The Brief | August 3, 2022

The Brief: Green opportunities vs. tax quibbles, food tech in Morocco, worker-owner payout, catalytic capital to combat bias in asset management

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Greetings, Agents of Impact!

Featured: Policy Corner

Eyes on the prize: Green opportunities versus tax quibbles in the U.S. climate bill. So much for stakeholder capitalism. The CEO lobbying group Business Roundtable has perhaps predictably reverted to form with its opposition to tax provisions in the Inflation Reduction Act, a pro-growth bill that aims to boost U.S. competitiveness in technologies vital to the low-carbon transition. With much fanfare in 2019, the Business Roundtable unveiled a pledge, signed by more than 200 CEOs, that was heralded as the end of the 40-year era of shareholder primacy and the dawn of a new age of stakeholder capitalism. Respect for such stakeholders would seem to include paying a fair share of taxes. But the Roundtable has come out against a key provision of the Inflation Reduction Act that requires a 15% minimum corporate tax rate for companies with over $1 billion in sales (significantly lower than the official U.S. corporate tax rate of 21%), which the organization said “would undermine proven bipartisan incentives that encourage capital investment.”

  • Short-termism. The Roundtable’s opposition is all the more curious given that many Roundtable member corporations stand to benefit from the climate-action legislation. The group’s chair is Mary Barra, who as CEO of GM has staked her legacy on the auto giant’s plans to go all-electric by 2035. GM reported $7.4 billion in profits in 2020, but paid just $577 million, or 7.8% in taxes, as Popular Information’s Judd Legum points out. More than 50 of the most profitable corporations paid zero taxes in 2020. “Any publicly traded corporation that is involved in undermining the Inflation Reduction Act is exhibiting a particularly pernicious form of short-termism,” Majority Action’s Eli Kasargod-Staub told ImpactAlpha.
  • Pro-opportunity. Don’t label as “pro-business” the Roundtable, the Chamber of Commerce and other lobbyists who are taking aim at the Inflation Reduction Act (for context see, “Pro-business has a new meaning now”). In West Virginia, a group of local advocates, labor groups and energy CEOs made an authentically pro-business, pro-worker case to bring Sen. Joe Manchin on board. “If we want to benefit from the investments and the jobs that are going to come with that transition, we need to be part of the proactive solutions and policies, rather than constantly playing on defense,” Brandon Dennison of West Virginia-based Coalfield Development Corp. told Politico. Climate Tech VC examined how the bill shapes climate innovation with a line-by-line breakdown across seven verticals.
  • Trade-offs. For at least some investors, the bill’s potential upsides seem to outweigh the heartburn of losing the lucrative “carried interest” tax loophole for private equity and venture capital fund managers, which the bill proposes. “I’m a VC. I benefit from the current carried interest tax code,” tweeted Fifty Years’ Seth Bannon. “If raising taxes on me means we get $370 billion invested in clean energy, clean transportation, energy storage, and other climate tech, LFG!” (If it’s not clear from the context, that’s short for “Let’s f**king go!”)
  • Be brave. Effective climate action is business-critical risk mitigation, Clara Miller, president emeritus of Heron Foundation, argued in ImpactAlpha earlier this year in a to-do list for CEOs who claim to be seizing the moment on climate action. “Companies that make pro-green announcements yet lobby against climate legislation should not only stop lobbying against such measures, but must lobby for them,” Miller wrote. “It’s hard, but it’s possible,” she adds. “Be just a little bit brave.”
  • Keep reading, “Eyes on the prize: Green opportunities versus tax quibbles in U.S. climate bill,” by Amy Cortese and Dennis Price on ImpactAlpha.

Dealflow: Climate-Smart Food

Morocco’s UM6P Ventures backs U.S. and Israeli food tech startups. The venture investing arm of Mohammed VI Polytechnic University, launched last year, supports early-stage science and tech startups in and serving Morocco and Africa. It has added U.S.-based food preservation tech company Akorn Technology and Israel-based biotech venture Climate Crop to its portfolio. Among the fund’s priorities: startups that address “climate change and its impact on the global food supply, security and sustainability,” said UM6P Ventures’ Othman Chraibi. The fund has made 14 seed and Series A investments in agrifood, clean energy, healthcare and other tech sectors.

  • Climate resilience. Israel’s Climate Crop uses gene editing to develop plant varieties that can weather climate change, produce higher yields and store carbon. The startup participated in San Francisco-based biotech accelerator IndieBio. UM6P’s investment will support Climate Crop’s R&D on potatoes and tomatoes, two critical food crops in Morocco. The company will also get access to UM6P’s scientific experts and research and experimental farm facilities.
  • Food waste. Berkeley, Calif.-based Akorn uses corn and other plant by-products to make food coatings that extend the shelf-life of fresh foods. The investment from UM6P will support production and testing of the coatings’ performance in Morocco’s climate conditions.
  • Dig in.

KKR’s $950 million sale of Minnesota Rubber & Plastics means a payout for employees. The private equity giant implemented its employee-ownership program for Minnesota Rubber & Plastics’ 1,450 employees when it acquired the materials science company in 2018. KKR’s sale to Trelleborg Group, a Swedish engineering firm, means non-management employees who joined the company around the time of KKR’s investment will receive cash payouts equivalent to a year’s salary on average. The payout to the most senior employees will equal two years’ salary. KKR says that under its ownership, wages increased over 6% yearly and employee turnover declined by roughly 30%. As part of the deal, MRP employees will receive prepaid personal finance coaching and tax preparation services from Goldman Sachs, RSM Global and Deloitte.

  • Inclusive economy. Pete Stavros, who has championed KKR’s employee-ownership strategy, said the MRP deal “shows the power of building an ownership culture – something we believe many more companies can replicate – and the potential of the shared ownership movement.” KKR has awarded billions of total equity value to more than 45,000 employees at two dozen companies. The firm has implemented ownership programs at 30 portfolio companies.
  • Worker ownership. KKR made positive headlines in May when it shared with employees some of the proceeds of its exit from C.H.I Overhead Doors. C.H.I. workers received an average $175,000, a life-altering sum for many, but puny compared to the large sums KKR execs pull in yearly, The Democracy Collaborative’s Marjorie Kelly and Karen Kahn argued in a guest post (see “How private equity firms can fulfill the promise of employee ownership”). Earlier this year, KKR joined TPG, Apollo and dozens of other private equity investors in Ownership Works in pledging to give equity shares to employees at some portfolio firms. Their goal: to create $20 billion in wealth for low and moderate-income workers over the next decade.
  • Share

Dealflow overflow. Other investment news crossing our desks:

  • Boston-based wind, solar and energy storage project developer Longroad Energy raked in $500 million from MEAG, the asset management arm of Munich Re, NZ Super Fund and Infratil.
  • Terabase Energy, a software company that helps owners and developers automate utility-scale solar projects, raised $44 million in Series B funding from Breakthrough Energy Ventures, SJF Ventures and others.
  • Proof of Impact, an impact and ESG data company, scored $6 million in a pre-Series A round backed by Franklin Templeton Advisors, Working Capital Fund and Rakuten Capital.
  • South Africa’s Qwili raised $1.2 million for its low-cost point of sales devices and software designed for informal merchants.

Series: Seeding Impact

Combating bias in asset management with catalytic capital and inclusive due diligence. Taking on systemic racial and gender bias requires systemic solutions. “To channel more capital to diverse entrepreneurs we need to channel more capital to diverse fund managers,” writes Visa Foundation’s Najada Kumbuli. Concrete action to diversify investment firms, she says, “is good for society and good for business.” As part of ImpactAlpha’s series, “Seeding Impact,” with the Catalytic Capital Consortium, Kumbuli lays out how Visa Foundation invests to reduce the perceived risk of emerging and diverse fund managers by participating in first closes and junior tranches to crowd in additional capital (Kumbuli discusses the strategies on ImpactAlpha’s podcast, “Fairview Capital’s emerging wisdom about emerging and diverse fund managers”). 

  • Screening in. More than half of the foundation’s investments have gone to women-led fund managers that invest in gender-diverse and inclusive small businesses. The Beacon Fund, for example, provides tailored financing for women-owned businesses in the Philippines and Vietnam. “Screening in” versus “screening out,” says Kumbuli, allows the foundation to support strong managers using gender and diversity lenses.
  • Keep reading, “Combating bias in asset management with catalytic capital and inclusive due diligence,” by Visa Foundation’s Najada Kumbuli on ImpactAlpha. Catch up on the “Seeding Impact” series and all of our coverage of catalytic capital.

Agents of Impact: Follow the Talent

Steve Glickman, ex- of Economic Innovation Group, joins Aspiration Global as president after advising the sustainable bank for two years… MCE Social Capital is recruiting a portfolio intern in San Francisco… Walton Enterprises is looking for a senior investment analyst in Denver… PowerSchool is looking for an ESG program director… Truist seeks an investment banking associate for its clean energy division in New York or Atlanta.

In New York, Boundless Impact Research & Analytics is hiring a marketing intern; The Conference Board seeks a sustainability senior researcher for its ESG center; and Capital Impact Partners is recruiting a community development investment bank associate… For ClimateTech will host a three-day climate tech global innovation challenge and virtual climate tech summit, Sept. 13-15.

Thank you for your impact!

– Aug. 3, 2022