The Brief | April 15, 2019

Sharing the wealth, tech-driven health services in the U.S., household energy trading in the U.K., impact principles from the IFC

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Greetings, Agents of Impact!

The Call No. 8. Join ImpactAlpha’s Agents of Impact call, “Sustainable investing advice – for financial advisors,” Thursday, April 18 at 1 pm ET / 10 am PT / 5 pm London. Register today.

Featured: Returns on Investment podcast

Making the ‘S’ in ESG stand for ‘share the wealth’ (podcast). Capitalism is not working well for the majority of Americans because it is producing self-reinforcing spirals up for the haves and down for the have-nots. These conditions pose an existential risk for the U.S. That’s not socialist Sen. Bernie Sanders speaking. It’s billionaire hedge-fund manager Ray Dalio, who last week took up the challenge of “Why and How Capitalism Needs to Be Reformed.” In the latest episode of ImpactAlpha’s Returns on Investment podcast, the roundtable regulars, too, took up the age-old tension between capital and labor. Asks host Brian Walsh: “Is impact investing on the side of capital, or on the side of labor?”

Income inequality looms as a major challenge for investors seeking to mitigate environmental, social and governance, or ESG, risks. Moody’s last year warned that income inequality would likely “weigh on the credit profile” of U.S. government bonds, signaling a potential downgrade that would hurt the economy. The question is particularly pointed for pension funds that pay benefits for retired workers – often through investments in companies and private-equity firms seeking to shed jobs, cut benefits and keep wages low. “There’s always been a schizophrenia in how the pension community has viewed the labor market,” says Imogen Rose-Smith, an investment fellow with the University of California. Suggests ImpactAlpha’s David Bank, “It’s better for everybody in the entire marketplace for more people to have more wealth,” he says. “That’s an impact investing and ESG imperative for long-term sustainability. And that’s a cool and interesting policy and technology problem for everybody to work on.”

Read on, and listen in, to “Making the ‘S’ in ESG stand for ‘share the wealth’ (podcast)” by David Bank on ImpactAlpha.

Dealflow: Follow the Money

Cityblock raises $65 million to expand low-income health services in the U.S. Brooklyn-based Cityblock calls itself a “tech-driven provider for communities with complex needs.” Alphabet’s urban incubator Sidewalk Labs launched the startup in 2017 to improve healthcare services in low-income communities in the U.S. The software platform integrates health and social service providers of primary care, behavioral health and social services for low-income Medicaid and Medicare clients. It operates clinics in New York and Connecticut with local health insurers and plans to launch this year in North Carolina. Cityblock raised its Series B round, led by Redpoint Ventures with backing from prior investors Sidewalk Labs, Maverick Ventures, Thrive Capital, and Townhall Ventures. Learn more.

Household energy-trading startup Verv secures £6.5 million. Verv’s home energy monitoring system helps people save on energy and, for those with home solar systems, trade excess energy. Artificial intelligence predicts household consumption; blockchain ensures secure peer-to-peer trades. The U.K.-based startup aims to lower energy costs for low-income residents in British public housing and private affordable housing – Verv tested its trading platform in a social housing development in London’s Hackney neighborhood. The company’s Series A round was led by environmental investment company Earthworm. Prior investor Centrica converted its convertible note into equity. Read on.

Luminate injects $4 million into anti-corruption organization Global Witness. U.S. and Europe-based Global Witness investigates into transnational corruption, covering abuses in everything from oil and mineral extraction to forest lands. The 26-year-old organization’s “hard-hitting investigations” often lead to litigation, policy action and regulatory reform, said citizen engagement funder Luminate, which made a grant to help Global Witness expand its investigation capacity. Luminate is a spin-off of Omidyar Network (which has also spun off Spero from its emerging tech group and Flourish from its financial inclusion group). Luminate has supported 236 organizations with $306 million in funding. Dig in.

Signals: Ahead of the Curve

Global investment firms adopt IFC principles seeking a market standard for impact investing. Sixty investors and institutions managing $350 billion in assets invested for impact adopted the nine operating principles for impact investments laid out by the International Finance Corp, a member of the World Bank Group, on Friday. The commitment to the principles “will bring much needed discipline, transparency and credibility to the market,” said the IFC’s Philippe Le Houérou at the launch in Washington D.C. The principles include defining strategic impact objectives, managing impact, monitoring the progress of each investment and exiting with considered effect on sustained impact. Signatories will have a year to disclose how their investment practices stack up to IFC’s principles (Private-equity giant KKR, for example, tapped impact strategy firm Tideline to review its systems). Firms are required to provide annual verification of impact management systems. “Investors are craving this kind of discipline,” said Le Houérou. In a separate report, the IFC said the untapped market for impact investments could be in the trillions.

  • Hybrid strategies. Legacy investment firms and financial institutions with impact investing offerings signed up to the principles, including KKR, TPG Growth’s Rise Fund, Nuveen, Partners Group, Prudential, UBS and Credit Suisse. The pledges commit the investors to only align their “impact” assets. KKR, for example, confirmed to ImpactAlpha that it will align only its (yet undisclosed) impact assets under management. TPG Growth signed up only its impact fund, the Rise Fund.
  • 100% impact adopters. Signatories include more than 15 development finance institutions, as well as impact investment managers including Acumen Capital Partners, BlueOrchard Finance, Calvert Impact Capital, Capria Ventures, LeapFrog Investments, MicroVest and responsAbility. “I am very pleased to see IFC putting their voice behind impact principles,” says Will Poole of Capria Ventures, an IFC investee. First-time impact funds may initially struggle to meet all nine principles, says Poole. “Unrealistic expectations could be the biggest hurdle in implementing the IFC’s principles.”
  • Impact cred. The IFC’s Le Houérou said the pledge will help prevent ‘impact washing.’ “Investors sometimes wonder if their impact investment was actually living up to its name,” says Le Houérou. “Now, they can be sure.”
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Agents of Impact: Follow the Talent

Uber is hiring a senior manager of global vehicle electrification in San Francisco… Also in San Francisco, Salesforce is hiring a marketing manager for impact initiatives… The Inter-American Development Bank is looking for a natural capital lab work consultant in Washington D.C…. NatureVest seeks a conservation trust fund specialist to support its debt conversion work around the globe in Arlington, VA… Techstars Impact Accelerator is recruiting a program manager in Austin.

April 15, 2019.