The Brief | May 11, 2023

The Brief: Impact in private equity, greening the digital economy, edtech for Spanish speakers, STEM tools bond, climate project finance, ESG conundrum

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Greetings, Agents of Impact!

Featured: Impact in Private Equity

Private equity firms embrace impact for a competitive edge. As the private equity field has grown, now to more than $6 trillion in assets under management, so has its influence. Some 10,000 firms enjoy ownership rights in 40,000 portfolio companies, which in turn manage 20 million employees. PE firms control hospitals, newspapers, schools, real estate, manufacturers and retail companies. At that scale, private equity holds great sway over corporate environmental and social impacts. The firms’ policies can create value for all stakeholders – or extract value to the detriment of other stakeholders. It’s often been the latter. But some are bucking the trend, according to The road to responsible private equity,” from the NYU Stern Center for Sustainable Business, which lays out a framework for responsible private equity investing. “Private equity has a unique opportunity, through the infusion of capital, expertise and governance, to help companies transition to more sustainable models that drive economic, social and environmental performance,” writes NYU’s Tensie Whelan in a guest post on ImpactAlpha. More PE firms, she notes, are exploring how sustainability can drive better performance in their portfolio companies, through increased diversity, employee ownership or climate commitments.

  • Cutting in employees. “What if we turned it on its head and we said, private equity is the most effective, most efficient governance model there is,” KKR’s Pete Stravos said at the recent Milken Global conference. The Stern report highlights KKR, with over $500 billion in assets under management, as an example of how PE can drive positive impact – and better returns – with more intentional support for the employees of portfolio companies. Persuading PE firms to adopt practices that benefit a broader group of stakeholders, Stravos added, “could be the fastest way to drive change.”
  • PE leaders. Stern calls out Palladium Equity Partners, which prides itself on being a “majority of minority employees” and works with portfolio companies to increase diversity. Towerbrook, a B Corp., helps its portfolio companies gain the designation. Bamboo Capital seeks to improve the lives of underserved populations in developing countries and tracks outcomes such as jobs supported, positive effects on customers, and reduced environmental impacts.
  • Clean energy. PE firms have been piling into the opportunity in wind, solar and clean tech, investing some $136 billion since 2012, according to PitchBook. Last month, Apollo launched a $4 billion clean transition strategy. Brookfield Asset Management is targeting up to $25 billion for a successor to its $15 billion energy transition fund (see, “Private equity giants double down on the low-carbon transition and impact investing”). Still, the amount of PE capital flowing to clean energy pales compared to the $1 trillion PE firms invest in fossil fuels, which has picked up as oil and gas companies sells assets to private buyers to avoid scrutiny, notes the report.
  • Keep reading, “Private equity firms embrace impact for a competitive edge,” by NYU’s Tensie Whelan on ImpactAlpha.

Dealflow: Education and Skills

Impact muni bond: Edtech funding for STEM tools in a diverse Santa Clara school district. The East Side Union High School District in Santa Clara County, Calif., encompasses 19 high schools and about 25,000 students, nearly 46% of whom identify as Hispanic or Latino and 43% as Asian. The district is issuing a $47 million bond to integrate technology across its curriculum. The “edtech bond” is the latest to be highlighted as part of ImpactAlpha’s collaboration with HIP Investor on upcoming bond issues with social and/or environmental significance. 

  • Edtech bonds. Advisory firm Dale Scott & Company designed and trademarked Ed-Tech Bonds to be short duration in order to avoid a mismatch between the short useful life of educational technologies and long-term maturity of general purpose bonds. They’re meant to lower tech financing costs and facilitate more frequent purchases of up-to-date technology. HIP gives East Side Union a “net positive” rating of 63.5%, driven by above average educational outcomes and service of lower-income students. 

BeeReaders raises $3.5 million to close the literacy gap for Spanish-speaking students. The Austin-based edtech company provides customized and culturally-relevant Spanish reading and writing content to 500 schools and 250,000 K-12 students in Latin America and the US. Its software and app enable teachers and parents to track students’ progress over time. It also offers a library of professional development materials for teachers. “We believe that every learner, regardless of their background or circumstances, should have equal opportunities to develop their literacy skills and reach their full potential,” BeeReaders’ Ruben Arias told ImpactAlpha

  • Education impact. BeeReaders is addressing “rapidly growing socio-economic disparities in literacy skills experienced by far too many Spanish-speaking students,” said Shijiro Ochirbat of Reinventure Capital, which led the round alongside Acumen Latam Impact Ventures. The startup aims to reach 500,000 students in the next two years. 

Silicon Valley Bank keeps green project finance rolling under new ownership. When a bank run took down Silicon Valley Bank in March, the US government stepped in to ensure depositors were made whole. Borrowers waiting on loans to be disbursed didn’t get the same immediate clarity. The uncertainty weighed on the climate tech ecosystem, for which SBV was a key financial partner. Community solar developer Pivot Energy has finally closed on a $203 million project-finance loan that SVB was leading before it shut down, Canary Media reports. Pivot Energy will use the financing for 100 megawatts of new community solar installations. 

  • Community solar catalyst. The deal was delayed several months because of the SVB collapse; First Citizens Bank, SVB’s new owner, closed the deal on the original terms. SVB has reportedly financed more than 60% of all US community solar developments. It brought several big financial institutions, including JPMorgan and National Bank of Canada, into the Pivot Energy deal. “The fact that SVB was able to bring them in speaks volumes about the strength of community solar,” Pivot Energy’s Bret Labadie told Canary.
  • SVB suitors. Blackstone, Brex, PNC, Apollo Global Management and Reverence Capital were among the more than a dozen suitors that bid for parts of SVB, according to new data released by regulators.
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a16z allocates $500 million to its “American Dynamism” strategy. The firm’s description of the strategy’s investment thesis reflects – without specifically mentioning – the Biden Administration’s Inflation Reduction Act emphasis on American manufacturing and the clean energy transition. Another theme: enabling pathways to home ownership and wealth creation. The strategy represents “a philosophy that encompasses nearly every aspect of American life and leadership,” the firm wrote, and “the feeling of growth, movement, momentum and opportunity that makes America the country people want to be from, to immigrate to, and to build a life, career or company in.”

Dealflow overflow. Other news crossing our desks:

  • Lithium mining companies Allkem, in Australia, and Livent, in the US, merged in a $10.6 billion deal. The joint company becomes the third-largest producer of the key metal in EV batteries. (Reuters)
  • Utility company and energy project developer NextEra Energy Partners plans to sell off its natural gas pipelines by next year to focus entirely on renewable energy. Its stock price rose  nearly 15% on the news. (Utility Dive)
  • Offshore wind developer Gazelle Wind Power acquired F. Carceller, a Spanish naval shipbuilding firm, to ramp up its technical expertise and sourcing of construction materials. (Gazelle)

Signals: ESG Backlash

ESG fund managers are going too far, or not far enough, depending on who you ask. It’s a fraught moment for asset managers with ESG-labeled funds. In Washington, DC, this week, Republicans staged a hearing with state attorneys general to explore the “dangers” of environmental, social and governance investing. “The actions of asset managers joining horizontal organizations to abuse their trillions in assets, proxy advisors in recommending votes for collateral purposes, and the Department of Labor in eliminating protections for ERISA plan participants, harm consumers,” testified Utah Attorney General Sean Reyes. For many investors, asset managers don’t go far enough. Case in point: some of the largest members of the Net Zero Asset Managers initiative are heavily invested in oil and gas companies, despite their pledges to align with Paris Agreement goals to limit global warming. 

  • Doubling down. In its analysis of 90 asset managers, 25 of whom are NZAM members, Carbon Tracker identified more than 160 sustainability and climate funds with a combined $4.6 billion invested in more than a dozen oil and gas companies. Among NZAM signers, Blackrock, Fidelity and the Capital Group increased their already significant oil and gas positions in 2022, while DWS, Abrdn and Schroders held steady. Asset managers with stakes in oil and gas companies may claim that they do so in order to take an active stewardship approach. “In reality, many asset managers vote against even relatively mild climate-orientated shareholder proposals,” write the authors.
  • Human rights risk. Less than half of asset managers use human rights and labor abuses as an exclusion screen in their ESG-designated funds, according to separate research from ShareAction that covered 77 firms managing $77 trillion in assets. “They also rarely use their influence to tackle issues such as Indigenous rights and life-limiting public health problems,” say the report’s authors. ShareAction says asset owners are the key to change. Among the recommendations: Require reporting from asset managers on how they manage social issues, and measure managers’ performance against a set of target indicators. 
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Agents of Impact: Follow the Talent

Jacmel Growth Partners appoints Mark Hardaway, ex- of the University of California, as chief financial officer…  Blackstone’s EQ Office names Samantha Sims, ex- of Warner Music, as senior vice president of social impact and sustainability… Gina Wolf, ex- of Meta Platforms, joins Spearmint Energy as a senior vice president of strategy and project development. Jake Dahm, ex- of Avantus, joins the renewable energy firm as a senior director of development.

Kimberly Stotzer will succeed Quentin Strode as chief executive officer of NEW Community Investments… Don Wood, ex- of DFJ, joins B Capital as a venture partner focusing on climate tech… Nogoye Dieng, ex- of Principles for Responsible Investment, joins BNP Paribas Asset Management’s sustainability center as a senior stewardship analyst. Sindhu Janakiram, ex- of Refugee Integration Insights, joins the firm as an ESG analyst and equity lead.

Align Impact seeks a head of advisory in Santa Monica… Rewiring America is recruiting a remote head of investment… The Natural Resources Defense Council is recruiting a data and analytics strategy director in New York… New York State Insurance Fund is on the hunt for a senior ESG and sustainability lead… The Global Impact Investing Network is hiring an impact institutional clients associate director and a corporate impact investing associate in New York. 

Habitat for Humanity International has an opening for an associate general counsel of real estate and impact investing in Atlanta… Climate Policy Initiative is looking for a director of operations in San Francisco… Brock & Decker seeks an investment associate in London… Caspian is hiring an impact associate or senior associate, based in India… Carrée Biebuyck & Partners is on the hunt for an impact investing analyst in Brussels. 

Thank you for your impact.

– May 11, 2023