The Brief | May 12, 2022

The Brief: ESG gets political, BRAC’s microfinance notes, Black gathering spots, climate resilience in Asia, waste to energy, non-banks in India

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Greetings, Agents of Impact!

Featured: Capitalism Reimagined

ESG opponents get political under the guise of getting politics out of investing. Move over, critical race theory. ESG is the newest front in the overheated culture wars. Former Vice President Mike Pence is calling on states to rein in investment funds “pushing a radical ESG agenda.” Elon Musk has called corporate ESG “the Devil Incarnate.” Billionaire investor Peter Thiel says, “When you think ESG, you should be thinking Chinese Communist Party.” With U.S. midterm elections looming, a backlash has erupted against environmental, social and governance, or ESG investing. One irony of the emerging backlash is that many advocates of the approach think ESG doesn’t go far enough in driving actual impact on environmental and social challenges, and on climate change in particular. An additional irony is that usually laissez-faire politicians and billionaires are trying to bring the force of government to preclude investment managers from performing what many see as their fiduciary duty to manage material risks to their portfolios. As Andrew Behar of the shareholder advocacy group As You Sow puts it, the backlash is “pro-risk and anti-free enterprise.”

The backlash so far may be a warm-up for amped up attacks ahead of the midterm election in November and presidential contest in 2024. Political pressure may have played a role in the U.S. Securities and Exchange Commission’s decision to extend the public comment period on its proposed rules to mandate comprehensive climate reporting. Texas Governor Greg Abbott is calling for the state’s pension funds to blacklist BlackRock and other large asset managers for using ESG in investment decisions. West Virginia’s Board of Treasury Investment dropped BlackRock funds from its portfolio in January. BlackRock this week announced new stewardship guidelines that dial back its support for climate proposals it deems too “prescriptive.” At recent annual meetings, BlackRock did not support shareholder resolutions to end fossil fuel financing at Citigroup, Bank of America and Wells Fargo. The proposals failed. 

Dealflow: Innovative Finance

BRAC International Microfinance taps capital markets for $40 million for households in poverty. The international arm of the non-governmental organization worked with Seattle-based Global Partnerships and Proparco, the French development bank, to issue the first notes under a new debt program. The mechanism allows BRAC to tap international investors to augment direct and syndicated loans and local fundraising. BRAC expects to use the Netherlands-based debt program to raise up to $250 million over five years.

  • Microfinance notes. “Launching a capital markets debt program represents a step-change in how BRAC International will finance the delivery of its microfinance products and services across all of its operations in Asia and Africa,” said BRAC’s Shameran Abed. Palladium Impact Capital and Courageous Capital Advisors helped structure the debt program.
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Greenwood acquires The Gathering Spot to build a community for minority professionals. Atlanta-based neobank Greenwood has raised $43 million with the promise of better banking services for Black and Latinx individuals and business owners. The company has tens of thousands of account holders – and a waitlist of 700,000. Greenwood is looking to expand its community of Black and Latinx creatives, entrepreneurs and other professionals with the acquisition of The Gathering Spot, a private membership network with locations in Atlanta, Washington, D.C., and Los Angeles.

  • Black business ecosystem. The Gathering Spot’s 12,000 members include executives from Apple, Coca-Cola, Goldman Sachs, Microsoft, Meta, the N.A.A.C.P., Truist and Spotify. Greenwood members will have access to The Gathering Spot’s private clubs. The combination “will unlock a full range, from financial education to banking and financial tools,” said The Gathering Spot’s T.K. Peterson.
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Dealflow overflow. Other investment news crossing our desks:

  • The Miller Center for Social Entrepreneurship, backed by a $900,000 commitment from Chevron, will support social entrepreneurs advancing climate resilience in the Asia-Pacific region.
  • Generate Capital acquired Canadian waste-to-energy and biogas company StormFisher, which will be integrated into Generate’s Upcycle platform.
  • Crowdz secured $10 million, led by Citi and Global Cleantech Capital, to provide $1 billion in non-dilutive working capital for 25,000 small businesses worldwide next year.
  • Colombian microfinance lender Finamiga scored a $3 million loan from ABC Fund to lend to smallholder farmers.

Signals: Financial Inclusion

Small ‘non-banks’ get creative to bring financial services to India’s most vulnerable populations. Financial inclusion is the hottest sector for venture capital in emerging markets. Businesses in the sector are delivering credit and other financial services to first-time and underserved customers via innovative products, underwriting models and distribution channels. In India, however, small and early-stage inclusive financial services firms face a financing gap of $7.7 billion in equity and $31 billion in debt over the next five years, according to research from India’s Impact Investor Council, Northern Arc Capital and TransUnion CIBIL

  • Creative models. A third of the customers of small non-bank financial services providers are first-time credit users. More than half are from semi-urban and rural areas, “many of whom have no prior credit histories, earn seasonal wages, and are not digitally savvy,” states the IIC report. Housing financier Aviom relies on village women “influencers” and mom-and-pop shops to find new customers. Women-focused Kinara Capital offers tailored products with special rates that account for women’s lack of collateral. Scooter financing company Bike Bazaar’s lending focuses on vehicle safety and sustainable management of second-hand and end-of-life vehicles.
  • Catalytic capital. The report calls for regulations to open the flow of capital from public sector banks to small non-bank financial services companies. Also helpful: Blended-finance initiatives, including credit guarantees. “Impact foundations and development organizations looking to amplify returns along with greater financial inclusion can mobilize a higher volume of investments” into smaller – and high-impact – non-banks, the report said.
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Agents of Impact: Follow the Talent

Gavin E.R. Wilson, ex- of Goldman Sachs, is named CEO of DAI Capital… Developing World Markets appoints Aditya Kumar, ex- of responsAbility, as head of debt strategy in South and Southeast Asia… Damien Hooper-Campbell, ex- of Uber and Google, joins StockX as chief impact officer… Quona Capital is hiring a head of fundraising and investor relations in Washington, D.C… The Jeremy Coller Foundation is looking for a policy manager for the foundation and the FAIRR initiative in London.

Thank you for your impact!

– May 12, 2022