The Brief | May 20, 2024

The Brief: Boosting workers’ pay – and portfolio performance

ImpactAlpha
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ImpactAlpha

Greetings Agents of Impact!

👋 The Call: A guide to investing in livelihoods and access for emerging market households. Emerging market households, especially those in lower or middle-income bands, collectively spend trillions of dollars each year on daily necessities, improving their livelihoods and securing their families’ futures (see Signals, below). A new “Inclusive Business Investing Guide“ offers practical steps investors can take to expand access to essential goods and services for emerging consumers and businesses worldwide. On our next Agents of Impact Call, Elevar Equity’s Amie Patel, Citi Social Finance’s Borja Garcia Fernandez, IFC’s Wagner Albuquerque de Almeida, BII’s Martina Castro and FMO’s Juan Dada will share growth stories of companies creating value in the true mass market, Wednesday, May 22 at 8am PT / 11am ET / 4pm London. RSVP today.

In today’s Brief:

  • Shareholders push Big Retail to pay living wages 
  • Investing at the intersection of food and AI
  • Access to formal jobs in Latin America
  • Cheat sheet to ‘inclusive business’ investing

How raising pay for retail employees can strengthen the global economy and portfolio performance. Workers have gained clout with a string of union wins amid a tight labor market (see, for example, “Small but steady gains for workers”). But inflation is undercutting those gains, leaving many workers treading water. The living wage to support a family of four in the US is estimated at $25 an hour – more than triple the federal minimum of $7.25 an hour and far above the pay of many frontline workers. Living wages will be on the agenda next month at the annual shareholder meetings at Target, Walmart, and Kroger. Investors backed by a combined $1.5 trillion in assets have filed resolutions urging the retailers to commit to pay “the minimum earnings necessary to meet a family’s basic needs,” and to align their lobbying and disclosures accordingly. A similar proposal at Walgreens Boots Alliance in January received close to 10% support. “The end of extractive practices including poverty wages can protect both workers and diversified portfolios,” Sara Murphy of The Shareholder Commons writes in a guest post on ImpactAlpha.

  • Systems-level risk. Shareholder advocates have long argued that, in the long term, low wages cost companies more in lost productivity, high turnover and low morale than they generate in short-term profits. This proxy season, shareholders are making the broader case that below-living wages also hurt investors’ overall portfolios by perpetuating inequality and depressing the economy (see, “With ‘systems-first’ proposals, shareholders seek to mitigate economy-wide risks“). “This strategy of pushing individual companies to profit from poverty wages ultimately wastes human capital and harms the diversified portfolios owned by most investors,” says Murphy. The Shareholder Commons filed living wage proposals on behalf of investors including LGIM and the Nathan Cummings Foundation. “The inequality perpetuated by low pay threatens national and global economies with losses that will burden investment portfolios for years to come,” Murphy explains.
  • Income inequality. CEO pay jumped more than 11% in 2023, according to an Equilar study of the 500 largest reporting companies; compensation for median employees dropped 9.3% (caveat: pay for female CEOs actually sunk by 26%). Pay disparities are typically highest in companies with large frontline workforces. Target CEO Brian Cornell, for example, last year took home 719 times more than the retailer’s median employee. The Securities and Exchange Commission since 2020 has required disclosure of “material” human capital management practices; the commission is still considering a long-awaited update (see, “Get ready: ESG critics are coming for ‘S’ issues”). 

Dealflow: Agrifood Investing

PeakBridge Growth Fund raises $187 million to bring technology to food ventures. The Luxembourg-based venture capital fund will invest in agriculture and food companies that are leveraging AI and digitalization to drive healthy and sustainable food systems and “serve as a bridge between the old food industry and the new technology,” as PeakBridge’s Nadav Berger put it. PeakBridge will write about a dozen checks of around $10 million, with a focus on alternative proteins, nutrition and health, ingredient innovation, and new food and farming systems. Portfolio companies include UK-based Win Win, which makes cocoa-less chocolate and processes discarded seeds into oils and pulp for alternative dairy products and cosmetics. Five portfolio companies, including Delicious Data, Tastewise and Orbisk, are using AI to reduce food waste. 

  • Impact management. The $187 million fund is anchored by family-owned investment firm Edmond de Rothschild Private Equity. Other LPs include Lukas Walton’s Builders Vision and food companies Grupo Bimbo, Royal Cosun and Arancia. With its sustainability objectives, PeakBridge operates as an Article 9 fund under Europe’s Sustainable Finance Disclosure Regulation, or SFDR (see, “Is Europe’s Sustainable Finance Disclosure Regulation delivering on its promise?”).
  • Check it out.

Colombia’s Magneto scores $7 million to help companies recruit talent in Latin America. More than half of the working population in Latin America works in the informal economy, often with meager wages and few benefits. Magneto Global’s “Applicant Tracking System” helps more than 2,500 global companies recruit for formal jobs in the region. Magneto says it has helped Starbucks, Coca-Cola, KPMG and other companies cut recruitment costs by up to half and address unconscious biases. “We plan to double the market and focus on what companies and new generations of collaborators are looking for,” said Magneto’s Alejandro Arango. The company hopes to reach more than 20,000 business clients in Colombia, Mexico, Peru and the US. 

  • Breaking barriers. Investors in the seed financing round include Acumen Latam Impact Ventures, or ALIVE Ventures, and Impact Ventures PSM and Latin Leap. “We firmly believe that in Latin America, accessing formal jobs is a ticket out of poverty,” said ALIVE’s Santiago Álvarez, who will join Magneto’s board of directors.
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Dealflow overflow. Investment news crossing our desks:

  • Latina-led venture fund Angeles Ventures secured an equity investment from Bank of America to invest in Hispanic and Latino founders’ early stage companies in the US. (Angeles Ventures)
  • Cyclib, a Germany battery recycling startup, scored €55 million ($60 million) in Series A financing from the World Fund, Porsche Ventures, Speedinvest and other backers. (Sifted)
  • India’s Niqo Robotics clinched $13 million in a Series B investment round for its AI-powered precisions spraying tech for smallholder farmers. (AFN)
  • UK-based ULEMCo, which retrofits diesel-fueled heavy duty commercial vehicles for clean hydrogen use, raised £5 million ($6.3 million). (ULEMCo)

Signals: Growth Markets

A cheat sheet to ‘inclusive business’ investing. The flow of private investment capital into emerging markets is often stalled by perceptions of country, political, currency and economic risks. For residents in such markets, however, day-to-day life continues. Emerging market households, especially those in lower or middle-income bands, collectively spend trillions of dollars each year on daily necessities, improving their livelihoods, and securing their families’ futures. The International Finance Corp., British International Investment and Dutch development bank FMO released the “Inclusive Business Investing Guide” to mobilize intentional capital for products and services that improve the lives of emerging market consumers and enable them to build financial resilience and wealth. ImpactAlpha has distilled the key takeaways.

  • Value creation. Everyone needs to eat, communicate and exchange money or goods. Most people prioritize basic ways to live safely and comfortably, with lighting, access to clean water, and heating in their homes, and to improve their families’ future prospects, by putting aside savings, sending their children to school, or investing in their own skills development. Inclusive businesses generate revenues and make profits by selling goods and services that customers need and otherwise can’t access, or by providing better products and services. Rwanda-based Ampersand, for example, finances and sells electric bikes for motorcycle taxi drivers. In India, Altum Credo provides mortgages for first-time homebuyers underserved by other financial institutions. Financial returns for inclusive businesses can also come from “improved productivity and output of workers [and] the value they provide to supply chain partners.” 
  • Who ‘inclusive businesses’ serve. Half of the world’s population lives on less than $7 per day (and more than 85% live on less than $40 per day). The guide defines “inclusive businesses” as those with a mission to provide financial services, healthcare, education, energy access, livelihood support and other necessities to lower-income consumers. The targeted customer income threshold for inclusion-focused businesses varies across markets and geographies. “Common thresholds include fixed global lines of $6.85, $8.44 or $12 per day per capita in purchasing power parity,” the guide notes. Some businesses use “a variable line that reflects the bottom 40% or 50% of people in a country based on consumption.”
  • Aligning the thesis. Climate investors can ensure that people from all income brackets have access to products, services and infrastructure improving climate resilience. Diversity-focused investors may look to create job and career growth opportunities for women, youth or historically disadvantaged groups. Due diligence: What risks and challenges face underserved consumers within investors’ focus sectors and geographies? Are a potential investee’s products or services specifically designed, packaged, priced or targeted to increase affordability or accessibility? Does the company offer capacity building, financing, inputs or other support to help smaller suppliers overcome barriers?
  • Scan the guide’s highlights. Then join this week’s call: “A guide to investing in livelihoods and access for emerging market households,” Wednesday, May 22, at 8am PT / 11am ET / 4pm London.

Agents of Impact: Follow the Talent

Don’t miss these upcoming ImpactAlpha partner events:

Jeanne McLaughlin, previously with InvestX Capital, joins Ownership Works as senior director of movement building… Candide Group’s Morgan Simon joins the board and investment committee of the Oakland Museum of California… Impact Engine’s Priya Parrish publishes, “The Little Book of Impact Investing” (listen to the podcast, “Scaling purpose built impact with Priya Parrish”).

Social Capital Partners is on the hunt for a communications director in Toronto… Kataly Foundation is hiring an integrated capital officer in San Francisco for its Restorative Economies Fund… Milken Institute has an opening for a geo-economics director in Washington, DC… Inyova Impact Investing is recruiting an impact and sustainability research intern. 

Calvert Impact is looking for input for its biennial investor survey through the end of May… The Nathan Cummings Foundation, Ford Foundation, and Omidyar Network will host a virtual briefing on corporate underwriting and the democracy gap, featuring former SEC commissioner Allison Herren Lee, Wednesday, June 12. 

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

Thank you for your impact!

– May 20, 2024