The Brief | July 14, 2020

The Brief: ESG pushback, doctors on demand, betting on activists, animal-free proteins, Vital Farms’ IPO, India’s impact investing market

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Greetings, Agents of Impact!

Featured: ImpactAlpha Original

Trump administration seeks to turn back the ESG tide. Investors are flocking to funds keyed into environmental, social and governance factors, or ESG. The Trump administration is trying to reverse the trend. A year that has exposed one systemic risk after another – from pandemics to climate change to structural racism – would seem an odd time to discourage an investment approach designed to mitigate such risks. And at first blush, the changes proposed by the U.S. Department of Labor would not seem to make much of a difference. The proposed rule under the Employee Retirement Income Security Act, or ERISA, would ban fund managers from investing in ESG vehicles that “subordinate return or increase risk for the purpose of non-financial objectives,” according to the DOL. That’s a low bar, since most sustainable funds outperformed in the first quarter downturn and held their own in the April bounce-back (see, “Focus on workers, customers and governance drive ESG outperformance amid COVID uncertainty). More than $15 billion flowed into ESG investment products in the first six months of the year, according to ETF Flows.

But Labor Secretary Eugene Scalia appears to be after something bigger: the very definition of fiduciary duty. “Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan,” he said last month. And rather than simply issuing guidance, as this and previous administrations have done, the Department of Labor is seeking to change the rule itself, making it harder for future administrations to reverse. “It is going in and trying to essentially rewrite the definition of the duty of prudence and the definition of loyalty,” the Pension Resource Institute’s Jason Roberts told ImpactAlpha. That could reverberate through investment decisions far beyond the plans covered by ERISA. “Everyone who’s skeptical about this, it gives them the extra ammunition to hide behind,” says The Investment Integration Project’s William Burkhart. Public comments (reference RIN 1210-AB95) are due by July 30.

Keep reading “Trump administration seeks to turn back the ESG tide,” by Amy Cortese and David Bank on ImpactAlpha.

  • Biden’s climate blueprint. The U.S. Democratic nominee today will call for $2 trillion in clean energy spending over four years, reports Bloomberg. Biden also wants a 100% clean-energy standard by 2035, a climate conservation corps, and cash vouchers for consumers trading in gas-powered cars for electric and hydrogen fuel-cell vehicles and hybrids.

Dealflow: Follow the Money

Doctor On Demand raises $75 million to expand telehealth in the U.S. Virtual health provider Doctor On Demand has seen demand for its remote consultations and care double since COVID started. The company has provided more than three million consultations and has expanded its services to include older patients with Medicare insurance, which now covers telehealth consultations.

  • Growth capital. Private equity firm General Atlantic, whose healthcare group invests in companies delivering patient-centric, value-based care rather than fee-for-service models, led the company’s Series D round.
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Open Society Foundations backs racial justice groups with $220 million. Spurred by the ongoing social mobilization, George Soros’ foundation is placing long-term bets on activists. The foundation will put $150 million into five-year grants to Black-led racial justice groups including Black Voters Matter Fund, Equal Rights Initiative and Repairers of the Breach, founded by Rev. Dr. William J. Barber II (see, A minister’s call for moral, as well as economic, revival). Another $70 million will go to local organizations pushing police and criminal justice reforms.

  • Black structures. “We understood we can place a bet on these activists — Black and white — who see this as a moment of not just incrementalism, but whole-scale reform,” Open Society’s Patrick Gaspard told The New York Times. “If we’re going to say ‘Black lives matter,’ we need to say ‘Black organizations and structures matter.’”
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Animal-free proteins are growing revenues and raising capital. The food-tech firm Perfect Day raised $300 million to produce animal-free dairy proteins, including a $50 million investment from Canada Pension Plan Investment Board’s investment group Thematic Investing. Alternative-meat company Nuggs, now rebranded as Simulateraised $4.1 million to launch a product line of animal-free nuggets, chicken burgers and hot dogs. New investors include AgFunder, Lerer Hippeau, Reddit’s Alexis Ohanian, model Jasmine Tookes and Walter Robb, the former Whole Foods co-CEO.

  • Market testing. Supermarket giant Krogers boosted meat-substitute sales by 75% in recent months, in part by moving products from the refrigerated food section of its stores to the meat section.
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Austin-based Vital Farms plans initial public offering. The pasture-raised egg and butter company filed to trade on Nasdaq under the symbol “VITL.” Vital Farms sources products from roughly 200 small family farms and generated $140 million in revenues last year. It raised prior funding from Manna Tree Partners, SJF Ventures and Arborview Capital.

Actis raises $3 billion for renewable energy in emerging markets. The London-based private equity firm attracted 20 institutional investors for the first close of Actis Energy 5, according to The Wall Street Journal.

Signals: Ahead of the Curve

Impact investors catalyze $10 billion for India’s social venture market over 10 years. A decade ago, India’s first wave of impact investing collapsed under the weight of unregulated and unsustainable microfinance lending. Since then, the sector has rebounded, multiplied and diversified. Almost $10.8 billion in equity capital has been invested in Indian companies with a social mission since 2010 (when impact investments totaled only $323 million), according to new research from Impact Investors Council and Asha Impact.

  • Catalytic capital. For every $1 India’s social ventures attracted from impact investors, they’ve secured $2 from commercial investors. Early-stage impact investments “de-risk” companies and drive later-stage commercial capital: impact investors accounted for 43% of seed and Series A funding and only 22% of Series B and later rounds. By doing so, impact investing “has also found new ways to improve quality of service delivery to the poor while making it affordable with business models and technology-based innovation for serving the masses,” the report states.
  • Diverse dealflow. Education, healthcare, agriculture and impact tech ventures have emerged in a space once dominated by microfinance. In the last month, rural delivery service Frontier Markets clinched $2.3 million in a seed round from ENGIE Rassembleurs d’Energies, The Rise Fund, The Singh Family Trusts, Teja Ventures and Beyond Capital. India’s Aye Finance secured $16 million in debt from German impact investor Invest in Visions, after raising $27 million in equity from LGT Capital Advisors and Alphabet’s CapitalG.
  • On to 2030. Despite the growth, $10.8 billion represents just a sliver of the capital needed to achieve the U.N.’s Sustainable Development Goals. To meet the goals, experts say India must invest $600 billion annually, with half going to SDG No. 5 (gender equality), SDG No. 8 (jobs and economic growth) and SDG No. 11 (sustainable cities).
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Agents of Impact: Follow the Talent

MCE Social Capital seeks a CEO, preferably in San Francisco or Denver… LeapFrog Investments seeks an associate director of investments in Singapore… FMO is looking for a senior environmental and social officer in The Hague… PGGM is hiring a responsible investment advisor in Zeist, Netherlands… Santa Clara University’s Miller Center is recruiting a program manager for its GSBI accelerator… ImpactAssets seeks a business development associate in San Francisco… Pacific Community Ventures is looking for an associate director or director for its research and consulting team in Oakland… CGAP and CDC Group are hosting “Making Effective Use of Grants and Technical Assistance to Support Financial Institutions: Lessons for Funders and Implementers,” on Friday, July 17.

Thank you for reading. 

–July 14, 2020