The Brief: Electric transformation, Mastercard’s bet on inclusion, Amazon’s carbon capture, Citi’s impact alpha, IFC’s emerging markets performance

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Greetings! Let’s welcome Agents of Impact from Columbia University, London Business School, and the German development finance institution DEG, ImpactAlpha’s newest enterprise subscribers. Should your organization upgrade to a site license? Drop a note to [email protected] for full details. 

Tuesday’s Call: Changing the racial justice algorithm. Investors can build a broader toolbox for advancing racial justice. Join Illumen Capital’s Daryn Dodson, Mastercard’s Marla Blow, Beeck Center’s Erika Davies, Activest’s Ryan Bowers and other Agents of Impact, in conversation with Transform Finance’s Andrea Armeni and ImpactAlpha’s Monique Aiken and David Bank. We’ll explore how investors are deploying new tools, better data and smart strategies to root out racism in their portfolios. RSVP today.

Featured: Agents of Impact Podcast

Shutdown accelerates the shift to digitized, decentralized, decarbonized electricity (podcast). When the coronavirus pandemic shut down much of the world economy, Emmanuel Lagarrigue, chief innovation officer for Schneider Electric, the French equipment giant, worried momentum toward a clean energy economy would be lost. “Actually, that’s not what happened,” Lagarrigue says on ImpactAlpha’s latest Agents of Impact podcast. Instead, the shift to what he calls digitized, decentralized, decarbonized electricity has accelerated. Data point No. 1: Oil majors like Shell, BP and Total are finding better returns on capital in renewables than in drilling for oil. Data point No. 2: Customers in cities like Melbourne and Adelaide in the last few months have been signing up in droves for rooftop solar systems. Data point No. 3: Electric vehicles last year accounted for about 3% of new car sales in Europe. This year’s share: 9%. “The crisis, and especially the oil and gas price war,” Lagarrigue says, “are just accelerating the energy transition.”

Schneider is betting on those trends both to steal a march on stodgier competitors and to protect itself from disruptive startups out to unseat an incumbent. Last month, Schneider partnered with Huck Capital to develop and operate 5-megawatt on-site microgrids to help commercial and industrial building owners switch to clean energy. In April, Schneider, along with Breakthrough Energy Ventures, invested $11 million in Natel Energy in Alameda, Calif., to develop low-cost, “regenerative” hydropower technology. Global consumption of electricity is expected to triple in the next 20 years. Much of that will be off-grid, and not just because of sustainability. “It’s just cheaper. It’s more resilient. You don’t have to suffer the instability of the grid that you start seeing in some places of the world today, like in California, these days, or in Australia.” The transformation of the electric grid from a centralized hub and spoke system to a distributed network, he says, is “very similar to the disruptions that the information technology and the telecom industry went through 20 years ago.”

Read on and listen in to “Shutdown accelerates shift to digitized, decentralized, decarbonized electricity (podcast),” by David Bank on ImpactAlpha.

  • Climate disclosures. New Zealand became the first country to mandate climate disclosures, requiring more than 200 financial  organizations to disclose strategies, governance and risks in mitigating climate change. Separately, the call by the International Accounting Standards board for companies and auditors to reflect the full effects of climate change in their results won support from investor groups representing more than $103 trillion in assets.

Dealflow: Follow the Money

Mastercard commits $500 million over five years to reduce racial wealth gaps. “The economic costs of structural racism are too high to ignore,” says Mastercard’s Marla Blow. The company-wide endeavor “will tackle racism with the full force of our assets, be it our expertise, capital, digital products or extensive network of partners,” she says. Mastercard is doubling an earlier pledge, and now aims to bring a billion people and 50 million small businesses into the digital economy by 2025.

  • Growth opportunity. Full economic participation for Black communities is a $1.5 trillion opportunity over the next decade, McKinsey estimates. MasterCard aims to boost capital availability for Black-owned businesses to $750 million over five years through community development financial institutions, including Accion Opportunity Fund and the Community Reinvestment Fund. 
  • City assets. Mastercard will focus on New York, Los Angeles, Atlanta, New Orleans, St. Louis, Dayton, Ohio, and Birmingham, Ala. “Each one possesses great potential for change,” says Blow. Mastercard already is helping disburse aid digitally to vulnerable communities in three cities.  
  • Banking on-ramp. A third initiative will increase access to affordable financial products for under-banked Black families, who are often forced into costly alternatives. One partner: Black-owned digital bank MoCaFi. 
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Amazon’s climate fund backs carbon capture tech and electric vehicles. The e-commerce giant’s $2 billion climate fund announced its first five investments: carbon removal tech CarbonCure Technologies, carbon capture verifier Pachama, lithium-ion battery recycler Redwood Materials, electric vehicle maker Rivian, and motor efficiency tech Turntide Technologies. Breakthrough Energy Ventures joined the Pachama deal. The corporate venture fund, announced in June, aims to help Amazon reach net-zero carbon emissions by 2040. 

Citi Impact Fund invests in female talent, affordable housing and cleaner energy. The first investments from the financial services firm’s $150 million Citi Impact Fund include waste-to-energy company Fulcrum BioEnergy; ICON, which prints 3D homes for the unhoused; affordable housing marketplace PadSplit; and The Mom Project, a female-founded marketplace connecting women to good jobs.  

Patamar Capital backs Vietnamese fintech Kim An Group to boost small business lending. Less than 40% of Vietnam’s 5.6 million micro, small and medium-sized businesses have received bank loans, according to the Asian Development Bank. Kim An Group has dispersed more than 25,000 loans by helping Vietnamese financial institutions run automated credit processes and provide services tailored to small businesses. Viet Capital Ventures and East Ventures also participated in the Series A round.

Bamboo’s Agri-Business Capital Fund lends $1.4 million to support smallholder farmers in West Africa. The “ABC Fund” extended loans to Anatrans, a cashew nut processor based in Burkina Faso, and Maphlix, a Ghanian producer and processor of tubers and vegetables. Bamboo made the investments in partnership with Injaro Investments.

Impact Voices: Pass the Mic

IFC says mandate for impact in emerging markets helped it outperform the S&P 500. A new analysis of all 2,509 equity investments made in emerging markets by the International Finance Corporation since 1961 found the portfolio outperformed the S&P 500 index over the same period by 15%. “Its mandate for impact led IFC to find equity opportunities that other investors missed, by investing in markets that lacked access to capital,” the IFC’s Hans Peter Lankes writes in a guest post on ImpactAlpha. “IFC’s patience contributed to this outperformance, with longer holding periods being associated with stronger performance.” The private sector arm of the World Bank manages one of the largest equity portfolios with an impact strategy. Lankes hopes the analysis motivates more investors to invest for impact in emerging markets, “where equity capital is needed most.”

  • Patience is a virtue. Unlike private fund managers that must hit return targets and liquidate their portfolios over a fund’s life, IFC is more patient, holding equities for eight years on average. “This turns out to be key to making money in frontier markets, where macroeconomic trends and exchange rate fluctuations can reduce equity returns over shorter periods,” says Lankes.
  • Tough markets. Investments in countries with barriers restricting firms’ access to capital, such as limited banking system development, generated the highest average returns. Says Lankes, “Imperfect integration of global capital markets appears to have left attractive opportunities in countries with less developed banking systems and capital controls, creating scope for both profit and social impact.”
  • Keep reading, “How a mandate for impact in emerging markets helped the IFC outperform the S&P 500,” by Hans Peter Lankes on ImpactAlpha.

Agents of Impact: Follow the Talent

Income Research + Management names Allison Walsh head of ESG and corporate sustainability… Filmmaker Robert Rippberger and Lohas Advisors’ William Nix will co-lead Social Impact Entertainment Society to connect, equip and amplify social impact entertainment organizations and practitioners… Closed Loop Partners is recruiting a credit portfolio manager of project finance and a deputy controller and investor relations associate… Arabella Advisors seeks a managing director in Chicago.

Ilumen Capital is looking for a bias-reduction intern… Impact Capital Managers is hiring a fall/winter fellow… Rockefeller Philanthropy Advisors’ Heather Grady will moderate “Addressing the Nature Crisis: Science Based Targets, Partnerships, and Scaling Impact,” with Kristian Parker of Oak Foundation, Porticus’ Thomas Anthony Brenninkmeijer, and Erin Billman of the Science Based Targets Network on Wednesday, Sept. 23… The American Sustainable Business Institute is hosting “Revolutionizing Accounting,” a conversation with Harvard Business School’s George Serafeim on Thursday, Oct 8.

Thank you for reading.

–Sept. 21, 2020