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Featured: ImpactAlpha Original
Investors see a “blue wave” of growth opportunities in sustainability and inclusion. “Pro-business” really does have a new meaning. Just a few weeks ago, U.S. investors were said to be fretting about higher taxes in a potential Biden administration. Judging from a growing batch of briefings, they’re now anticipating not only stability and stimulus, but sustainable growth (see, “Pro-business has a new meaning now”). A “blue wave,” the thinking goes, could usher in policy changes and public investments that bear out emerging sentiments in financial markets. Urgent action to mitigate the climate emergency is pro-business. Crushing the pandemic is pro-business. Eliminating racial bias is pro-business. Biden’s plans call for investing trillions in manufacturing and innovation, infrastructure and the clean energy future, the caregiving and education workforce, and to advance racial equity.
That is helping make the transition to a low-carbon and more inclusive economy the markets’ new growth story. Impact investing and environmental, social and governance, or ESG, strategies have attracted new capital – and outperformed – despite the Trump Administration’s attempts to turn back the tide. At Pictet Asset Management, which has $209 billion under management, ESG portfolios have outperformed benchmarks by 5% over the past several years. “We don’t see that changing with Mr. Trump sitting in the White House,” Pictet’s Marc-Olivier Buffle said on a call this week. With a President Biden, “the 5% could actually become 6%, 7%,” he says. “Then we have a different ball game.” The return of U.S. engagement on climate action could unlock more of the $26 trillion in economic benefits identified by the Global Commission on the Economy and Climate. “We’re really looking at moving the entire market forward,” John Hoeppner of the $1.5 trillion Legal & General Investment Management told ImpactAlpha (see Signals, below). “A Biden presidency is going to accelerate that.”
- Green energy is a growth story. Solar energy is “the new king of the world’s electricity markets,” says the International Energy Agency. Goldman Sachs declares green hydrogen power a “once-in-a-lifetime opportunity” that could represent nearly $12 trillion by 2050. Biden’s plan calls for investing $2 trillion over four years on the way to a carbon-neutral power sector, along with fuel emissions standards, electric-vehicle charging infrastructure, and halving building emissions by 2035. Biden calls for investing $400 billion over ten years on clean energy research and innovation to advance technologies such as large-scale, low-cost battery storage and green hydrogen.
- Building Black and Brown wealth is a growth story. Reversing long-standing racial gaps in education, housing and access to business loans would add $5 trillion to the economy over five years, says Citigroup. Biden has put advancing racial equity at the center of his “Build Back Better” agenda. Specific policies include reforming opportunity zones, equalizing federal procurement and expanding access to venture and other types of capital for Black and Brown-owned businesses.
- Increasing the flow of capital to low-income communities is a growth story. Community development financial institutions, or CDFIs, and minority-owned financial institutions have provided a lifeline for small businesses in underserved communities during the pandemic. The U.S. Treasury’s CDFI fund has hovered below $200 million for years, despite the demand for capital. Calvert’s Beth Bafford sees a need for a “national recovery vehicle” for small businesses with at least $1 billion (see, “New York’s $100 million loan fund for small businesses is a model for a $1 billion national fund”). Biden would double federal funding for CDFIs.
- Boosting immigration is a growth story. Immigrants enhance the productivity of the U.S. economy – by about $2 trillion annually, according to The Hamilton Project. “Immigrants are by definition risk-takers,” says Moody’s Mark Zandi. Trump’s anti-immigration policies have pushed immigration to the lowest point in decades. Biden, who was criticized for the Obama administration’s record on immigration, plans to roll back Trump-era travel and asylum bans, push for immigration policy reform and grant “Dreamers” access to federal student loans.
- Public investment during a crisis is a growth story. Don’t think of it as spending. Public investments during periods of high uncertainty (read: a global pandemic) amplify economic output and jobs; increasing public investment by 1% of GDP boosts growth by 2.7% and private investment by 10%, according to economists at the International Monetary Fund, who note that “low interest rates globally also signal that the time is right to invest.”
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Dealflow: Follow the Money
Evolve Credit raises early funding to help Nigerians navigate fintech options. Africa pioneered mobile money more than a decade ago. Since then, digital lending and insurance products have extended access to finance to hundreds of millions of un- and under-banked people. But alongside many responsible providers are bad actors who have engaged in predatory lending and collection practices (see, “Investors called to account for fintech lending practices as debt traps emerge”). Evolve wants to speed the transition to digital finance and increase inclusion, transparency and access.
- Creditor check. Evolve’s site consolidates information on digital lenders, including their approval speed and interest rates, and allows consumers to compare options and submit an application through Evolve’s app. Evolve raised an undisclosed amount of funding from Ingressive Capital, Future Africa, Samurai Incubate and angel investors.
Acculi Labs secures seed funding for health diagnostics for India’s poorest. The Bangalore-based health tech venture has developed a “digital stethoscope” that lets clinicians assess heart rate and arrhythmia remotely, through patients’ smartphones. Acculi is developing the diagnostics platform and other products to extend health services to low-income and rural Indians. Mumbai-based PirE Ventures invested $700,000. Acculi raised a pre-seed round last September.
DFC offers technical assistance for Ethiopian clean energy project. The U.S. International Development Finance Corp. committed $1.6 million to TM Geothermal Operations in Ethiopia for project development and to attract investors to a 50-megawatt geothermal plant southeast of Addis Ababa. It is DFC’s first grant from its technical assistance facility, which was established in the 2018 BUILD Act (for Better Utilization of Investments Leading to Development).
Unnati secures seed funding to give India’s farmers access to seeds. Uttar Pradesh, the largest state in India, is among the poorest and most rural. Tech startup Unnati offers India’s small farmers access to financial services and farm inputs, like seeds and crop treatments. It raised $1.7 million in, well, seed funding from NABVENTURES and angel investors.
Signals: Ahead of the Curve
Legal & General burnishes ‘stewardship’ credentials with push for aggressive climate action. Out: Quiet engagement with executives. In: naming and shaming recalcitrant corporations. As more institutional asset owners look for active “stewardship” of portfolio companies by their asset managers, Legal & General Investment Management, with $1.5 trillion under management, has staked out a forceful position. “You need a stick,” says John Hoeppner, LGIM’s U.S. stewardship chief. “We’ve found a protest vote against chairmen has been quite effective.”
- Engagement with consequences. LGIM is expanding its Climate Pledge ten-fold to include 1,000 companies across sectors. The bottom half of the companies have been notified that they are lagging. Of those, LGIM will focus its engagement efforts on 60 “fence sitters” that can help shift markets. The asset manager will vote against directors “across our entire book” and divest from recalcitrant companies. The goal: achieving net-zero emissions by 2050 in line with the Paris climate agreement.
- Leaders and laggards. Among the world’s dozen largest asset managers, Legal & General and PIMCO were the toughest on corporate management when it came to voting proxies, according to Majority Action (see, “Leaders and laggards among asset managers on climate stewardship”). The most lax: BlackRock and Vanguard.
Short takes. Here are a few of the reports crossing our desk this week:
- Europe, Canada and Asia lead the U.S. in ESG adoption. The proportion of U.S. investors who use environmental, social or governance principles as part of their investment strategy is stalled at 65%, while Europe adoption is at 94%, Canada at 89% and Asia at 72%, according to the latest RBC Global Asset Management responsible investment survey of more than 800 asset owners, investment consultants and investment professionals.
- The intersectionality of impact investing. Investing to address racial justice, income inequality and a more livable planet are inextricably linked. Community Capital Management examines actionable investment ideas in climate resiliency for low-income communities, affordable and sustainable housing, and bolder action on behalf of corporate stakeholders.
- Gender alpha in public markets. Russell 1000 companies that rank near the top of Equileap’s gender equity score outperformed those near the bottom by 2.3% – with 0.8% less risk, according to Glenmede. The scores accounted for pay equity, access to benefits, training and career development, anti-harassment policies and diverse supply chains, among other factors.
Agents of Impact: Follow the Talent
Leonie Kelly-Farley steps away from the Sustainable Finance Initiative, backed by RS Group, to head up ESG and impact at a Hong Kong law firm… Applications are open for the Impact Capital Managers’ Mosaic Fellowship for first-year graduate students from under-represented backgrounds… WWB Asset Management seeks a principal investment officer / head of Asia… Jordan Park is hiring an impact advisory associate in San Francisco… Rockefeller Capital Management is looking for an ESG engagement analyst in New York.
Thank you for reading.
–Oct. 15, 2020