Greetings, Agents of Impact!
Featured: ESG to Impact
Can’t tell the players without a scorecard: Sorting out ESG, impact and sustainability. First came the attack from the “left,” which criticized ESG investing – short for environmental, social and governance – for not taking into account the impact of a company’s products and services on society. That created an opening for the “right” to wage war on companies and asset managers they charge are “woke,” or simply anti-fossil fuels. “It’s all political theater,” University of Oxford’s Robert Eccles said at the Financial Times’ Moral Money conference in New York this week (for background, see, “Riskwashing: How the crusade against ESG is hurting businesses, taxpayers and retirees”). But the consequences are real. If Republicans win majorities in Congress in next month’s midterm elections in the U.S., expect them to target ESG and its advocates. At risk: climate disclosure rules being formulated by the Securities and Exchange Commission.
In a guest post on ImpactAlpha, Eccles sorts out the combatants in the ESG wars – from “the sustainability Taliban” to “Flat-Earthers” – and their arguments. “Ideology aside, the difference between ESG and impact is a clear and easy one,” Eccles writes. ESG is about the material environmental, social, and governance risk factors that matter to enterprise value-creation. Impact is about the positive and negative externalities created by a company’s products and services. “Those who are using the term ESG to wage political campaigns aren’t going to change their behavior,” Eccles writes. For everybody else, he offers three pieces of advice: Don’t over promise on ESG by conflating it with impact and sustainability. Don’t underestimate ESG simply because it’s not “true” impact and sustainability. And accept that tradeoffs exist, both between material ESG factors and between enterprise value-creation and impact.
- Keep reading, “Can’t tell the players without a scorecard: Sorting out ESG, impact and sustainability,” by Oxford’s Bob Eccles on ImpactAlpha.
Sponsored by Tideline: Truth in Climate Impact
Impact management for climate funds. With fund managers targeting climate as an impact investment theme, the market needs consensus on how to manage investments with integrity and accountability. For climate investors claiming the “impact” label, the question arises: what makes them different from “responsible investors” that are themselves growing in awareness of climate-related risks and opportunities? “Truth in Climate Impact,” a new guide from impact investing consultancy Tideline, helps investors distinguish between climate strategies. By integrating intentionality, contribution and measurement into an impact management approach, fund managers can earn the “impact” label. With case studies on the Brookfield Global Transition Fund and British International Investment, the guide offers best practices that “every climate investor must master to withstand market scrutiny and maintain a position as a leader in the fight to address climate change.”
- Download “Truth in Climate Impact” and join Tideline and climate investing experts for a Compass Series webinar on operationalizing climate investment strategies, Thursday, Nov. 3. RSVP today.
Dealflow: Energy Future
Saudi Aramco launches a $1.5 billion fund for energy-transition technologies. Saudi Arabia’s state-owned oil company announced the venture fund at the kingdom’s Future Investment Initiative, an impact summit once known as “Davos in the Desert.” The Sustainability Fund will invest in carbon capture and storage, low-carbon fuels and other technologies that can support Aramco’s 2050 net-zero goals. The oil giant’s venture arm, Aramco Ventures, will manage the fund, one of the largest climate-focused venture funds, particularly from an oil company. “The company is harnessing innovation and collaboration as it seeks long-term solutions to global energy challenges,” said Aramco’s Yasir Al-Rumayyan, who also chairs the organization hosting the Future Investment Initiative. Al-Rumayyan made it clear, however, that the company sees a long-term role for fossil fuels.
- Impact sheen. Aramco was a participant in Saudi Arabia’s first carbon credit auction this week from a new regional voluntary carbon market organized by the kingdom’s $620 billion sovereign wealth fund, Public Investment Fund, and the Saudi Tadawul Group. Despite glaring ESG risks, Saudi Arabia “has remained a magnet for some ESG and impact investors,” observed ImpactAlpha’s Imogen Rose-Smith following last year’s Future Investment Initiative (see, “Saudi Arabia presents a governance risk impact investors can’t ignore”).
- Oil production. Aramco last year raked in nearly $110 billion in oil sales. The launch of the energy transition fund comes as Saudi Arabia, the world’s largest oil exporter, anticipates reduced oil demand as the world economy slows. The kingdom led the decision by OPEC Plus to cut oil production next month in a bid to drive up oil prices, despite pleas from President Biden in the U.S. to increase supply. The move angered the U.S. government, saying it would benefit Russia’s oil export-dependent economy and harm consumers.
- Share this post.
Trinity Church Wall Street commits $20 million to MSquared’s New York affordable housing fund. Former New York City Deputy Mayor Alicia Glen launched MSquared to invest “in impactful affordable housing projects while supporting a much more inclusive and diverse real estate sector,” she told ImpactAlpha. MSquared will use the commitment from Trinity Church Wall Street to provide flexible capital to women and minority-led nonprofit and mission-driven developers for affordable mixed-income projects in New York’s five boroughs. “We feel that the most important piece of the puzzle right now is to support true mixed-income communities because they’re better for families and neighborhoods,” said Glen. The fund will target projects using sustainable designs, green materials and energy-efficient systems.
- Place-based investing. MSquared initially pitched to Trinity Church its national MSquared Impact Partners Fund, which has raised $40 million to date and is targeting a $200 million raise. After Trinity committed to the national fund, it sought to partner with MSquared on solutions to New York City’s affordable housing crisis. One in three of the city’s renters spend more than half of their income on rent. “New York City desperately needs more affordable housing, and to do that, we need more capital and more creative solutions to address this urgent problem,” said Glen.
- Dive in.
Dealflow overflow. Other investment news crossing our desks:
- CDPQ will invest up to $474 million to support clean energy developer Shizen Energy’s growth in Japan and key international markets.
- Shift4Good’s sustainable mobility impact fund raised $98 million in a first close from European Investment Fund, Bpifrance and other investors.
- Acre Impact Capital secured $40 million from the European Investment Bank for a climate debt fund that will invest in green infrastructure deals in Africa.
- AktivCo scored $7 million from the Energy Inclusion Facility to provide clean energy to telecom network operators in Chad, Niger, Cameroon, Côte d’Ivoire and Burkina Faso.
Impact Voices: Private Impact
How private equity can unlock impact alpha with ESG data from portfolio companies. Terms like “small” and “local” are sometimes shorthand for “ethical” – a way for consumers and businesses to signal virtue. Large investors and multinational footprints often carry the stigma that profits come before corporate responsibility. But small and local can also mean unaccountable and under-regulated, while large can increase accountability and transparency. “Venture capital and private equity play a role in bringing oversight to these smaller enterprises,” writes Danielle Pepin of Dynamo Software in a guest post. “By accepting investment, smaller firms may find they have new disclosure requirements to substantiate their ethical claims.”
- Push and pull. With the arrival of stricter ESG policies and regulation, Dynamo is seeing a level of detailed disclosure across private equity funds that was previously limited to impact investors. It’s now common, for example, for private equity buy-out funds to ask portfolio companies to report their kilowatt-hours from renewable sources. “Some of this is driven by limited partners’ requests for asset-level key performance indicators,” Pepin says. “Some of it is because these businesses now fall under regulation that impacts the fund.”
- Impact alpha. ESG metrics are material for the bottom line, too. Servers that use less power are less expensive for cloud-based companies. Hiring and retaining diverse staff results in a richer mix of new ideas and better dialogue with clients. Pepin’s tips: Begin to collect relevant ESG metrics during due diligence. Use ESG reporting as an indicator of operational excellence. And focus on impact. Rather than chasing a flashy out-of-context number or score, she says, “tease out impact alpha as part of the value-creation story.”
- Keep reading, “How private equity can unlock impact alpha by holding companies accountable to ESG data,” by Dynamo’s Danielle Pepin.
Agents of Impact: Follow the Talent
Sonal Shah, the Obama White House aide who founded Georgetown’s Beeck Center for Social Impact and Innovation and the Asian American Foundation, is the new CEO of The Texas Tribune… Pamela Pavkov, ex- of Jasper Ridge Partners, joins TPG as a partner and head of TPG NEXT, which launched last year to “seed, support and scale” diverse investors and entrepreneurs… Daniel Firger of Great Circle Capital Advisors, joins Prime Coalition as a Project Frame board member.
The Rockefeller Foundation seeks a New York-based director of policy and coalitions for global economic resilience… Also in New York, Blue Signal Search is recruiting a managing director… The Impact Collective is hiring a facilitator for peer-to-peer workshops… Capital One seeks a director of community finance in Chicago… The Nature Conservancy is looking for an aquaculture investment conservation manager… Open Impact is hiring a consultant and engagement manager in San Mateo, Calif.
Stanford’s School of Business seeks an associate director for co-curricular “ecopreneurship” programs… BFA Global’s Catalyst Fund is looking for an investment principal in Africa, preferably in Nairobi and Lagos… UCLA is recruiting an associate director for its Benjamin Graham Value Investing Program… UpMetrics is looking for an impact data fellow in Kansas City, Mo… CapShift will host a panel with Spring Lane Capital’s Rob Day and other experts to share investment opportunities presented by the Inflation Reduction Act, Tuesday, Nov. 1.
Thank you for your impact!
– Oct. 27, 2022