Greetings, Agents of Impact! It was great to see so many of you on yesterday’s Metrics Madness call. We’ll have the writeup and video replay in tomorrow’s Brief.
Featured: Public Impact
Impact investors lay out a theory of change for driving positive outcomes in public equities. It’s long been something of a truism among impact investors that it’s not possible to demonstrate true impact in public stock markets. Sure, many public-equities investors now consider social and environmental factors, some to mitigate risks, others to align with their values. Some shareholders and asset managers “engage” management around climate, human rights and other issues. Few have taken on the more complex challenge of driving actual, positive impact through listed equity strategies. It’s a worthy task: the total market capitalization of companies listed on stock exchanges worldwide exceeds $100 trillion. The Global Impact Investing Network has introduced guidance for impact in listed equities that attempts to raise the bar, and clarify how impact strategies in listed equities differ from ESG approaches and other sustainability-related strategies. “An ‘impact’ category of funds should be something differentiated from other things that have gone before,” says the GIIN’s Sean Gilbert. Few, if any, listed equity strategies meet the full set of criteria laid out in the new guidance from the GIIN’s listed equities working group, which was shared exclusively with ImpactAlpha.
- Cause and effect. A key differentiator for an impact strategy, according to the report, is a theory of change – the cause-and-effect the investor believes will contribute to targeted social or environmental objectives. The guidance provides baseline practices, including intentional engagement strategies and performance measurement. ESG funds, for example, might include risk-management objectives. Impact funds would go further, identifying intentional positive outcomes they seek to achieve.
- Higher bar. “The guidance challenges asset managers, in particular, but really all of us as participants in this market, to really think through the theory of change that takes you from the asset owner’s capital to the outcomes we’re all trying to work toward,” says Jeff Finkelman of Fiduciary Trust, an advisor to family offices and other asset owners. The best practices, he says, “will help us improve our assessment and hold our managers to a higher bar on engagement.”
- Explicit impact. “If we want to have an impact on these issues, we have to have listed equities involved,” says Seb Beloe of London-based WHEB Asset Management. Listed equities “are companies that are large, systemic, that are driving current sustainability outcomes on the positive or negative side,” says Panagiota Balfousia of Zurich-based Kieger. “Depending on what your time horizon is for wanting to transition to better sustainability outcomes, you just need to bring those companies with you.”
- Keep reading, “Impact investors lay out a theory of change for driving positive outcomes in public equities,” by Dennis Price on ImpactAlpha.
Dealflow: Carbon Markets
Agreena nabs €46 million to create and measure soil carbon credits. Regenerative agriculture techniques like reduced tilling and the use of cover crops and organic fertilizers can lock away carbon in soil and build more resilient food systems. Yet transition costs can be an obstacle for farmers. Copenhagen-based Agreena has helped farmers across Europe transition about 600,000 hectares (1.5 million acres) and generate new revenue streams by selling verified soil carbon credits. “Agreena is building technological and financial services infrastructure throughout the agriculture value chain as the industry increasingly becomes a focal point for decarbonization efforts,” said Agreena’s Simon Haldrup. The Series B round was led by Germany’s HV Capital with participation from impact fund AENU and New York-based fintech investor Anthemis.
- Carbon farming. Carbon credits are under fire for lax standards and greenwashing. A key issue for soil carbon is permanence: once soil is tilled or disturbed, the stored carbon is released. Agreena inks 10-year contracts with farmers, and is working on incentives to encourage permanence, Haldrup told ImpactAlpha. The company maintains a buffer to absorb potential carbon losses. Agreena last year acquired U.K.-based Hummingbird Technologies, a maker of satellite monitoring, reporting and verification systems. “Carbon farming is the most scalable impact driver of removals and climate mitigation that we can do,” Haldrup said, citing the recent report from the Intergovernmental Panel on Climate Change. “And it can be immediately implemented.”
- Inflection point. Companies such as PepsiCo are investing in regenerative agriculture to help green their supply chains and meet net-zero goals. “The price of removals is going to hit an inflection point soon,” said Haldrup. “That’s when we’ll see mass adoption among farmers.”
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Lumina Foundation backs Coastal Enterprises to help rural entrepreneurs launch child care businesses. The Indianapolis-based foundation provided a $1 million program-related investment to Coastal Enterprises Inc. for its Child Care Business Lab, which has trained and financed 16 entrepreneurs in Maine. The majority are immigrant women from Somalia and Angola who are meeting a need for culturally-appropriate child care in Lewiston, Maine, CEI’s Cynthia Murphy told ImpactAlpha. An additional $600,000 in grant funding from Lumina will help CEI replicate its model in other “child care deserts” in the U.S. “There’s so much need across the country for high quality, affordable childcare,” said Lumina’s Christa Velasquez. “This deal makes sense because we know that parents need child care so that they can go back to school or go to work full-time.”
- Child care deserts. More than half of children in the U.S., particularly those from low-income, immigrant and rural communities, as well as communities of color, live in areas with too few licensed child care slots, according to the Center for American Progress. Lending to child care businesses is difficult, Velasquez told ImpactAlpha, even for community development financial institutions like CEI. Impact investors should “invest in their local and regional CDFIs,” Velasquez urged, “and encourage them to consider adopting Coastal’s Child Care Business Lab model.”
- Community finance. CEI launched the Child Care Business Lab in 2020 following a pre-Covid tour in rural Maine, where residents complained that a lack of quality child care affected their ability to work full-time. “Looking at the areas where there was a shortage of licensed child care slots available, we could see higher rates of poverty and unemployment,” said Murphy. The 16 businesses CEI helped launch provide care for more than 330 children and created 60 local jobs in Maine. CEI aims to help launch 30 new child care businesses over the next two years with an additional $640,000 in funding from the Treasury Department’s CDFI fund.
- Dive in.
Dealflow overflow. Other investment news crossing our desks:
- Wisconsin-based Type One Energy raised $29 million, with backing from Breakthrough Energy Ventures, to build “stellarator” fusion machines, an alternative to more common “tokamak” fusion designs. (Axios)
- Spain-based ride-hailing company Cabify will use a portion of its $110 million raise to electrify vehicles on its platform. (EU Startups)
- Arctaris Impact Fund secured a $10 million line of credit from KeyBank to invest in low-income communities in the U.S. (Businesswire)
- Vancouver-based ph7 Technologies clinched $16 million for a greener, non-toxic metal extraction process. (Vancouver Tech Journal)
- Connect Earth in London scored $5.6 million for software that allows financial institutions to provide customers’ with data on the environmental impact on their spending decisions. (Connect Earth)
Agents of Impact: Follow the Talent
Bridgepoint is hiring an ESG manager… Energy Impact Partners has an opening for an impact and sustainability associate in Washington, D.C… Kiva is looking for a remote impact content manager and an impact investment manager in Bogota… Newmark seeks an ESG director in New York… Also in New York, Impending Bloom is recruiting summer ESG fellows.
The Bill & Melinda Gates Foundation is hiring an investment officer for its strategic investment fund in Seattle… Bethmann Bank is looking for an ESG analyst in Frankfurt… UR Capital is on the hunt for a senior fund manager and head of impact investing in Geneva… The World Food Programme has an opening for an innovative finance venture lead and an innovative portfolio lead in Munich.
Thank you for your impact.
– March 30, 2023
