The Brief | December 20, 2023

The Brief: At Stake in 2024: ‘Impact alpha’ in public and private markets

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Greetings, Agents of Impact! 

Last Chance to RSVP for tomorrow’s Plugged In call with Lenore Champagne Beirne of Bright Ventures. Champagne Beirne’s seed-stage investment firm has backed a dozen inclusion-focused innovators in digital health, fintech and the future of work. Join host Sherrell Dorsey on LinkedIn Live at 9am PT / 12pm ET / 5pm London. Reserve your spot.

Featured: At Stake in 2024

Impact as a driver of alpha in public and private markets. The push: Limited partners and regulators are demanding more rigorous impact reporting. The pull: Fund managers are finding alpha in impact. Jeffrey Ubben may have thrown in the towel on his firm, Inclusive Capital Management. BlackRock’s Larry Fink may have banished the term “ESG.” But the quest for proactive social and environmental impact in public and private asset management has attracted new adherents. The third in our series of look-aheads to 2024 suggests this year’s coordinated attacks on ESG and “woke capitalism” inadvertently made the search for alpha in impact a respectable investment strategy. From a source of asset growth in a tough fundraising environment, and a driver of enterprise value in portfolios to evolving practices for impact measurement and management, impact is the new game in fund and asset management. Trends we’re watching for in 2024:

  • Impact rises from the ash of the ESG battles. A BNP Paribas survey of institutional investors showed a massive attitude-shift in favor of impact investing. Impact investors took steps to clarify how impact strategies in listed equities differ from ESG approaches and other sustainable strategies, including a theory of change, engagement and performance measurement. The guidance should prompt market participants to “think through the theory of change that takes you from the asset owner’s capital to the outcomes we’re all trying to work toward,” Jeff Finkelman of Fiduciary Trust told ImpactAlpha.
  • Impact is a growth market in private equity. The moment is becoming a movement. At Brookfield Asset Management, “decarbonization, deglobalization and digitalization” are fueling growth, according to CEO Bruce Flatt. At KKR, Pete Stavros has staked out ownership for rank-and-file workers as a driver of value. And TPG is touting that it more than doubled the “impact yield” of its $2.1 billion Rise Fund one. Private equity firms are shedding their “barbarians at the gate” image as they chase the alpha in impact. “We’re calling a moment here,” Generation Investment Management’s Justin Gillis told ImpactAlpha upon the release of its surprisingly optimistic “Sustainability Trends” report.
  • Impact as a driver of enterprise value. Worldwide, 20 million employees work at 40,000 companies owned, at least in part, by some 10,000 private equity firms. For PE managers, “sustainability strategies can serve as growth levers that can unlock value within organizations, drive top-line growth, and tackle material risks to prevent future value destruction,” according to NYU’s Tensie Whelan. Interpreted stringently, very few businesses qualify for the “impact” label. Used loosely, investors can overstate their impact. “There’s a massive opportunity in the middle,” says Vistria’s Kelly McCarthy. “If we put something additional into those companies with an impact lens, we could optimize impact for a much larger group of people.” 
  • Measuring and managing impact as an opportunity, not a burden. As investors increasingly expect visibility into outcomes, fund managers are aiming to outperform in measuring and managing impact. By listening to customers, fund managers and their portfolio companies are realizing tangible benefits. Colombia-based ALIVE Ventures will make voice-based surveys of portfolio companies’ customers a staple of its second fund, and will tie part of the fund’s carry, or profits, to its performance on impact. Impact reporting has come of age. ImpactAlpha this year dug into reports from Bain, Apollo, TPG and KKR, as well as Candide, MicroVest, Echoing Green and other investment managers.
  • Mandatory disclosure is coming to a fund near you. If investors aren’t already pulled by the opportunities in impact, they’ll soon be pushed by regulators. Regulators around the globe will likely require corporations to report on their social and environmental impact before the end of the decade. “We are on the precipice of impact transparency, however imperfect it may be,” said Fran Seegull of the US Impact Investing Alliance on ImpactAlpha’s “State of the Field” call in October. “Raising the bar over time on that regulatory disclosure will set the tone for the next decade of impact transparency, accountability and equity.”
  • Keep reading, “At Stake in 2024: Impact as a driver of alpha in public and private markets,” by Dennis Price and Amy Cortese. Also at stake next year: impact investing in emerging markets, and inclusion and ownership.

Dealflow: Investing in Health

  • Chefaa, a women-founded health tech startup in Egypt, raised $5.3 million for its online pharmacy and health consultations. (Wamda)
  • The European Investment Bank provided a €35 million ($38.4 million) loan to Sweden’s Exeger for solar cells that convert ambient light to electricity for consumer electronics. (EIB)
  • South Africa-based E4E Africa reached a $30 million first close for its second fund, which invests in African impact startups in financial services, education, job tech, energy and healthcare. (Empower Africa)
  • Achieve Partners raised a $167 million fund to help K-12 schools in the US adopt new technology to improve learning outcomes. (Achieve Partners)
  • Batx, based in the Indian state of Uttar Pradesh, clinched $5 million to recycle lithium ferro-phosphate salts from used lithium-ion batteries for use in new batteries. (YourStory)
  • Mobile network industry association GSMA launched an Innovation Fund, backed by the UK’s FCDO, to provide early support to tech startups addressing humanitarian issues like food insecurity and displacement. (Disrupt Africa)

Agents of Impact: Follow the Talent

Sorenson Impact Institute names ImpactAlpha contributing editor Rob Brown a senior fellow… Triodos Bank is recruiting an investment portfolio officer… Inyova Impact Investing is looking for an Germany-based investment management intern… Alterna Impact has an opening for a project coordinator in Guatemala City.

World Green Building Council seeks a senior project manager, based in Europe… Also in Europe, Investing for Good is looking for a pair of innovative finance senior advisors… PosiGen, which makes rooftop solar and energy efficiency upgrades accessible to low-income households, achieves B Corp certification.

👉 View (or post) impact investing jobs on ImpactAlpha’s new Career Hub.

Thank you for your impact!

– Dec. 20, 2023