The Brief | November 12, 2020

The Brief: Climate reset, inclusive hardtech, operating principles disclosure, blended capital shortfall, green stimulus, who’s who in the Biden transition

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Greetings, Agents of Impact! 

Agents of Impact Call: Gender-smart investing for a sustainable recovery. Development Partners International’s Takudzwa Mutasa, Alitheia’s ‘Tokunboh Ishmael, Sarmayacar’s Rabeel Warraich and other Agents of Impact will explore how gender-smart investors are mitigating risk, realizing returns, and identifying opportunities to rebuild sustainably. CDC Group’s Nick O’Donohoe and International Finance Corp.’s Stephanie Von Friedeburg will launch a new fund manager’s guide to gender-smart investing and join ImpactAlpha and the Collaborative for Frontier Finance on The Call, Tuesday, Nov. 17, at 9:30am ET / 2:30pm London / 5:30pm Nairobi / 8:00pm New Delhi. RSVP today.

Featured: ImpactAlpha Original

Expected U.S. reset on climate action is a green light for allies and investors. As the U.S. Federal Reserve for the first time recognized climate change as an economic risk, and President-elect Joe Biden reiterated his commitment to returning the U.S. to the Paris climate agreement, President Donald Trump sacked the official in charge of the government’s national climate assessment. While the U.S. begins – fitfully – the transition to the Biden administration, investors in the U.S. and leaders around the world are moving ahead. Half of the G20 countries have set binding targets to achieve net-zero greenhouse gas emissions by 2050 at the latest. China is aiming for 2060. “The transition to net zero will be the most significant transformation in economic history,” Generation Management’s David Blood said at the Green Horizon Summit this week. By this time next year, “net-zero transition plans will become the norm for large companies,” said former Bank of England governor Mark Carney. “The financial sector is increasingly focused on this opportunity of a lifetime.” 

The re-emergence of U.S. engagement on climate action is set to give the net-zero future a boost. Already, the election results have accelerated a record flow of capital into environmental, social and governance stocks, and into renewables, climate tech and companies leading the low-carbon transition. Needed now: widespread and uniform disclosure of climate risk.The U.K. will become the first major country to require large companies and financial institutions to report climate risks in line with the Task Force on Climate-related Financial Disclosures. Biden’s leadership on such risk reporting “may prove to be one of the most important turning points in the global fight against climate change,” said Michael Bloomberg, who chairs the task force. In its annual “Financial Stability Report,” the U.S. Fed said storms, floods, droughts, or wildfires, along with shifts in public perceptions, could produce abrupt repricing events and direct losses and lead to “an increased frequency and severity of financial shocks.”

Keep reading, “Expected U.S. reset on climate action is a green light for allies and investors,” by Amy Cortese on ImpactAlpha. 

Dealflow: Follow the Money

Chicago’s mHUB raises $5 million to build an inclusive ‘hardtech’ ecosystem. Early-stage hardware companies get only a small slice of the venture capital pie – roughly $1 for every $15 software and other digital startups raise. For under-represented founders of hardware startups, the financing gap is even wider. Chicago-based mHUB aims to bridge the gap through an accelerator program designed for women entrepreneurs and founders of color working on hardware and “deep tech” innovations. “We want to beat averages for the tech industry,” mHUB’s Shannon McGhee told ImpactAlpha. The nonprofit has raised $5 million from 42 investors. The capital will support 60 early-stage ventures over three years. mHUB is looking to raise $15 million. 

  • Supportive finance. Each cohort will distribute $980,000 in cash investments and commit $500,000 to engineering, design and programming. mHUB’s first program will focus on industrial Internet of Things innovations. Applications are open until Dec. 21. mHUB also will host a pitch competition for diverse hardtech founders. 
  • Geek out

Opportunity Fund teams up with Lendio and Funding Circle to expand small business lending. Many micro- and small businesses in the U.S. have cash runways of 15 days or less. COVID-related shutdowns are putting disproportionate financial pressure on Black, Latino and other minority-owned businesses. Bay Area microlender Opportunity Fund is integrating lending products from small business lenders Funding Circle and Lendio to meet its goal of disbursing $65 million in loans in 2020. 

Tül raises $4 million to help local hardware stores manage their inventory. Colombia-based Tül is part of a wave of startups helping digitize informal and small businesses in emerging markets (see, “African tech startups are peddling pandemic resilience). “We want to empower the local hardware store owner, who has known his local community for decades and who is usually the last node in the supply chain, to become not only a product distributor, but also a financial credit and lending service enabler,” Tül’s Enrique Villamarín told the Association for Private Capital Investment in Latin America. Vine Capital backed the round. 

Impact Voices: Pass the Mic

What the IFC learned about the state of impact management from 62 investors. Public disclosure is key to the pledges made by more than 100 impact fund managers who have signed onto the Operating Principles for Impact Management from the International Finance Corp. (see “‘Operating principles’ help investors hold asset managers accountable for impact).  In a guest post on ImpactAlpha, the IFC’s Neil Gregory shares his analysis of how impact management systems align with the principles based on disclosures from 62 fund managers (you can review all 76 disclosures here). Only 56% of disclosures confirm that incentive systems are in place to reward impact alongside financial returns. The upside: 85% of disclosures show impact targets anchored to the U.N. Sustainable Development Goals. Few signatories, Gregory writes, “attempt to compare the scale of their impact to the size of the environmental or social goal they are trying to contribute to achieving.”

  • Impact Verified. In a sponsored series on ImpactAlpha, BlueMark’s Christina Leijonhufvud reflects on the firm’s learnings from more than 20 independent verifications of investor alignment with the Operating Principles. And here’s the recap of Agents of Impact Call No. 15: “Impact management is hot.”
  • Read Neil Gregory’s full post.

Signals: Ahead of the Curve

Short takes. Here are a few of the reports crossing our screens this week:

  • Billions to billions. Last year, 45 deals totaling $8 billion used catalytic capital from public or philanthropic sources to increase private sector investment in developing economies to realize the Sustainable Development Goals. Both the total number of deals and total financing are below the average for the last five years, according to “The State of Blended Finance 2020” from Convergence
  • Comparing impact performance. The Global Impact Investment Network released evidence last month of the impact of investments aiming to drive access to finance and more sustainable agriculture (see, “Investments in financial inclusion and agriculture deliver impact). The GIIN has released its methodology for standardizing and comparing investment-level performance within a given market segment and across the market. It is seeking public comment through Jan. 21.
  • Green COVID recovery. The U.S. government has allocated $100 billion in COVID stimulus to the energy sector. Of that, 72% has gone to legacy fossil fuel companies. Allocating that $72 billion to clean energy could have produced a 6.5% rise in the share of renewable electricity generation (to 24%) and 544,000 new jobs in renewable energy, nearly triple the number created in the legacy energy sector, according to “Aligning Stimulus with Energy Transformation” from Wärtsilä Energy.

Agents of Impact: Follow the Talent

Who’s (going to be) who in the Biden administration? The President-elect’s transition team named 500 people to its agency review teams, an advance guard to help build and recommend staff for key federal agencies. More than half are women, and at least 40% people of color or LGBTQ+. Among the Agents of Impact jumping into the transition: Bill Bynum of HOPE Enterprises, Elizabeth Littlefield of Albright Stonebridge Group (and former head of the Overseas Private Investment Corp., now part of the U.S. International Development Finance Corp.), Xavier Briggs (ex- of the Ford Foundation), Florence Chen of Generate Capital, Martha Gimbel of Schmidt Futures, Dennis Kelleher of Better Markets, Dina Esposito of Mercy Corps, Elisa Montoya of Meow Wolf, and Bryan Garcia of the Connecticut Green Bank. Ron Klain, the veteran operative set to become Biden’s chief of staff, has most recently been a top executive at Revolution, the venture fund founded by Steve Case

Catherine Gicheru of the Africa Women Journalism Project joins Media Development Investment Fund’s board of directors… Immigrant founder-focused venture firm Unshackled Ventures welcomes 21 student fellows… Reach Capital seeks a head of finance and operations in San Francisco… Convergence is hosting “African Perspectives on The State of Blended Finance” on Tuesday, Nov. 17 and “Asia-Pacific Perspectives on The State of Blended Finance” on Tuesday, Nov. 24.

Thank you for reading.

– Nov. 12, 2020