The Brief | September 5, 2019

The Brief: A racial lens on implicit bias, responsible coffee, pragmatic green infrastructure, animal agriculture risk, farm to table in Indonesia

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Greetings, Agents of Impact!

ImpactAlpha Podcast: Returns on Investment

Applying a racial lens to overcome persistent bias in capital allocation (podcast). Not even superior performance by investment managers of color, it seems, dispels lingering racial bias in the allocation of capital by institutional investors. The latest Returns on Investment podcast takes another look at the study from Illumen Capital and Stanford SPARQ, released last month, that found that biases, implicit or otherwise, actually increase the better fund managers of color perform. That recalls a takeaway from ImpactAlpha’s “Investing in Racial Equity” series with Living Cities. “Race-neutral efforts to boost economic opportunity have failed,” Living Cities’ Brinda Ganguly and Brian Nagendra wrote last year. “Going forward, organizations across sectors must deliberately incorporate a racial lens into their economic security efforts.”

Such “racial lens” investing is gaining adherents at the portfolio level. Can a similar approach work in capital allocation? “The system is broken,” says roundtable regular Imogen Rose-Smith. “We’re talking about pattern-recognition and vested power structures. That’s what we need to address.” Illumen’s Daryn Dodson puts bias reduction at the center of the firm’s fund of funds. Illumen invests in White or Black fund managers, then works with the managers to reduce racial bias in key decision-making areas. The Ford and Knight foundations have dedicated a portion of their endowments for diverse fund managers. Kellogg Foundation’s mission-investing strategy intentionally backs fund managers of color. Prudential Financial has a carve-out for first-time and emerging minority and women-owned investment firms. That may not be enough. “Despite research report after research report that demonstrates that diverse managers perform at or above more homogenous teams, the capital markets are not changing the way they allocate capital,” Ford’s Christine Looney said in an earlier ImpactAlpha podcast. “This is one area where we see there is much more perceived risk than we believe exists, and a place we can really lean in.”

Keep reading, and listen in, to “Applying a racial lens to overcome persistent bias in capital allocation (podcast),” on ImpactAlpha. Catch up on all of ImpactAlpha’s Returns on Investment podcasts on iTunesSpotifySoundCloud or Stitcher.

Dealflow: Follow the Money

Bellwether Coffee raises $40 million from DBL Partners and founders of SolarCity. To solve the problem of stale coffee, Berkeley, Calif.-based Bellwether Coffee provides businesses with electric coffee roasters that can be installed in nearly any cafe or retail space. If that sounds like a solution to a very Bay Area-problem, the company is also tackling supply-chain transparency and coffee’s carbon footprint. Bellwether “pays farmers prices that include ‘cost of sustainable production’. These are always higher than the commodity prices for coffee,” DBL’s Nancy Pfund told ImpactAlpha. DBL, along with return investors Lyndon and Peter Rive, founders of SolarCity, led Bellwether’s $40 million Series B funding round. Pfund, who joined Bellwether’s board, said DBL is backing Bellwether to “drive positive social impact across the supply chain.” The funding follows last year’s $10 million Series A round, and an earlier $6 million in seed funding. Check it out.

Macquarie Group fills its coffers for ‘pragmatic’ green infrastructure investments. The Australian investment bank already has A$20 billion ($13.6 billion) in renewable energy deals under its belt and has been adding assets in Europe and North America through its Green Investment Group. That’s chump change compared to the opportunity. Macquarie expects $8.8 trillion to be invested in new zero-carbon energy capacity by 2040. “Renewables are becoming the pragmatic choice rather than the brave one,” writes Macquarie Capital’s Mark DooleyThe Sydney Morning Herald reports the bank is anticipating an investor shift toward alternative assets like infrastructure as bond yields dip. Macquarie went to market with a A$1 billion (US$675 million) equity fundraising target to top up a reported A$5 billion capital surplus. “Renewable energy is an area where our investors are getting very strong returns,” says Macquarie CEO Shemara WikramanayakRead on.

  • Related. Macquarie’s infrastructure debt investing group loaned €38 million to a portfolio of six solar farms in Spain.

Eden Farms raises $1.7 million to connect Indonesia’s farmers and restaurants. The two-year-old startup is trying to help restaurants cut costs, farmers boost earnings and distributors cut food waste. Such challenges are common in emerging markets, where food supply chains are often inefficient and opaque.

Signals: Ahead of the Curve

Sustainability risks in animal agriculture. The growth of Beyond Meat and other alternative protein sources underscores the sustainability challenges of animal meat and dairy suppliers. An update to the Coller FAIRR Protein Producer Index shows that two-thirds of 60 publicly-listed meat and dairy producers are at “high risk” on most factors tracked by the index, including greenhouse gases, deforestation and water use. The producers’ poor performance puts major food brands at risk of falling short of their own sustainability commitments, says FAIRR, a $16 trillion investor network. Take Walmart’s goal of zero net deforestation in its supply chain by 2020. The index found that two suppliers, Sanderson Farms in the U.S. and Cranswick in the U.K., have no deforestation policies. Juan Salazar of the $260 billion BMO Global Asset Management said the message from investors is, “The food industry must find better answers to the business risks it is facing from more extreme weather patterns and increasing water scarcity.”

  • Alternative boom. The index found that 15 of the 60 publicly traded animal protein producers have investments in plant-based proteins or other alternative meat and dairy products (up from five last year). Diversifying to also “produce alternative proteins presents an opportunity to mitigate risks while preparing for market and technological disruption,” says FAIRR. Top alternative protein performers include Maple Leaf Foods in Canada, Tyson Foods in the U.S., and China-based Mengniu Dairy.
  • Aquaculture opportunity. Three of the five highest performers in the index are aquaculture companies, including top-ranked Norwegian fish farmer Mowi. Farmed fish is less resource-intensive than land-based animal agriculture, but impacts must still be managed. None of the Asian aquaculture companies, for example, disclose how much antibiotics they use.
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Agents of Impact: Follow the Talent

Thomas Lanctot was named new CEO of Catholic Investment Services… BBC Global News CEO Jim Egan joins Media Development Investment Fund’s board of directors… Journalist Ying Chan, University College London professor Mariana Mazzucato and Co-Impact’s Rakesh Rajani are among 11 people joining Luminate’s advisory board… CNote is providing capital for The Entrepreneur Fund… Kauffman Foundation is hiring a program officer to translate research into practice in Kansas City… University of Cape Town’s Graduate School of Business is running executive education courses in November on Impact Investing in Africa and Impact Measurement for Investors.

Thank you for reading.

– Sept. 5, 2019