The Brief | July 22, 2019

The Brief: Soil wealth, microfinance bonds, Ethic’s customized investments, mini-grids in Tanzania, GE’s clean-energy transition

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Greetings, Agents of Impact!

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Agriculture funds are investing billions to regenerate soil – and communities. Farmers are building soil health to mitigate climate change and foster resilience on farms and in rural communities. Regenerative farming can also reduce agriculture investment risk, creating investment opportunities across food and agricultural value chains. That calculus has spurred the creation of at least 54 U.S.-based investment vehicles, with nearly $50 billion in assets, that incorporate regenerative practice in their ag investment strategies. Practices that improve soil health include rotational grazing, outdoor pastures for animal welfare and fair working conditions and pricing for workers and consumers. The regenerative funds are a subset of the sustainable investment strategies included in “Soil Wealth,” a comprehensive analysis of private investment in food and agriculture. The report, from Croatan InstituteDelta Institute and Organic Agriculture Revitalization Strategy, challenges the perception that regenerative agriculture lacks investable deals.

Iroquois Valley Farmland REIT, Farmland LPEquilibrium Capital and Beartooth, for example, are among almost 30 farmland investors managing $22 billion in regenerative real assets. Foodshot GlobalArborview Capital and Patagonia’s Tin Shed Ventures are among a dozen private equity and venture capital funds with nearly $7 billion backing companies that supply, equip and buy from regenerative farmers. The report also identifies investable regenerative strategies in cash and cash equivalents, public and private debt and public equities, and more than 60 “regenerative ready” financial mechanisms, instruments, and approaches that could mobilize capital to scale regenerative approaches. “Investors speak the language of risk,” says Delta Institute’s David LeZaks, a lead author of the report. “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.”

Keep reading, “Agriculture funds are investing billions to regenerate soil – and communities,” by Dennis Price on ImpactAlpha.

Dealflow: Follow the Money

Ethic raises $13 million to help advisors build custom sustainable investing portfolios. Ethic is among the crowd of platforms vying for dominance in the $12 trillion U.S. sustainable investing market. The platform helps institutional investors and financial advisors screen existing portfolios and build new ones around values-based equities. The firm sees the shift in wealth management from active to passive management giving way to “personalized” investing. “We see a lot of people shocked when they actually see what they are invested in,” co-founder Johny Mair said in an earlier interview. Ethic focuses on advisors and institutions already managing money. That may be an easier lift than converting customers to a new platform, which has proved a challenge for retail platforms for sustainable investing. Ethic’s funding round was led by existing investors Nyca Partners, with backing from Fidelity Investments, Ashton Kutcher’s Sound Ventures. Existing investors that re-upped include ThirdStream PartnersUrban Innovation Fund and Kapor CapitalMore.

ResponsAbility issues $175 million in notes for small business and microfinance lending. The Swiss impact investor raised $175 million from OPIC, the U.S. development finance institution, Swedish pension plan manager Alecta and Calvert Impact Capital to support small business and microfinance lending. The capital, raised through a bond issuance, was lent to 26 financial institutions providing loans to 30,000 small businesses and 5.6 million microfinance borrowers. The institutions, from India to the Netherlands to Ecuador, lend mostly to women. The three tranches of notes carry different risk profiles: the fixed-rate senior and mezzanine notes have a three-year maturity, while returns on the junior notes will be based on portfolio performance. The structure signaled new maturity for small business and microfinance investing in emerging markets. “Applying capital markets technology to traditional impact investing creates the potential to open this sector to a wider range of investors,” said Eric Wragge of J.P. Morgan, which supported the transaction. Check it out.

Dealflow overflow.

  • ESG data provider Arabesque S-Ray clinches $20 million. The company supplies sustainability performance data on more than 7,000 companies to financial institutions. Arabesque raised funding from German investors AllianzCommerzbankDWS Group, and Land Hessen to build out its real estate sustainability assessment tools.
  • BlueOrchard takes a stake in Nigerian insurance company. The investment in Royal Exchange General, Nigeria’s largest non-life insurance company, was made through the Swiss impact investment firm’s InsuResilience Investment Fund. BlueOrchard now has a 39% stake in Royal Exchange General and will expand the company’s agricultural coverage.
  • CrossBoundary invests $5.5 million in mini-grids in Tanzania. The commitment to build 60 minigrids is CrossBoundary’s first project since it was launched by Rockefeller Foundation and the family office Ceniarth. CrossBoundary is partnering with PowerGen Renewable Energy and has secured debt financing from U.K.-based Renewable Energy Performance Platform.
  • Sustainable protein producer 3F Bio scores €17 million. The U.K.-based company secured funding from the E.U.’s Horizon 2020 initiative to build facilities for alternative proteins and bioethanol. The partnership includes Dutch cellular meat company Mosa Meat and bioplastics startup Lactips.
  • Lynk raises funding to connect artisans to customers in Kenya. Early-stage impact investor Lateral Capital and Cornerstone Groupprovided an undisclosed amount of funding for the startup’s Etsy-like online marketplace.

Signals: Ahead of the Curve

How GE and its investors misjudged the energy transition. A sweltering heat wave gripped much of the U.S. this weekend. June was the hottest month on record, according to the National Oceanic and Atmospheric Administration. The spiking temperatures provide a stark reminder that corporations and investors ignore the shift away from fossil fuels to more sustainable energy at their (and the planet’s) peril. General Electric’s missteps in the energy market serve as a cautionary tale, according to a report from the Institute for Energy Economics and Financial Analysis. GE “is a case study in how rapidly the global energy transition away from fossil fuels travels up the economic chain and destroys value,” say the authors.

  • Impact omega. GE lost $193 billion, or 74%, of its market value from 2016 to 2018. The authors chalk up the value-destruction in large part to GE’s ill-timed acquisition of Alstom’s thermal power division in 2015, just as world leaders committed to reducing emissions and thermal demand began to soften. GE last year took a $23 billion write-down for the unit’s goodwill—roughly double its purchase price just three years earlier.
  • Shareholder neglect. GE’s largest shareholders, including BlackRockVanguard, State Street and Fidelity, suffered massive losses, $11 billion for BlackRock investors alone over a three-year period. The report calls out shareholders for failing to grasp the global transition to clean energy. “BlackRock owned 5.7% of GE’s stock and so should have been a more active and well‑informed owner,” said IEEFA’s Tom Sanzillo (see, “Impact investors join forces to call on GE to lead the clean-energy transition).
  • Stranded assets. “The equity and debt write-offs at GE, and in the European utility sector and Indian thermal power generation sector over the last decade, are just a taste of the potential stranded asset losses to come,” conclude the authors.
  • Catch up. Last week, GE and BlackRock teamed to spin out Distributed Solar Development from GE. The company, 20% owned by GE Renewable Energy and 80% owned by a fund managed by BlackRock, will build, own and operate distributed solar and storage solutions for customers. “There was a lot of debate about what I was doing,” said Erik Schiemann, who launched the business within GE in 2012. “I argued that if we don’t try to disrupt our own business, someone else will.”
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Agents of Impact: Follow the Talent

Beeck Center’s Sonal Shah joins the presidential campaign of Pete Buttigieg as national policy director. Nate Wong, managing director of Georgetown’s Beeck Center for Social Impact and Innovation, becomes interim executive director during Shah’s leave of absence… Dean Segall, ex-of Convergence, says he has joined Canadian insurance company Sun Life as a director in its sustainability team… Open Society Foundation is recruiting a principal of gender lens impact investing in London… Opportunity Finance Network is hiring an investment associate and an online community coordinator in Washington DC.

– July 22, 2019