Greetings, Agents of Impacts!
Agents of Impact Call No. 15: Making the mark in impact management. Join Tideline’s Christina Leijonhufvud and impact investors Nuveen, LeapFrog Investments and the European Bank for Reconstruction and Development for an inside look at best practices in impact management. The Operating Principles for Impact Management, introduced a year ago by the International Finance Corp., have emerged as the North Star for best practices in impact management, with more than 90 signatories across public and private markets. Tideline is sponsoring The Call to share aggregated results from a dozen independent verifications of investor alignment. ImpactAlpha’s David Bank will host the discussion of common approaches and shared challenges, Thursday, April 23 at 10am PT / 1pm ET / 6pm London. RSVP today.
Impact Voices: Pass the Mic
Investments in the creative economy will help drive an inclusive COVID recovery. In the month since the annual SXSW arts and tech festival in Austin, Texas was canceled, artists and other creatives have been on the front line of COVID-19 economic collapse. Investments in food, fashion, media, creative manufacturing and community spaces will be key to an inclusive economic response and recovery. Upstart Co-Lab, an advocate for the creative economy, surveyed its network of businesses, real estate projects and impact funds (see, “More than 100 funds investing in the creative economy”). Nearly two-thirds of the respondents have laid off staff, cut hours, or reduced pay. “It will take a combination of impact capital and creativity to design an inclusive and sustainable recovery,” writes Upstart’s Laura Callanan in a guest post on ImpactAlpha. “Right now, impact investors can contribute to an inclusive economic recovery by backing creative places and creative businesses as part of comprehensive community development and drivers of the new impact economy.”
- Placing capital. Some of Callanan’s suggestions for investors looking to get creative: Invest with your local Community Development Finance Institution, or CDFI. Reinvestment Fund and Self-Help Credit Union are among a number of CDFIs making significant investments in the creative economy. Invest with impact funds that include the creative economy. Funds that promote inclusion (The Runway Project, for example) or benefit the environment are often backing creative economy businesses. Invest through impact investment platforms like CapShift and Small Change that identify creative economy investment opportunities in art, design, culture and heritage.
- Between the cracks. A growing set of foundation and crowdfunded relief funds, along with federal, state and local government efforts, are helping nonprofit arts organizations and individual artists withstand the economic devastation. But many small and growing enterprises in the creative economy don’t qualify for philanthropic funds that target nonprofits – and may miss out on support aimed at small businesses as well.
- Keep reading, “Investments in the creative economy will help drive an inclusive COVID recovery,” by Upstart Co-Lab’s Laura Callanan.
Dealflow: Follow the Money
Iowa’s soy farmers to be paid for sustainable soil and water outcomes. U.S. farmers plant more than 85 million acres of soybeans to supply animal feed, industrial biofuels and everyday food products. But soy farming is linked to deforestation, soil erosion and other negative environmental impacts. Agricultural giant Cargill and the Walton Family Foundation are partnering with the Iowa Soybean Association to encourage the state’s 40,000 soy farmers to invest in soil health improvements and water conservation through a pay-for-success funding initiative called the Soil and Water Outcomes Fund. Grants from the two partners will compensate farmers for water quality improvements and carbon sequestration in soil.
- Pilot fund. Approximately 10,000 Iowa farms have enrolled in the fund’s pilot program, which offers farmers payments of $30 to $45 per acre based on their results, Reuters reports. Quantified Ventures, which has supported other pay-for-success environmental initiatives, helped design the fund. Sustainable Environmental Consultants is tasked with verifying results. If successful, the first year of the fund could result in 100,000 pounds of nitrogen and 10,000 pounds of phosphorus removed from water by stemming chemical run-offs.
- Soil wealth. Other efforts to support regenerative farming practices include Iroquois Valley Farmland, which lets investors finance farmers’ conversion to organic practices; Ejido Verde in Mexico, which is financing reforestation on productive, communal lands; and regenerative agriculture financing from Danone North America, Rabobank, and a raft of other investment firms (see, “Agriculture funds are investing billions to regenerate soil – and communities”). The Soil and Water Outcomes Fund is unique for its outcomes-based financing.
- Dig in.
Signals: Ahead of the Curve
Flight to quality: Sustainable investments are growing, and outperforming, in a volatile market. Companies that merely pay lip service to stakeholders risk exposure in a crisis. Companies that take care of their employees, effectively manage risk, and efficiently use resources tend to hold up. Evidence is mounting that investments in sustainable businesses are performing well – on a relative basis – through the COVID crash. “Those companies that consistently embrace their principles, their workforces, and their unique competitive advantages will outperform,” says Cornerstone Capital’s Erika Karp in “ESG Fund Performance in Volatile Markets.” Good governance, she says, is a proxy for quality, innovation and resilience. Case in point: Most environmental, social and governance, or ESG, funds were insulated from the collapse in oil prices by their limited exposure to fossil fuels and industries like airlines and cruises. A few indicators:
- Sustainable public equities funds are outperforming. Sustainable funds lost less than their non-sustainable peers between January 1 and March 31, according to Morningstar’s Jon Hale. All but two of 26 ESG-weighted index funds, for example, outperformed conventional counterparts. Just Capital’s large cap diversified index, which includes the top half of Russell 1000 companies ranked by “JUST” scores on worker treatment, customer concerns and environmental impacts, has outperformed the broader Russell 1000 by 100 basis points since the market’s peak on February 21.
- Sustainable funds are seeing record inflows. Investors moved $10.5 billion into 314 open-end and U.S.-based exchange-traded sustainable funds in the first quarter, according to Hale – a new record after 2019’s fourth quarter shift of nearly $8 billion. BlackRock’s 16 iShares ESG exchange-traded funds commanded $6.3 billion of the total, followed by Vanguard, Calvert, Dimensional and TIAA/Nuveen.
- Legacy firms are affirming ESG commitments. The pandemic “has underscored the complexity and interconnectedness of our world in terms of demand and supply, in trade and commerce – and how these can be under threat if not sustainable,” says Nigel Green, head of deVere Group, which advises $12 billion. DWS (which manages $834 billion) and Insight Investment ($820 billion) are among mainstream firms recommitting to ESG integration.
- Others are gearing up. Barclay’s is launching a Fundamental ESG Research unit to explore whether the COVID outbreak is “creating a greater sense of urgency and responsibility toward everything from consumer behavior to climate change, supply-chain practices and the future of work and mobility – and potentially alter[ing] the nature of the investment process as a result.”
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Agents of Impact: Follow the Talent
Depelsha McGruder, ex- of New York Public Radio, joins Ford Foundation as chief operating officer and treasurer… US SIF canceled its 2020 forum. Its next forum will convene in Chicago on June 14-16 in 2021… Melbourne-based SocialSuite is offering a free COVID-19 Social Impact Assessment tool to track the pandemic’s impact on employees and stakeholders… The U.S. Green Building Council-Los Angeles is accepting applications for its 2020 Net Zero Accelerator.
Cornerstone Capital Group is hosting the second installment of “Forever Changed: COVID-19 and Impact Investing” webinar today, April 14 at 3pm ET… Vanina Farber of the elea Center for Social Innovation is convening a series of webinars on “Mobilizing private capital to spark social innovation“… Join Cathy Clark, Caroline Bressan and Anushka Ratnayake on CASE at Duke’s webinar “Managing impact investment fundraising during COVID19” on April 16 at 12pm ET.
Thank you for reading.
–Apr. 14, 2020