The Brief | May 17, 2023

The Brief: Impact management leaderboard, ground-source heat pumps and direct-air capture, backing diverse fund managers, tying compensation to outcomes

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Greetings, Agents of Impact!

Featured: Impact Management

10 fund managers that are outperforming – in managing impact. Some fund managers link staff incentives to impact results (see Impact Voices, below). Others verify outcomes with target stakeholders. Many regularly assess impact risk. A few stand out amongst their peers. AgDevCoBlueEarth CapitalCalvert Impact Capital and Nuveen Fixed Income Impact have joined a leaderboard curated by BlueMark of impact investors with top-tier practices for managing the impact of their investments. The impact verification firm’s latest Making the Mark report aims to benchmark such practices. The list of BlueMark’s top-performing clients also includes Bain Capital Double ImpactLeapFrog Investments and Trill Impact, among others. “Continuously raising the bar on best practices is the key to scaling this field with integrity,” said Christina Leijonhufvud of BlueMark. “Improved data is central to improved decision-making.” (Disclosure: BlueMark is a sponsor of ImpactAlpha.)

  • Impact integrity. Independent verification of investor impact management processes has taken hold in an industry-wide push to establish clear principles for practice. More than 170 investment firms have signed on to the Impact Principles, which the International Finance Corp. transferred to the Global Impact Investing Network last year. BlueMark’s report analyzes 84 verifications the firm has completed for investors managing $209 billion in impact-oriented assets.
  • Practice FOMO. More than half of investors include an assessment of impact risk in due diligence; only one-quarter assess the potential for negative impacts (for context, see “How investors can better assess risk to impact”). Less than one-third of managers engage with investee workers or customers to verify impact, an uptick over last year. Verification isn’t a check-the-box exercise, says Leijonhufvud, but rather a learning process meant “to encourage a race to the top.”
  • Attribution and outcomes. In a guest post on ImpactAlphaJake Levy of London-based investment firm Snowball offers tips for navigating some of the thornier challenges of impact measurement and accountability. “Without an understanding of outcomes and impact, capital can go into investments which have impressive-seeming output metrics but are not making a dent in long-term poverty, or worse, are leading to outcomes like debt spirals or aggressive collection practices,” Levy writes. “There is a risk that asset managers with the slickest marketing and most positive-sounding claims attract capital.” Go deeper.
  • Share “10 fund managers that are outperforming – in managing impact,” by Dennis Price on ImpactAlpha.

Dealflow: Low-Carbon Transition

Kensa Group secures £70 million to accelerate adoption of ground-source heat pumps in the UK. The UK government wants to install 600,000 heat pumps each year as a low-carbon alternative to gas boilers. Ground-source, or geothermal, heat pumps use electricity to absorb natural heat from the ground or water and transfer it into buildings. London-based investment manager Legal & General Capital and Octopus Energy Generation made the $87.4 million investment in UK-based Kensa through a new energy transition fund. Heat pumps are “a tried and tested replacement for gas boilers and can drive down consumers’ energy bills for good,” said Octopus Energy’s Zoisa North-Bond. The UK is mulling a nationwide ban on gas boilers.

  • Clean and climate tech. Kensa plans to manufacture and install 50,000 ground-source heat pumps yearly by 2030, focused on social and terraced housing and non-domestic buildings. Housing developers can also tap Kensa’s ambient temperature heat network, which distributes heat to numerous properties from a centralized system. The “approach reduces the strain on our electricity grid and enables a just transition — keeping heating costs low and addressing fuel poverty simultaneously with climate change mitigation,” said Kensa’s Matthew Trewhella.
  • Check it out.

New Summit Investments teams with Gratitude Railroad to back diverse-led funds. The partnership grew out of the firms’ shared belief that “investing in emerging managers will not only generate positive impacts on society but will also strengthen investors’ portfolios,” said New Summit’s Casey Dilloway. The partners have so far invested a total of $7 million in a trio of women-led funds, he told ImpactAlpha.

  • Emerging managersSpringbank Collective, a New York-based venture firm, invests in early-stage startups supporting women and working families, which it pegs as a $1 trillion opportunity. San Francisco-based Firework Ventures invests in “future of work” startups that drive social and economic mobility. Good Growth Capital, based in Charleston, SC and Boston, Mass., backs science and technology startups from life sciences to battery tech with the potential for a positive impact. Three-quarters of its portfolio companies have diverse founding teams. 
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Dealflow overflow. Other news crossing our desks:

  • Canadian carbon capture. Canada’s Deep Sky raised $10 million for its pilot facility to capture atmospheric carbon, compress it and store it underground. Separately, 3M inked a deal with Svante to develop materials for direct-air carbon capture.
  • Netherlands-based Pryme secured €13 million from Infinity RecyclingInvest-NL and LyondellBasell for lower-carbon plastic recycling that increases the amount of salvageable plastic. (Infinity Recycling)
  • Chicago-based Grapefruit Health clinched $1.3 million to address the US’s chronic shortage in healthcare workers by matching clinical students with health organizations for remote work.
  • DisrupTech Ventures raised $36 million from Proparco and other development finance institutions and family offices to invest in tech ventures accelerating access to finance in Egypt. (Proparco)

Impact Voices: Impact Incentives

Why don’t more impact fund managers tie compensation to impact? Let’s find out. Fund managers are accustomed to tying their remuneration to their financial performance. They could likewise embed impact-related rewards and penalties in their compensation structures, Aunnie Patton Power and Riannah Burns argue in a guest post on ImpactAlpha. “Well-designed and implemented impact-linked compensation structures could be an effective motivation tool to hold fund managers accountable to their stated impact goals.” Less than a third of impact investors use some form of impact-linked compensation. Just 7% tie fund remuneration to impact (see, Making the Mark, above). “So why are so few impact fund managers tying compensation to their impact outcomes?” the authors ask. In collaboration with The ImPact, they are undertaking a new research study to identify ways to drive greater adoption of impact-linked compensation structures, like executive and employee bonuses, or “impact carry,” in which partners’ share of fund profits is linked to impact outcomes.

  • Compensation modelsAureos Capital was one of the first impact investing firms to adopt impact-linked compensation, incorporating bonus carry for achieving its impact targets. Vox Capital in Brazil went a step further, committing to halve its share of profits if it didn’t achieve its intended impact. Roughly one in five impact funds use some form of impact-linked compensation. “We know very little about the practices and learnings of general partners and limited partners who use it,” the authors say.
  • Take the survey. GPs, LPs and intermediaries with or without impact-linked compensation are invited to take a research survey designed “to identify the critical design and decision factors that enable impact-linked compensation to succeed,” the authors write. Participants will be invited to a research convening on Wednesday, May 24.
  • Keep reading, “Why don’t more impact fund managers tie compensation to impact?” by Aunnie Patton Power and Riannah Burns on ImpactAlpha.

Agents of Impact: Follow the Talent

Impax North America’s Ed Farringtonwill become president following the retirement of Joe Keefe in January… Kate Ahern, ex- of Cartica Management, joins Sandoz as head of ESG in Munich… Wetherby Asset Managementseeks an impact management analyst in San Francisco… Global Partnershipsis hiring an investment analysis officer in Seattle. 

The Milken Institute is looking for an economic policy associate director and an innovative finance director in Washington, DC… Strada Education Foundationhas an opening for a strategic investments platform manager in Indianapolis… FMOis recruiting an energy senior investment officer focused on East and South Africa… The Lutheran World Federationis on the hunt for a development impact bond manager in Nairobi. 

Alterna Impactseeks an impact fellow in Guatemala… Capital Impact Partnersannounces a new milestone of issuing more than $300 million of capital impact investment notes… The Federal Reserve Bank of New York, in partnership with the Ford Foundationwill host an in-person event exploring how companies are helping low-income workers build wealth via investment in ownership and employee benefits.

Thank you for your impact.

– May 17, 2023