending in Latin America. Closing such a capital gap in developing markets worldwide will be key to meeting the estimated $5 trillion to $7 trillion annual investment needed in SDG-aligned sectors to achieve the goals. Blue Like an Orange will invest in chunks of mezzanine debt of between $15 and $30 million.

Former World Bank officials launch BlueOrange for SDG investing in Latin America

“We feel a real responsibility to make this a very credible platform for both returns and SDG impact,” Suprotik Basu, a co-founder and partner in Blue Like an Orange, told ImpactAlpha.

Basu says the firm will begin lending this fall and has a deal pipeline in Brazil, Chile, Colombia, Mexico and Peru. The fund plans to co-invest with IDB Invest, the private sector arm of the Inter-American Development Bank.

Badré, who left the World Bank in 2016 to bring public-finance talent to the private market, formed the firm with Ray Chambers, a private-equity billionaire and champion of the UN Sustainable Development Goals, and corporate leaders like Unilever’s Paul Polman, Danone’s Emmanuel Faber and former AXA chairman Henri de Castries. JAB Holdings’ CEO Olivier Goudet and Clifford Sobel, founder investment firm Valor Capital and former US Ambassador to Brazil, also are investors in the Blue like and Orange’s general partnership. “A group that have dedicated their lives to both investing and finance, but also to social impact, have come together,” Basu said.

Limited partners in the firm’s Sustainable Capital Latin America Fund I include Chambers, French financier Philippe Oddo and Sir Ronald Cohen, the British venture capitalist and co-founder chair of Bridges Fund Management. Cohen chairs the Global Steering Group on Impact Investing, which is convening advisory boards from 30 countries in New Delhi next month.

Banking giant HSBC and French insurance firms AXA and CNP also are limited partners, along with more than a dozen other institutional investors. Basu said he was surprised by the degree of interest in the SDGs from institutional investors. “A lot of institutional capital is sitting on the sidelines and does not know what do do with impact of the SDGs,” he said. With Blue Like an Orange they saw an emerging-markets credit product that looks familiar, says Basu. “We’re focused on fund one, but I believe the product would work well in other regions, like sub-Saharan Africa and South Asia.”

Sustainable Development Goals take hold as a universal impact investment framework

SDG test

The emergence of funds aiming to breakthrough the billion-dollar milestone with strategies that directly target progress toward the SDGs is a key marker of whether private capital can indeed fill the SDG financing gap.

That proposition suffered a significant setback with the downfall of Abraaj, the once-$14 billion Dubai-based emerging-markets private equity firm that is now being liquidated in the wake of a financial scandal. Abraaj founder Arif Naqvi, was everywhere touting the “SDG opportunity” at last year’s UN Week. At this year’s events, Abraaj will be mentioned only in hushed whispers as a cautionary tale. The Abraaj Growth Markets Health Fund, launched with Bill Gates, has raised and deployed about half of $1 billion fund to build integrated health networks in mega-cities of the global south, in support of SDG No. 3.

>>MORE: Will Abraaj Group’s meltdown drag down ‘SDG investing’ as well

The growth of larger funds is key to taking eight- and nine-figure checks from global pension and sovereign wealth funds that manage much of global capital. Investor appetite appears to remain strong: private-equity giant TPG Growth, which last year raised the $2 billion Rise Fund as an explicitly impact-driven fund aligned with the SDGs, let it be known it is raising Rise Fund II – at $3 billion.

The first Rise fund has invested $1.5 billion of its $2 billion Rise Fund in more than 15 companies in education, agriculture and financial services, in the U.S. Latin America, India, East Africa and China, a spokesman confirmed. TPG Rise says it uses a metric called the “Impact Multiple of Money,” that assigns specific dollar targets to research-based impacts. But the firm has not disclosed those targets, nor reported on the performance of its portfolio.

The new crop of fund managers are seeking to differentiate themselves by going beyond simply “aligning” themselves and “mapping” their investments to the 17 global goals. “These investors proactively target and incorporate the goals at various stages of the investment cycle, thus making them the central focus,” says the Global Impact Investing Network, which features Blue Like an Orange among a half-dozen profiles in a new report on impact investing’s role in financing the SDGs.

Moving money

Incofin, the Belgium-headquartered impact fund manager that has already crossed the $1 billion mark in assets under management, has made 60 new investments since integrating the SDGs into its impact framework earlier this year. The firm, with regional offices in India, Colombia, Kenya and Cambodia, manages and advises 10 emerging market debt and equity funds that invest in small and mid-size financial services and agriculture companies.

The SDGs represent an “opportunity to align the industry around impact measurement,” Fallon Casper, an Incofin investment manager based in Bogotá, Colombia, told ImpactAlpha.

Fallon says Incofin’s approach goes beyond alignment. “It’s about mapping our investment and impact indicators with specific targets within the SDGs, and collecting data to provide tangible results.”

Mirova, an $8 billion unit of Natixis Investment Managers, which has nearly $900 billion under management, has raised the first $120 million of what was originally going to be a $1 billion Land Degradation Neutrality Fund, a collaboration with the U.N to target SDG No. 15, “Life on Land.”

The layered fund will provide long-term financing to sustainable agriculture, forestry,  land management and restoration projects. The project used public capital from anchor investors including the European Investment Bank and the French Development Agency, to leverage institutional capital from Fondaction, Fondation de France, and insurance companies BNP Paribas Cardif and Garance.

“Rehabilitating degraded land, protecting vital ecosystems and empowering sustainable business around the world…can be achieved along with competitive market-level returns,” Mirova’s Philippe Zaouati, said at the launch of the fund.

Mirova formally launches $300 million Land Degradation Neutrality Fund

In March, the $78 billion Partners Group stood up its own billion dollar fund to invest in companies and other assets targeting specific SDGs. The Swiss private markets investment firm has been incorporating environmental, social and governance standards into its investment since 2008. Responding to client demand for a dedicated impact product, the firmed developed PG LIFE, a multi-asset class fund targeting financial inclusion, healthcare, education, and clean energy – SDGs No. 1, 3, 4, and 7.

The new availability of institutional grade products is encouraging asset owners to step up their allocations. PGGM, a Netherlands-based asset manager for pension funds, believes, “the SDGs reflect sustainability trends that are shaping the world’s future,” according to the GIIN report. The firm, which manages some $272 billion, has mapped its impact investments themes to the SDGs. Last year, the manager made 3.3 billion ($3.9 billion) in new investments aligned with the SDGs for food, health, water, and climate. The firm’s goal is 20 billion ($24 billion) by 2020.

Dutch pension fund moves from impact alignment to impact management

Managers of the SDG-aligned funds are happy to help the institutional investors meet their mandates. In an interview with ImpactAlpha last year, TPG’s Bill McGlashan said the Who’s Who of billionaire limited partner in Rise I make up only a fraction of total capital.

The point of that is the $10 trillion sitting around the table, meaning the capital managed by the institutions that came into Rise,” he said. “This is money that as a fiduciary matter is looking for a return first and foremost. And oh, by the way, we’re also delivering co-linear impact. These are institutions that have to put money to work at scale.”

The Rise fund, along with private-equity rival KKR and other bidders, is vying to take over the Abraaj health fund.