Greetings, Agents of Impact!
👋 Meet ups. Catch up with ImpactAlpha’s David Bank, Zuleyma Bebell and Dennis Price at SOCAP this week in San Francisco, and find Amy Cortese and Jessica Pothering at the GenderSmart Investing Summit in London.
Featured: ESG to Impact
To ESG or not to ESG? Politicization complicates messaging, but trendlines are clear. Politicians, or rather, ex-politicians, were on the hustings last week with seemingly opposite advice for executives and investors trying to navigate the suddenly contentious terrain of ESG. As an unfamiliar term, ESG has become a flashpoint in the culture wars, at least until next month’s midterm elections in the not-so-United States. But range of messaging strategies aside, there was little disagreement that managing a corporation’s environmental, social and governance risks – and impacts – is essential to long-term success, or even survival.
- GOP talking point. Former congressman, and Speaker of the House Paul Ryan made the rounds in New York advising corporate leaders to keep their heads down lest they get tangled in fights like the one Disney got into with Gov. Ron DeSantis when it voiced opposition to Florida’s “Don’t Say Gay” law last spring. That’s especially true if Republicans win a majority in the House of Representatives. “The next shoe to drop is to go after woke corporations,” Ryan said at the Robin Hood Investors conference last week. “Ryan said he’s advising CEOs not to focus on ESG too much,” tweeted Semafor’s Bradley Saacks about the closed-door gathering.
- Secular trend. In a separate gathering of impact investors, another ex-elected official advised looking past the campaign heat to fundamental drivers of growth and performance. “The attack on ESG is noise,” former Massachusetts Gov. Deval Patrick told ImpactAlpha on the sidelines of the Global Impact Investing Network’s investor forum in The Hague. “ESG is table stakes.” Rather than progressive politics, investors are acting on secular trends driven by choices people are making about what to eat and what to wear and what to drive. “That’s not turning back. That is where the economy is moving.”
- ESG dividend. Venture capitalists and corporate executives so far don’t seem cowed by the politicization of ESG, though there are signs that some messaging bullet points are being revised. VCs are embracing ESG practices to strengthen their portfolios. Companies that place a significant emphasis on achieving high environmental, social and governance standards are reaping dividends worth trillions of dollars, according to a new survey by Moore Global, a network of consultants and advisory firms.
- Buzzword battles. One outcome of the buzzword battle over ESG has been the drawing of a crisper distinction between ESG, which is primarily a framework for analyzing risks to business operations or portfolio holdings, and impact, an outcomes-driven investment approach. “You can be a comprehensive and effective user of ESG analysis and never call yourself an impact investor,” said Spectrum Impact’s Rehana Nathoo, who is leading a SOCAP panel on the topic this week.
- Impact opportunities. Stay calm and do a macro analysis of risks and opportunities, said Sorenson Impact’s Jeremy Keele in a panel at the GIIN conference. “Ignore the rhetoric a little bit on ESG,” Keele added. “It’s kind of a little fever, and let it burn itself out and not give it too much airtime or play.” Instead, focus on the opportunities for impact, he says. Such opportunities are abundant in intentional, measurable impact tied to a business’s core products and services.
- Keep reading, “To ESG or not to ESG? Politicization complicates messaging, but trendlines are clear,” by David Bank on ImpactAlpha.
Dealflow: Climate Finance
Lightrock’s climate fund raises €860 million for net-zero growth companies. London-based Lightrock raised €260 million ($254 million) more than the initial target size of €600 million ($585 million) to meet demand from Lightrock’s anchor investor LGT Group, Liechtenstein’s investment group, and its private banking clients, as well as Swedish national pension fund Första AP-fonden and the Grantham Foundation. Lightrock will make growth investments of up to €40 million in companies driving the net-zero economy in Europe and North America. The fund, which has already made seven deals, will target companies focused on the energy transition, agriculture, transportation, and decarbonizing hard-to-abate industries.
- Fundraising. Other investors include Austrian insurance group UNIQA, Temasek’s GenZero, and Dutch fund managers Carbon Equity and Wire Group. Lightrock has raised three funds in a little more than a year, including a $300 million Latin America-focused impact tech fund and a $900 million global impact growth fund. Lightrock’s Pal Erik Sjatil called the trifecta of funds “a resounding endorsement of our mission to scale impact investing.”
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Centennial raises $1.2 million for solar projects in Africa. The solar and storage company finances emissions-free power systems for small businesses enterprises in Africa. Centennial is looking to raise an additional $10 million to $12 million for its “C9” fund by the first quarter of next year. “We’re raising the fund on a rolling basis because the pipeline continues to grow,” Centennial’s David John Frenkil told ImpactAlpha. The fund’s first project is a rooftop solar installation at Juja City Mall in Nairobi. Customers invest nothing up front and pay Centennial for the electricity the systems generate over five to 15 years, after which they own their systems.
- Underserved and overcharged. Small businesses typically pay 20 to 25 cents per kilowatt-hour of electricity. Centennial’s solar-only customers generally pay six to 12 cents per kilowatt-hour. “We’ve had zero payment defaults with over 500 invoices sent, because we’re offering a lower cost than the utility, usually cutting their power price in half,” Frenkil said.
- Read more.
Dealflow overflow. Other investment news crossing our desks:
- Northstar raised $24.4 million from GGV Capital, Designer Fund and PayPal Ventures to partner with employer benefit programs to support employees’ financial wellness.
- Ocean 14 Capital, through its new €100 million ($97.8 million) ocean impact fund, invested in Tilabras, a Brazilian sustainable producer of tilapia fish.
- Ayoconnect, a fintech platform that helps banks and other financial partners offer more inclusive financial services in Indonesia, raised $13 million in Series B funding.
Impact Voices: Returns on Inclusion
In tough times, corporate leaders must double down on diversity, equity and inclusion. The most vulnerable workers tend to be hit hardest during economic downturns. With roughly half of firms in the U.S. predicting layoffs, corporate efforts to prioritize diversity, equity and inclusion, or DEI, are in danger of falling on the back burner. “Amidst the current economic uncertainty, it is doubly important that corporate leaders hold fast to DEI commitments,” writes Novata’s Lorraine Wilson, “and continue to direct resources to support employees who are likely to be the most vulnerable in the coming months and years.” Another reason firms should double down on diversity: demand for disclosure on DEI metrics is on the rise. Shareholders increasingly expect portfolio companies to provide non-financial disclosures to inform investment decisions, and the U.S. Securities and Exchange Commission is considering new disclosure requirements for human capital.
- C-Suite accountability. Novata works with companies to build reporting practices on issues from gender pay gaps to workforce demographics. “This data unlocks a company’s ability to see how they’re performing on key DEI issues,” says Wilson. Corporate leaders, for example, should conduct regular pay equity audits to track whether employees at all levels are being paid equitably. Says Wilson, “Disclosure on pay discrepancies is especially important to holding leadership accountable, and reporting on the progress helps to close pay gaps.”
- Keep reading, “In tough times, corporate leaders must double down on diversity, equity and inclusion,” by Novata’s Lorraine Wilson on ImpactAlpha.
Signals: Policy Corner
Diversity in asset management. The U.S. Securities and Exchange Commission last week released guidance that investment advisers can consider diversity, equity and inclusion factors, or DEI, in recommending asset managers to clients. The guidance is a response to the S.E.C.’s Asset Management Advisory Committee’s report last year highlighting the lack of diversity in the asset management industry. Robert Raben of the Diverse Asset Management Initiative applauded the move but said it is “tough to admit that the opposition to women and people of color in asset management is so stark that the premier regulatory agency was compelled to put out guidance that it’s ok to work with them.”
- Disclosure. The S.E.C. is “considering other potential ideas or actions that would help provide transparency on diversity practices, potential biases, and other DEI matters that are proving ever-important to the investing public,” according to an S.E.C. statement.
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Agents of Impact: Follow the Talent
Sesh Raghavan, a former managing director at Evercore Partners, joins Wells Fargo as head of power, utilities and renewable M&A… Ashton Rosin, former head of investor relations at Obvious Ventures, joins Lowercarbon Capital as a partner and head of capital formation… Stephanie Bagot, former deputy associate general counsel at the DFC, joins impact law firm RPCK Rastegar Panchal as senior counsel… Temasek seeks a vice president/director of ESG investment management in New York.
One Acre is hiring a remote investor relations manager… The London School of Economics seeks a program lead for its impact accelerator in London… Boston Consulting Group is looking for a climate and sustainability project leader/principal in New York… The Nature Conservancy is recruiting an investment associate for NatureVest in Arlington, Va… Equitable Facilities Fund seeks an impact investing associate in New York… BlackRock is hiring a global impact equity research analyst intern, also in New York.
Thank you for your impact!
– Oct. 17, 2022