The Brief | December 8, 2020

The Brief: Activist hedge funds, climate fintechs, impact benchmarks and classes, SoLa’s Black Impact Fund, Latin America’s gig workers

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Signals: Ahead of the Curve

There’s a new impact sheriff in town: activist hedge funds. Environmental and social laggards beware. A growing set of hedge funds are redefining “activist shareholder” to mean pressure for long-term, sustainable value creation. Engine No. 1, launched by hedge fund veteran Chris James, aims to engage companies to invest in “workers, communities, and the environment” and align “the interests of Main Street and Wall Street.” Its first act: a letter to ExxonMobil’s board nominating four independent director candidates to “refresh” the board, improve long-term capital allocation and sustainable value creation, and “ensure that management is not rewarded for outperforming the industry but eroding shareholder value” (last week, ExxonMobil announced it would write down up to $20 billion in natural gas assets, its largest write-off ever). The replacement slate of directors quickly won backing from the $255 billion California State Teachers’ Retirement System, or CalSTRS, which holds $300 million in Exxon stock. 

  • New activism. Getting big polluters to cut greenhouse gas emissions “requires an activist investor,” says hedge fund veteran (and Agent of Impact) Jeffrey Ubben, who left ValueAct to launch Inclusive Capital Partners this summer. Last year, CalSTRS invested $250 million to anchor Impactive Capital, launched by Lauren Wolfe and Christian Asmar (see, CalSTRS anchors Impactive’s responsible-investing hedge fund). Jana Partners, Two Sigma and others are building out sustainable and impact strategies within their firms. Engine No. 1’s Michael O’Leary and Two Sigma’s Warren Valdmanis take a deep dive into the active investor thesis in their book, Accountable: The Rise of Citizen Capitalism.”
  • Engage v. exclude. Sustainable investing strategies have long focused on excluding companies from investment portfolios. “I have a hard time seeing how exclusion creates a material impact on the world and people’s lives,” O’Leary told ImpactAlpha. “Armed with a broader view of what creates long-term value, we can work with companies through active ownership in ways that we think will have a lot of impact.” O’Leary comes from Bain Capital Double Impact. Other Engine No. 1 founders include Charlie Penner, who led impact investing for Jana (see, Jana wants to add ‘impact’ to activist hedge fund); Jennifer Grancio, ex- of BlackRock; Madeline Hawes, ex- of Goldman Sachs; and Ed Sun and David Swift, ex- of Partner Fund Management.
  • Exhibit A. Exxon earned a reputation for its stubborn refusal to address climate risk (see, Exxon escapes fraud charge, but not climate risks). The company has returned -20% over the past decade, even as the S&P 500 has soared by 277%. Last year, Exxon blocked an accounting of how it intends to align its carbon footprint with the Paris climate agreement. “While the Company has publicly and regrettably dismissed carbon emission reduction targets as a ‘beauty competition,’ such targets have more than cosmetic value to investors,” Engine No. 1 argued in its letter. Engine No. 1’s board candidates include Anders Runevad, former CEO of Vestas Wind Systems and Kaisa Hietala, who ran renewable products at Neste, and others with energy transition experience. This year’s effort by the Church of England and New York State Common Retirement Fund to oust Exxon’s entire board fell short. 
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Can fintech startups combat climate change? Financial technology has transformed how we pay for things, invest, raise money and assess risk. A new focus: making sure those activities are green. A new report by New Energy Nexus plots the potential of “climate fintech” to speed decarbonization. A confluence of trends, including the surge of interest in sustainable investing, declining costs for renewables, and accelerated use of digital tools due to COVID “makes us excited about this as an ecosystem to nurture and encourage participation,” New Energy Nexus’ Aaron McCreary told ImpactAlpha. The nonprofit plans to launch climate fintech accelerators in the U.S., Europe and China by the summer. Last week, New Energy Nexus announced a climate tech accelerator with the Rocky Mountain Institute (see, “Third Derivative aims to accelerate climate tech).

  • Early stage. New Energy Nexus has tallied 250 mostly early-stage startups in Europe, the U.S. and China working at the intersection of fintech and climate. They range from Ecountabl, a tool that helps people buy from sustainable brands, to crowdinvesting platforms like Ecologico, Trine and RaiseGreen (see, “Grassroots platforms are not waiting for Washington to invest in a green new deal), to Carbon Delta, a climate risk evaluation tool that was acquired by index provider MSCI last year. 
  • Blockchain. Apple cofounder Steve Wozniak’s new venture is Efforce, a blockchain-based marketplace to finance energy efficiency projects. Efforce, which uses a digital token called WOZX, is “the first decentralized platform that allows everyone to participate and benefit financially from worldwide energy efficiency projects, and create meaningful environmental change,” said Wozniak. 
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The impact performance mindset. Benchmarks enable the measurement of relative performance. In a guest post on ImpactAlpha, 60 Decibels’ Tom Adams, Kelsey Jarrett and Ashley Speyer introduce impact performance data for benchmarks across sectors, based on thousands of customer surveys. “Just as it is for finance, sport, or any other walk of life where performance matters, the key lies in standardization and repetition.” The full post

  • Get better. Join 60 Decibels, B Lab, and World Benchmarking Alliance in “Getting Better Through Benchmarks,” moderated by the Impact Management Project, Wednesday, Dec. 9. Register today.

Sponsored: Tideline

2021: The Year of Classification. Asset classes cluster investments by how they deliver financial returns. “Impact classes” cluster investments by the approach they take to delivering impact. Tideline’s Ben Thornley and Duke University’s Cathy Clark will reflect on five years of progress since introducing the concept of impact classes. They’ll be joined by Bank of America’s Anna Snider, StepStone’s Bhavika Vyas, and Claudia Coppenolle from the Impact Classification System to discuss the increasingly essential role of impact classification as more impact funds are created and more asset owners become active in impact. The panel is part of Tideline’s new “Compass Series” featuring conversations with leaders charting the course in impact investing. Tuesday, Dec. 15 at 11am ET. Register today.

Dealflow: Follow the Money

SoLa Impact’s billion-dollar impact fund targets Black and Latinx communities. SoLa Impact, a family of social impact-focused affordable housing funds, launched a $1 billion fund to build affordable housing in Black and Latinx communities in South Los Angeles and beyond. The Black Impact Fund is structured as two $500 million funds, with one of them set up as an Opportunity Zone fund to capture tax incentives. SoLa Impact will commit 13% of the fund’s appreciation and fee-earnings to its affiliated, nonprofit The Black Impact Community Fund, SoLa’s Martin Muoto told ImpactAlpha (see, “Agent of Impact: Martin Muoto“).

  • Community services. SoLa Impact manages more than 1,500 apartments in southern L.A. Approximately 85% of its tenants come from disadvantaged backgrounds. More than half are formerly homeless, and 60% live below the poverty line. The Black Impact Community Fund provides job training, college scholarships and financial education classes. 
  • West Coast. SoLa Impact hopes to have a first close for the Black Impact Fund early next year. “The response has been uncanny. I’m somewhat overwhelmed by it,” says Muoto. The fund will initially invest in southern L.A., Oakland, Portland, Seattle and other cities with an “acute housing shortage.”
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Mexico’s Heru secures $1.7 million to support Latin America’s gig workers. The Mexico City-based company is developing business and financial services, like insurance and tax advice, for Latin America’s 145 million gig workers. Its roster of pre-seed-round investors includes Mountain Nazca and Y Combinator.

Agents of Impact: Follow the Talent

Divine inclusion. Business and investment leaders have joined with the Vatican to form the Council for Inclusive Capitalism with the Vatican in response to “moral and market imperatives to reform capitalism.” Council leaders, aka “Guardians for Inclusive Capitalism,” include Inclusive Capital Partners’s Lady Lynn Forester de Rothschild, Salesforce’s Marc Benioff, Merck’s Kenneth Frazier, BP’s Bernard Looney, Ford Foundation’s Darren Walker, California Treasurer Fiona Ma, United Nations Special Envoy for Climate Action and Finance Mark Carney, and Hiro Mizuno, former chief investment officer of Japan’s Government Pension Investment Fund.

Monica Melton, ex- of Forbes, joins The Plug as managing editor… Anil Soni, ex- of Viatris, appointed inaugural CEO of The WHO Foundation… David Roberts steps down at Vox to launch Volts, a clean energy and politics newsletter… Former Caprock managing director Matthew Weatherley-White joins Impact Entrepreneur’s Laurie Lane-Zucker for a virtual fireside chat, Thursday, Dec. 10…  Zoom in to meet Mission Driven Finance community finance fellows Andrew Moncada, Essence Rodriguez, Louise Jordan, Crystal Sevilla and Benson Ochira, Thursday, Dec. 7.

Thank you for reading.

– Dec. 8, 2020