Greetings, Agents of Impact!
Featured: Climate Resilience
India’s urban slums have become a testbed for climate solutions. Investors are welcome to take a look. Until about 40 years ago, the Sanjaynagar slum in Ahmednagar, near Mumbai, was a desolate marshland about the size of a baseball field. Now, it’s home to 900 people living in tiny metal shacks. On a recent afternoon, Sandhya Naidu Janardhan and her team at Community Design Agency collaborated with Sanjaynagar residents on a plan to build new homes. The goal: provide permanent structures to shelter residents from increasingly intense heat waves and floods and empower locals to improve their community. “To tap into the existing social fabric is very important because that’s what makes the community resilient,” Janardhan tells ImpactAlpha contributor Shefali Anand. Last year, 33 families moved into a new block of homes designed with stronger, cooler roofing, cross-ventilation, toilets and shared community spaces. Anand visited the project for a glimpse into climate adaptation solutions appropriate for the more than half of urban residents worldwide who live in slums.
Design constraints can drive innovation that can break out into wider markets. But solutions for low-income residents remain difficult to fund, Anand reports. In India, government incentives for private developers have largely failed to produce better housing. Private financing has been limited in scope. Janardhan’s team at CDA is exploring a type of carbon credit that could be issued for slum redevelopment. Habitat for Humanity International has a small pool of venture funding to invest in slum and low-income housing solutions, such as better roofing. The changing climate makes investment increasingly urgent: a well-designed slum home protects against deadly heatwaves and flooding and reduces stale air or carbon dioxide that can get inside poorly ventilated slums. “These are things where impact people are needed,” says Habitat’s Meera Siva. “Nobody is going to do this work if the impact world doesn’t do it.”
- Keep reading, “India’s urban slums have become a testbed for climate solutions. Investors are welcome to take a look,” by Shefali Anand on ImpactAlpha.
Dealflow: Impact Munis
Impact Muni Bond: Kansas City sustainable light rail to improve downtown mobility. A $66 million Kansas City bond issuance will help finance a 1.3-mile extension of the Kansas City Streetcar, expanding downtown to the campus of the University of Missouri. The issuance, which settles on April 19, is the first to be highlighted as part of ImpactAlpha’s collaboration with HIP Investor, which is identifying upcoming issuances with social and/or environmental significance (and providing the bond’s CUSIP and coupon rate for interested investors).The KC Streetcar, first opened in 2016, is one of the first transit projects to receive the Envision Platinum Award for environmental design in sustainable infrastructure. “Investors interested in higher-impact transportation bonds should consider this issuance,” writes HIP’s Amir Khaleghi. The San Francisco investment advisor rates transportation- related muni bonds on 16 metrics that quantify how citizens can benefit via safe, affordable roads and commuting. The KC Streetcar bond issuance was rated “net positive” with a score of 54.7 out of 100.
- Environment and economy. HIP aims to identify issuers who perform highly, despite having fewer resources. KC finds itself rated below the average of its peers in transportation – caused by lack of electric transport and heavy reliance on travel by car. With the investment in expanding the streetcar, KC’s transportation agency would improve its overall rating, Khaleghi says. “I live here in Kansas City, and as a member of the local community, the improvement of public transportation has connected the city in new ways while increasing positive environmental and economic impacts.”
- Human Impact + Profit. In the past decade, HIP has rated more than 241,000 municipal-bond issuances from 123,000 entities. Municipalities with historically low impact ratings may be at greater risk of default; the firm says its clients have reported tighter spreads and lower price volatility for impact entities rating above 50%. “When a municipal agency is not fulfilling its stated mission, it is likely to be at a higher risk of mismanagement or default,” HIP says. “When a hospital has poor patient outcomes, or a university has low graduation rates, it may not attract future patients or students (revenue). And when an energy utility is not preparing for a low-carbon future, long term solvency could be questioned.”
- Go deeper (and follow all of ImpactAlpha’s Muni Impact coverage, made possible with support from the Robert Wood Johnson Foundation).
Reach Capital bets on ‘unbundling’ of schools with $215 million fund. The San Francisco edtech investor closed its fourth fund, along with a sidecar fund to allow its portfolio of founders to support other education entrepreneurs. “We have a thesis around the unbundling of schools,” Reach’s Wayee Chu told ImpactAlpha. “This portfolio approach is very exciting for new entrepreneurs building in this space and it’s going to be a much more personalized way to support your classroom.” The firm, which has its roots in New Schools Venture Fund, has grown with the edtech market to attract pension funds and other institutional investors. “We leveraged those anchor impact investors to validate our model and to prove that we can actually generate returns and fund incredible founders and companies,” said co-founder Esteban Sosnik. The new fund will continue Reach’s expansion into mental health and workforce development, as well as geographically, particularly in Latin America.
- Bottom-up. Reach has backed 72 startups since 2018, according to PitchBook. Among its handful of unicorns are Outschool, ClassDojo, and Handshake. Sosnik said portfolio companies like Newsela and Nearpod have used a “free to teachers” approach to demonstrate demand and effectiveness. “Once they get a number of classrooms adopting them, they go and sell it to the school or the district,” he said. Covid-related disruptions and state-level mandates in response to the teen anxiety epidemic have driven demand for mental health services. Rhithm, which helps school officials get a check on students’ mental health, was acquired by private-equity backed Securly last year. Playful provides on-demand life coaching for elementary and middle-school students. “Teachers are feeling like they’re playing the role of health care provider and educator at the same time,” Chu said.
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Dealflow overflow. Other investment news crossing our desks:
- Carbonwave raised $5 million from Mirova’s oceans fund, Viridios Capital, Popular Impact Fund and Katapult Ocean to ramp up production of its seaweed-based agriculture inputs, cosmetics and materials. (Carbonwave)
- Creadev, Acumen, Endeavor Catalyst and others backed Kenya-based sustainable aquaculture venture Victory Farms’ $35 million Series B round. (TechCabal)
- Clean Growth Fund invested in Futraheat, a London-based startup that is developing a high-temperature heat pump designed for industrial use. (Clean Growth Fund)
- Hawaii-based Hohonu raised $1.8 million from Elemental Excelerator, Builder’s Vision, TELUS’s Pollinator Fund for Good and others for its data platform that focuses on coastal flooding risks. (PacificInno)
- Spring Lane Capital invested in Spring Free EV, a financial services company that supports small and mid-sized vehicle fleet operators in adopting electric vehicles. (Newswire)
Signals: Unlocking Endowments
Four ways foundations and family offices can expand their mission-related investing. More foundations are stepping up to align their endowments with their philanthropic goals with “mission-related investments,” or MRIs. That’s shifting the narrative around the tradeoffs between impact and return. Builders Initiative, the philanthropic arm of Lukas Walton’s family office Builders Vision, reached its goal of aligning 90% of its $1 billion endowment with its philanthropic intentions (see, “Walmart heir’s foundation joins small club aligning endowment with mission”). A new report from Builders Initiative and Boston-based impact nonprofit Social Finance includes strategies from 30 philanthropic and impact investing leaders managing collectively over $300 billion in assets. The report, “Breaking Barriers: A Practical Guide to Unlocking Foundation Endowments for Mission and Returns” outlines actionable steps foundation and family office leaders can take to overcome barriers to MRI adoption.
- Structural barriers. More than two-thirds of interviewees indicated that the way foundations are inherently organized is a barrier to MRIs. More than half of interviewees also mentioned that a key obstacle to MRIs is how governing bodies view their role as fiduciaries. Interviewees said legal and operational hurdles can make co-investing a challenge, as sharing technical expertise and due diligence could be considered investment advice. “Several indicated that simple non-reliance letters and nondisclosure agreements allow for the sharing of information,” the authors found.
- Impact alpha. The portfolios suggest that well-planned mission-related investments perform consistently with the market and can be a source of alpha. Some stakeholders continue to insist that fiduciary duty requires maximizing financial returns above social and environmental impact. “Often, the challenge for foundations in pursuing MRIs isn’t regulatory in nature – it’s the entrenched philosophical and operational hurdles of traditional investing that are hardest to overcome,” says Fran Seegull of the U.S. Impact Investing Alliance. Ford Foundation reported last year that its mission-related investments had generated a compound annual return of 28% through 2021.
- Policy incentives. The Urban Institute found that foundations could do more to advance racial equity and racial justice goals by investing endowment assets toward their missions. Federal policy could incentivize community-level outcomes and engagement in decision-making, the report found. Most existing racial equity mission-related investments from foundations tend to focus on investing in fund managers of color.
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Agents of Impact: Follow the Talent
Hiro Mizuno, who joined Tesla’s board of directors in April 2020, tweets he will step down from the board at the next shareholders meeting (for context, see, “Hiro’s Journey: Japan’s pension fund chief rallies ‘universal owners’ around sustainable finance“)… Jarron Smith, ex- of TIAA, joins Zeal Capital Partners as chief operating officer and managing director.
Cogent Consultingis recruiting a part-time impact investment analyst… Global Partnershipsseeks a Latin America portfolio officer in Bogota… Incofinis looking for a Nairobi-based private equity associate for its Water Access Acceleration Fund… 57 Starsis hiring an ESG and impact analyst in Washington, D.C.
The New York State Insurance Fundhas an opening for a senior ESG and sustainability lead… Sorenson Impactis on the hunt for a business systems analyst in Salt Lake City… LISCis looking for a portfolio reporting and impact management analyst in New York… Health Forward Foundation seeks an impact strategist… FMO is hiring a sustainability reporting officer in The Hague.
FullCycle’s Stephan Nicoleau and climate strategist Chante Harriswill join Urban Tech Hub’s Michael Samuelian at Verizon’s executive education center in New York today (see, “Skill sets for The Great Deployment: Zoning, permitting and project finance”)… The 2023 Global Inclusive Growth Summit, hosted by the Mastercard Center for Inclusive Growth and Aspen Institute, starts tomorrow.
Thank you for your impact.
– April 12, 2023