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The Brief: ESG crosses the chasm (podcast), Village Capital’s financial health fund, NYC’s women-led startups, green chemistry, pension funds’ changing climate



Greetings, Agents of Impact! 

Featured: Returns on Investment podcast

‘ESG investing’ crosses the chasm from early adopter to early majority. So what? (podcast). In the now-classic model of technology adoption, the most difficult step is expanding from aspirational visionaries to hard-nosed pragmatists. Innovations that “cross the chasm” stand to create a bandwagon effect and become the new industry standard. Under pressure from asset owners, asset managers certainly seem to be jumping on the bandwagon of environmental, social and governance, or ESG, investing. As ImpactAlpha contributing editor Imogen Rose-Smith notes on the latest Returns on Investment podcast, “The number that finance is paying attention to is the $20.6 billion of inflows into ESG exchange-traded funds in 2019. That is a huge wakeup call to the industry.”

ESG investing alone, of course, does not a better world make. Integrating environmental and social factors into investment decisions may help investors avoid certain risks, but it doesn’t by itself drive capital or resources into needed solutions (a year ago, the podcast roundtable took up the same question, “If ESG investing is so great, why is the world going to hell?”). Looking at the market through the dynamics of technology adoption, however, suggests the shift may indeed prove disruptive. “All of a sudden, there’s a hiring frenzy going on, there’s a bunch of activity to get ahead of this thing they know is coming,” ImpactAlpha’s David Bank suggests. “That creates its own kind of race and competition. We’ve been saying sustainability is a disruptive force in asset management, just like tech was a disruptive force 20 years. And when you see the disruptive force coming, you scramble.”

Keep reading, and listen in to, “ESG investing crosses the chasm from early adopter to early majority. So what?” on ImpactAlpha. Catch up on all of the Returns on Investment podcasts, and subscribe, on iTunesSpotifySoundCloud or Stitcher.

Dealflow: Follow the Money

Village Capital to manage $3 million financial health fund for MetLife Foundation. After 11 years and more than 100 investments in early-stage startups, Village Capital is getting into fund management. The startup accelerator and investor will invest MetLife Foundation’s $3 million program-related investments fund in ventures addressing financial health. The fund will make direct and “patient” investments in fintech startups already in the Village Capital orbit. MetLife and Vilcap have supported dozens of startups through “Finance Forward” cohorts in Jordan, India and the U.S.

  • Investment priorities. “The family of funds model will allow us to explore targeted funds that focus on specific sectors and geographies, rather than forcing investments into a ‘one-size-fits-all’ strategy,” write Village Capital’s Allie Burns and Victoria Fram. Themes will include financial health, the future of work, and sustainability, and investments will target founder diversity. “We’re excited about startups that value customers and sales growth over inflated valuations.” 
  • Dig in.

New York City fund co-invests in Cosynd to help creatives get copyrights. The city’s economic development arm launched the $10 million WE Venture fund last March to mobilize up to $30 million for women-led tech startups over five years. The fund, one of the first for a city, co-invests with five women-led VC partners, including Archer Gray, Future/Perfect Ventures, WOCstar Fund and the Morgan Stanley Multicultural Innovation Lab. The fund’s first co-investment is in Cosynd, which aims to simplify the process of obtaining copyrights for creators such as musicians, writers and app developers. WE Ventures co-invested $125,000 in Cosynd’s “super seed” round.

  • Gotham gals. WE Ventures is part of the city’s effort to support entrepreneurship among women by providing loans, working capital and crowdfunding. The WE Ventures team has already made connections to other investors and city agencies, Cosynd’s Jessica Sobhraj said. “We really want to have partners and not just someone who writes a check.” 
  • More.

P2 Science scores $12 million for ‘green chemistry.’ Many ingredients used in the $500 billion beauty industry come from fossil fuels—or are plant-based but have questionable or negative environmental impact (think palm oil). P2 Science is a “green chemistry” company that develops sustainable and renewable flavors, fragrances and ingredients for cosmetics as well as food and beverages. The Connecticut-based company’s Series C round was backed byCHANEL and HG Ventures, the venture arm of Heritage Group, a materials, chemicals and fuels company. VC firm Safermade and existing investors, including BASF Venture Capital and Elm Street Ventures, joined the round.

Signals: Ahead of the Curve

Pension funds get tough on climate laggards. With global carbon dioxide levels expected to see their steepest annual rise ever, three large pension funds warned they will crack down on companies and asset managers not doing enough to transition to a low-carbon future. The Brunel Pension Partnership, which manages a £30 billion pool of local pension funds in the U.K., said the asset management industry is “not fit for purpose” when it comes to addressing climate change.  “Climate change is a rapidly escalating investment issue. We found that the finance sector is part of the problem, when it could and should be part of the solution for addressing climate change,” said chief investment officer Mark Mansley. “How the sector prices assets, manages risk, and benchmarks performance all need to be challenged.”

  • Stern warning. Brunel said it would size up the efforts of both asset managers and portfolio companies to keep global warming within the benchmarks of the Paris climate agreement. “Managers that fail to do so face the threat of having their mandates removed,” the statement said. Companies could face votes against their directors’ re-appointments or divestment.
  • Burying coal. The New York State Common Retirement Fund put 27 thermal coal mining companies on notice to demonstrate their readiness to transition to a low-carbon environment or be dropped from the $210 billion fund. Ceres’ Mindy Lubber said the move by the country’s third-largest state pension system would help it reduce climate risks and “ensure that the Fund invests in transition-ready companies.” Thermal coal mining, she said, “has a dim future in light of the accelerating transition to a sustainable, net-zero emissions economy.”
  • Real estate risk. PGGM, a €160 billion Dutch pension manager and one of the world’s largest real estate owners, announced that Munich Re will analyze all assets in its portfolio, from companies to real estate, to identify those with the most climate risk. 
  • Passive aggressive. The Church of England Pension Board moved £600 million into a new climate-tilted passive index developed with the London Stock Exchange. The message: “put in place targets and strategies aligned to Paris and be rewarded with inclusion in the Index, or work against the long term interests of beneficiaries and wider society, and be excluded,” said the pension board’s Adam Matthews.
  • Check it out.

Agents of Impact: Follow the Talent

Conservation biologist Gretchen Daily and environmental economist Pavan Sukhdev won the 2020 Tyler Prize for Environmental Achievement for their work quantifying the value of the natural environment… New York City hired Meketa Investment Group to develop a fossil fuels divestment strategy for city pension funds… The Democracy Collaborative is seeking a project manager in Washington, D.C… VisionFund is hiring a director of capital markets and innovation finance in London… Capital Impact Partners has four internships open in Oakland and the Washington, D.C. area… Private equity firm Alpine Investors became a certified “B Corp.”

Thank you for reading.

–Jan. 30, 2020

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