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The Brief: Engie vs. Enel, lending to diverse businesses in Colorado and Detroit, passive ESG investing, accelerating social entrepreneurs



Greetings, Agents of Impact! 

The Call: Election Impact. Beeck Center’s Sonal Shah, who took a leave to serve as policy director for Pete Buttigieg’s presidential campaign, looks forward to helping the next administration’s transition team bring a new generation of Agents of Impact into government. “We have to attract a generation that is fundamentally going to change the shape of this country,” Shah says. “We don’t have a choice.” The Nonprofit Finance Fund’s Antony Bugg-Levine wants to harness the urgency of the COVID crisis to reshape social systems. “What is stopping us from acting with the same urgency and upending usual processes for addressing all the other lingering crises, such as climate change, the carceral state, the racial wealth gap, African American maternal mortality and voter suppression?” he asks. Blue Haven Initiative’s Liesel Pritzker will share how electoral engagement aligns with the family office’s investment philosophy. “Spoiler alert: Smart politicians with diverse lived experiences make better rules for the market in the long-term,” she says. Riding on the U.S. election, according to i(x) investment’s Trevor Neilson: “Absolutely everything.” Join these and hundreds of other Agents of Impact to discuss the role of impact investors in the November election and beyond, this Thursday, July 30 at 10am PT / 1pm ET / 6 pm London. RSVP now.

Series: Impak Battles

Corporate impact face-off: Engie vs. Enel. Last month global food giants Nestlé and Danone faced off in the first edition of Impak Battles, an ImpactAlpha series with Montreal-based impact ratings agency impak. The series matches two companies head-to-head in an assessment of the impact and sustainability of their operations. Next up: European utilities Engie and Enel, which face off in a sector sorting itself into leaders and laggards, as companies navigate short-term COVID disruptions and the longer-term transition to a low-carbon economy. Earlier this month, for example, Enel São Paulo was hit with a $2 million fine by Brazil’s Consumer Protection Agency for violations “related to the collection of high amounts in electricity bills during the pandemic period.”

Nonetheless, Italy-based Enel edged France-based Engie in Impak’s head-to-head assessment. Engie is having a material impact on Sustainable Development Goal No. 7 (affordable and clean energy) with its use and production of renewable energy via solar and wind power and its hydroelectric projects, even though that accounts for only about 5% of its energy mix. Renewables represent almost 7% for Enel (see, “Global corporations start to capitalize on ‘positive externalities’). Impak’s analysis revealed a high number of negative impacts at both companies, including anti-competitiveness and corruption scandals. Enel stands out for attempting to mitigate its 10 negative impacts and for its commitment to the SDGs in its corporate governance report. Impak gave Enel a score of 220 out of 1,000, enough to nudge out Engie, which scored 152. It concluded “Being a positive impact company is still way down the road for both companies.” 

Keeping reading Impak’s “Corporate impact face-off: Engie vs. Enel,” on ImpactAlpha.

Dealflow: Follow the Money

Community Investment Management raises $10 million for COVID lending in Colorado… As the U.S. Congress debates another stimulus package, an initiative in Colorado is going beyond government to sow seeds of business recovery. Community Investment Management has secured $10 million to help fintech lenders get small business loans flowing to underserved businesses in the state. “This is about what comes next, both for businesses who were able to get funding from the Paycheck Protection Program, and for those the program didn’t reach, which are disproportionately minority and women-owned businesses,” CIM’s Jacob Haar told ImpactAlpha. CIM’s first partner is Camino Financial, which lends to undocumented Latinx-led microbusinesses. CIM’s goal is to raise $25 million to deploy, and eventually expand to other geographies. Haar hopes larger institutions will adopt the new underwriting approaches and “see underserved customers as a market that deserves better financing than what it gets today.”

  • Underwriting uncertainty. As the pandemic drags on, many traditional financial institutions have all but ceased originating new business loans. Deeper data capabilities help fintechs underwrite loans despite market uncertainty. “Underwriting based on a business’s pre-COVID revenue and expenses isn’t all that relevant right now,” says Haar. “The past 60 days may not be indicative of the next 60 days.” 
  • Building up. CIM’s partners will first originate small loans as borrowers build a track record for follow-on lending, much the same way microfinance institutions do for first-time borrowers, Haar explains. Camino’s loan sizes range from $5,000 and $30,000. Future CIM partners may work with larger businesses.
  • Read on

… While TCF Bank pledges to lend $1 billion to diverse businesses and support homeownership. Detroit-based TCF has joined the chorus of corporations and financial institutions making commitments to combat systemic racism in the U.S. Its pledge: to increase lending to minority and women-owned businesses and to provide $10 million in closing-cost grants to low- and moderate home buyers. 

  • Business support. The bank plans to issue loans of up to $1 million in size for businesses in Detroit, Chicago, Cleveland and other Midwestern cities it serves. Earnings on Paycheck Protection Program loans, issued to help businesses weather COVID, will fund the initiative. 
  • More

Accelerating social entrepreneurs. Among the more than a dozen 2020 Echoing Green fellows tackling systemic racism, educational inequities, unemployment, air pollution, and mental health are Farm On Wheels, Loo Works and Emerge Puerto Rico. The Miller Center selected 15 female social entrepreneurs for its first 100% women-led cohort, who join 17 entrepreneurs selected in May.

Signals: Ahead of the Curve

Active fund managers fret as investors pour money into passive ESG funds. Net inflows to low-cost, passively managed environmental, social, and governance funds totaled $12.7 billion in 2019, compared to $8.7 billion for actively managed ESG funds. What’s more, passive ESG funds analyzed by Morningstar outperformed active ESG funds in 2019 and the first quarter of 2020. “The advent of passive ESG funds provides more options to investors seeking sustainable impact, and we encourage these fund managers to make commitments to comprehensive ESG approaches,” said Meg Voorhes of US SIF, which compiles the stats in “The Rise of ESG in Passive Investing.” 

  • Climate benchmarks. The European Union is developing a Climate Transition Benchmark and a Paris-Aligned Benchmark to support the EU’s decarbonization goals. Switzerland’s Qontigo has launched the first indexes based on the benchmarks. 
  • Active stewardship. Engagement with company management is one of the few ways passive ESG funds can distinguish themselves. Among the best practices for passive ESG funds identified by US SIF are clear ESG disclosure, aligned proxy voting, impact measurement and reporting, and company engagement.
  • Tilting the indexes. As large “universal” asset owners push for sustainable alternatives, asset managers are tweaking the indexes that underlie passive funds. BlackRock’s Larry Fink has promised sustainable versions of its flagship indexes that tilt toward ESG factors and away from traditional market-cap weighting (see, “With indexes and stewardship, BlackRock pledges to retool passive investing for climate action). 
  • Dig in

Agents of Impact: Follow the Talent

Jonathan Drew in Hong Kong, Farnam Bidgoli in London and Julie Bennett in New York will lead HSBC’s new ESG solutions unit… Local Initiatives Support Corp. has openings for a senior director of diversity, equity, inclusion and justice in New York and a senior director of fund operations for strategic investments in Washington DC… Closed Loop Partners is looking for a project associate for its Center for the Circular Economy in New York.

Thank you for reading.

–July 29, 2020

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