The Brief | November 28, 2018

Stepping up sustainable investing, healthy childbirth in Nigeria, small-business lending in India, tradeoffs no more

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Greetings, ImpactAlpha readers!

Featured: Returns on Investment podcast

Taking sustainable investing to the next level, sooner than later (podcast). The glass may be one-quarter full – or more than three-quarters empty. Last month’s report from the U.S. Forum for Sustainable and Responsible Investment, or US SIF, generated headlines for its finding that $12 trillion in assets now use one or more sustainable investing strategy. That represents more than one-quarter of the $46.6 trillion in professionally managed assets in the U.S., a 38% increase in the past two years. There may be less than meets the eye in such large-sounding numbers, however, suggest the roundtable regulars on ImpactAlpha’s Returns on Investment podcast. “It tells you there is an increasing awareness of these issues by a whole group of investors,” says Imogen Rose-Smith, an investment fellow with the University of California. “But It doesn’t necessarily tell you that all these investors are considering these factors as germane and central to their investment processes.”

Take climate change, the most commonly cited environmental factor considered by such sustainable investors, according to US SIF. Climate concerns were considered by money managers managing $3 trillion in assets. “At this late date? Only $3 trillion in assets being assessed against climate-change risks?” asks ImpactAlpha’s David Bank. “The next stage of this discussion is…are you looking at the long-term risks facing your portfolio and shifting your portfolio?” Still, the roundtable found reasons for optimism. Rose-Smith cites increased shareholder engagement and proxy voting on issues including climate change, gender diversity, executive pay and corporate governance itself. “That is a lot more powerful and is going to be a lot more influential to corporations than the top-level numbers,” she says. Investors, individual and institutional, are becoming better educated about what’s in their portfolios, and their impact. “There is a process here of transparency, accountability and feedback loops to the asset owners, and then the slow gears of change grinding along,” Bank says. “Whether that process of change is happening fast enough is another discussion” – and another podcast.

Listen in to “Taking sustainable investing to the next level, sooner than later.” And subscribe to ImpactAlpha’s Returns on Investment podcasts on iTunes, SoundCloud, Stitcher or wherever you get your podcasts.

Dealflow: Follow the Money

Gray Matters’ gender fund backs Nigerian maternal care venture SonoCare. SonoCare provides low-cost mobile medical imaging and diagnostics to tackle Africa’s high maternal and infant mortality rates. The venture has screened more than 26,000 women in Nigeria, many from rural communities, and detected over 15,000 high-risk pregnancies. Gray Matters Capital invested an undisclosed amount via its $5 million gender-focused coLABS fund. SonoCare is coLABS’ second African healthtech investment. Read on.

Aye Finance closes $10 million in debt capital from BlueOrchard. The Gurgaon-based small-business lender raised 700 million rupees ($9.9 million) from the Zurich-based microfinance investor. Aye Finance, which has a presence in 100 Indian cities, will use the capital to expand lending to rural areas. Aye, which raised an earlier $10 million in debt in July, wants to close the year with a loan book of 9 billion rupees. Here’s more.

M&G Investments’ impact fund to target mid-size and emerging market public equities. London-based M&G Investments is launching a public equities impact fund based on MSCI All Countries World index. The M&G Positive Impact team is targeting mid-sized and emerging market stocks with higher impact potential, says M&G’s John William Olsen. The firm has $365 billion in assets under management. Here’s more.

Kenyan logistics company Twiga raises $10 million. Twiga Foods connects rural farmers directly to informal food vendors in urban areas (see, “Helping smallholder farmers in Africa move up the food value chain”). The African venture capital firm TLcom backed the venture, along with the World Bank’s International Finance Corp. More from Twiga.

Signal: Ahead of the Curve

Investors across the spectrum of returns push ‘beyond tradeoffs.’ More takeaways (here’s Part 1) from the new series sponsored by Omidyar Network that seeks to move the impact investing discussion beyond the age-old debate about “tradeoffs” between social impact and financial returns and toward the range of investment strategies that already exist all along the spectrum of risks and returns. Collect the whole set:

  • Prudential Financial: An 80/20 rule can help meet institutional needs. The Newark-based insurance giant began as a social enterprise that helped bring affordable burial insurance to the working poor. Prudential has made more than $1 billion in impact investments in the last five years, and more than $2.5 billion since the 1970’s. One of the keys: An 80/20 portfolio approach that allocates 80% of impact investment assets in market-rate (or better) holdings and 20% in higher-risk or concessional investments. The approach “gives us the ability to move up and down the capital stack and find opportunities that provide a sensible combination of risk, return and impact,” says Prudential’s Ommeed Sathe.
  • Lok Capital: Technical assistance can mitigate risks and reduce costs. The Indian venture capital firm has raised more than $175 million across three funds. Early on, the firm found success by investing in microfinance institutions through a venture fund, while providing grant funding for technical assistance to investees. The grant funds provided a “smart subsidy” to absorb a portion of the cost of training and development, allowing investees to on-lend affordably and providers of equity capital to get a reasonable return.
  • Big Society Capital: Crowding in capital requires intentional design. Seeded with cash from dormant bank accounts, the wholesale social investor is helping to build the UK social finance market through example. A £30 million ($38 million) investment in Rathbones’ Charity Bond Support Fund, for example, supports the issuance of new bonds by charities by investing in up to one-third of each new issue. Such investments have helped open up the charity bond market to market-rate institutional bond portfolios, with more than £230 million in bonds issued to date.
  • Bill & Melinda Gates Foundation: Incentivize for-profit firms to work for the poor. The $2 billion strategic investment fund of the world’s largest foundation is aimed at harnessing private sector innovation for global health, development and education. Andrew Farnum and his team use equity investments, loans and guarantees to provide incentives to companies to build products for the global poor. The foundation has made more than a dozen equity investments in early-stage biotech companies to increase the chances of a hit on vaccines and drugs for diseases such as malaria, HIV, and typhoid. A “global access” agreement guarantees low prices for less-developed countries.

Read ImpactAlpha’s full set of takeaways from Beyond Tradeoffs.

Agents of Impact: Follow the Talent

The Investment Integration Project and the Principles for Responsible Investment host a webinar Dec. 6 to discuss Why and How Investors Can Respond to Income Inequality (see, “Mitigating the investment risks of rising income inequality”)… A Dec. 11 webinar on alternative ownership structures from Transform Finance features Natalie Reitman-White of Organically Grown Company and Purpose’s Derek Razo… German consulting firm Roots of Impact is hiring a project manager for innovative finance and an impact investment analyst.

November 28, 2018.