The Brief: Diversity disclosure, global impact tech, sustainable wood, battery race, committing the G20, leading Living Cities

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ImpactAlpha

Greetings, Agents of Impact!

Featured: Returns on Inclusion

The era of diversity disclosure in asset management has begun. Will actual diversity follow? “The asset management industry has a lot of work to do to increase racial and gender diversity,” says Gary Gensler, head of the U.S. Securities and Exchange Commission. That’s an understatement: Less than 1% of the $70 trillion in industry-wide assets under management are managed by female or minority-led asset managers, despite a growing body of research that suggests the performance of diverse-led firms matches or outperforms all-white, all-male teams. The SEC and state regulators are set to test whether the proposition that required disclosure will prompt asset allocators to revamp their processes and improve their records. An SEC committee last week unanimously recommended that asset managers, advisors and consultants be required to disclose diversity data and business practices relevant to gender and race. That’s a start, says Illumen Capital’s Daryn Dodson. “Disclosure is not enough. We must also seek to address the racial biases that underestimate and overlook women and people of color, leaving returns on the table.” Earlier, on The Reconstruction podcast, Dodson said, “Everyone loses when we have sub-optimal asset allocation.”

  • California case study. The state’s 2018 law “urged” the chief investment officer at the University of California to improve diversity among its endowment managers and in its own employment ranks. In its second annual report, however, the university shows a dip in assets managed by diverse managers. The report covers only $102 billion of UC Investments’ $130 billion AUM, excluding assets managed internally or by non-U.S. firms. Robert Raben, founder of the Diverse Asset Managers Initiative, says UC should get points for transparency. “Only by producing and critically examining diversity data can we create meaningful change and boost the bottom line.”
  • Structural barriers. Asset allocators’ screens that exclude smaller and newer managers all but eliminate asset management firms owned by women and people of color. “Discrimination against diverse managers has effectively been codified in diligence checklists on ‘how to fulfill your fiduciary duty’ when selecting asset managers,” wrote three members of the SEC committee. Gilbert Garcia of Garcia Hamilton, Scot Draeger of R.M. Davis and Paul Greff of Ohio Public Employees Retirement System recommend fiduciaries widen their scope in selecting managers. Another red flag: Decades of political “pay to play” contributions and lobbying for mandates may still be reinforcing gender and racial exclusion. “The theory is that by shining transparency on this, market forces will change the makeup,” Garcia told Reuters.
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Dealflow: Impact Tech

LGT’s Lightrock closes $900 million fund for tech-driven impact. LGT, the $272 billion private banking and asset management firm of the royal family of Liechtenstein, launched Lightrock in 2019 (see, “LGT acquires Aspada from Soros to expand Lightstone impact investing platform”). Its new growth fund will invest in impact enterprises using technology to address challenges in education, healthcare, access to finance, mobility, renewable energy and the circular economy. Lightrock has made 60 investments to date in Latin America, Europe and India.

  • Growth capital. Lightrock has already backed 26 companies from the fund, including Indian online pharmacy PharmEasy, German vertical farm provider Infarm and Brazilan fintech Creditas. LGT invested in the fund via its Lightrock Evergreen Fund, which it launched in May for its private banking clients. LGT Group Foundation also invested.
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Wood building fund aims to cut construction carbon in Europe. The construction and operation of buildings was responsible for 38% of energy-related carbon emissions in 2020. Real estate developers in Europe are increasingly building properties made of wood, massive timber and other renewable materials, rather than steel and concrete, to reduce their carbon footprint. Australia-based Cromwell Property Group is teaming up with Finland-based Dasos Capital in an open-ended fund to invest in wooden building projects in Europe. Cromwell and Dasos are looking to raise €100 million ($118 million) by the end of the year and ultimately build a €1 billion portfolio.

  • Cross-laminated timber. France may require new public buildings to be constructed with 50% wood or other sustainable materials as early as next year. Nordic countries have been more aggressive. Cromwell is a global real estate investor; Dasos advises pension funds and family offices on investments in timber, land and natural capital.
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Race for better lithium batteries accelerates with two big raises. Batteries are big, as startups and investors bet on the low-carbon energy transition. SES, based near Boston, scored $100 million from Hyundai Motor Co. to develop an alternative to traditional solid-state lithium-ion batteries that it says is safer, faster-charging and offers longer-lasting power between charges. Hyundai’s investment follows SES’s partnership with GM.

  • Industrial scale. Separately, large-scale battery manufacturer Verkor, based in Grenoble, France, raised €100 million ($118.6 million) from Schneider Electric, EIT InnoEnergy, the French government and others. Verkor is building an industrial-scale production facility for traditional lithium-ion batteries. The company plans to build a gigafactory that will produce batteries for 300,000 electric vehicles annually.
  • Battery race. Stockholm-based Northvolt raised $2.7 billion for its EV battery gigafactory; it is partnering with Volkswagen. BMW and Ford recently backed Colorado-based Solid Power, a solid-state battery developer; the company is planning to go public via a special purpose acquisition company. ESS Tech, QuantumScape, FREYER and Microvast are also part of the battery-tech SPAC trend. Boston-based Clean Energy Ventures backed several new battery-tech ventures, including Volexion, which is making a protective coating for batteries, and Nth Cycle, which is boosting mineral recovery from discarded batteries and electronics.
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Dealflow overflow. Other investment news crossing our desks:

  • Sustainable aquaculture investor Aqua-Spark leads a $9 million round for India-based seaweed producer Sea6 Energy.
  • Two Sigma Impact acquires Texas-based pediatric therapy provider Circle of Care, which primarily serves lower-income patients.
  • Paris-based Tikehau Capital launches a €30 million impact credit fund focused on climate solutions.
  • International Finance Corp.’s $20 million loan to Daystar Power in Nigeria includes $10 million in local-currency debt.
  • London’s FabricNano raises $12.5 million for fossil-fuel free biomanufacturing for plastics, drugs and other materials.

Signals: Catalytic Capital

From COVID to climate, G20 countries look to catalyze capital for urgent action. The global effort on COVID vaccines does not bode well for the massive mobilization needed to avert climate catastrophe. The weeklong G20 meeting in Venice, like the G7 last month, wrapped up with pledges and platitudes but little in the way of concrete action. The big test: a $50 billion plan to speed the vaccine rollout, save a half-million lives this year, and accelerate the global recovery. Months after vaccines have become available, just 10% of India’s population has been vaccinated, and less than 1% of sub-Saharan Africa’s. COVAX has shipped almost 50 million vaccine doses to 121 countries – a tiny fraction of the one billion doses needed in low- and middle-income countries by the end of the year to protect vulnerable populations. The International Monetary Fund’s Kristalina Georgieva calls the plan “the best public investment of our lives and a global game-changer.”

  • Climate finance. With climate as with COVID, “we have learned that you can’t protect yourself unless you protect everyone,” says Rachel Kyte, dean of the Fletcher School at Tufts University. Global goals will be out of reach if developing nations that have contributed little in the way of greenhouse gasses cannot afford to decarbonize. “The investment needed to green the global economy is enormous and far exceeds the scale of official finance,” U.S. Treasury chief Janet Yellen told the assembled finance ministers. “Private capital will need to fill most of that gap.”
  • First-loss capital. BlackRock’s Larry Fink argued in Venice that 80-year old institutions such as the World Bank and International Monetary Fund would be more effective as “first-loss” guarantors than direct lenders. “There is private capital that can be mobilized for the emerging markets, but we need to rethink the way the international financial institutions can support low-carbon investments at scale,” Fink said. BlackRock’s Climate Finance Partnership launched last year with $112 million in first-loss capital from France, Germany and Japan, along with the Grantham Environmental Trust, the Quadrivium Foundation and the Hewlett Foundation (see, “Blending philanthropic, public and private capital to finance climate infrastructure in emerging economies”). That has helped attract close to $150 million in additional funding from Dai-ichi Life Insurance, Standard Chartered Bank and MUFG Bank to invest in climate infrastructure in Asia, Latin America and Africa. “As excited as I am about this partnership,” said Fink, “we need solutions of a much greater magnitude.”
  • Pricing carbon. For the first time, the G20 endorsed carbon markets as a policy tool. This week, the European Union is expected to propose a new carbon market for transportation and home heating. To buffer low-income households from rising carbon prices, the bloc is mulling a “Climate Action Social Facility” to be funded by 20% of carbon-market revenues.
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Agents of Impact: Follow the Talent

Joseph Scantlebury, ex- of the W.K. Kellogg Foundation, is the new CEO of Living Cities… Ying Lucy Fan, ex- of Peak Power, joins North Sky Capital as vice president… Acumen is hiring a business development associate in New York… Emerson Collective is looking for a portfolio manager for its Culture Council in Palo Alto, Calif… Women of the World Endowment is recruiting a senior analyst in Washington, D.C… Global X ETFs seeks a director of sustainable investing in New York.

Thank you for your impact.

– July 13, 2021