The Brief | June 4, 2020

The Brief: Investing in racial justice, inclusive banking, pandemic tech, recycling carbon, fossil fuels’ $100 trillion blindspot

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Investing in racial justice by shifting narratives, power and capital. Social justice protests in the streets are exposing misperceptions of risk and opportunity in the boardroom. Systemic racial bias has taken countless lives. It has also left a long tally of misallocated capital, lost talent, overlooked markets, untapped innovation and wasted time. An eclectic set of venture capital firms and institutional investors are flipping the script. If racism is a systemic risk, they’re seeking systemic opportunities in overcoming its legacy and investing in justice and equality. “It’s a narrative shift,” says Cynthia Muller of the Kellogg Foundation, which two years ago produced “The Business Case for Racial Equity.” “These are all opportunities that are out there,” she says. The emerging strategies include the intentional shift of larger percentages of capital to entrepreneurs and fund managers of color. The investors are backing ventures that explicitly seek to close racial gaps in wealth and social outcomes. And investors are taking on a systemic problem with systemic solutions, executing strategies that reduce implicit bias in the financial system itself, shift power and shape new narratives.

Kellogg’s latest racial-equity bet is a $1.5 million investment in Blavity, the Los Angeles-based media company founded by Morgan DeBaun that delivers a mix of political, business and social justice news and events to a young Black audience whose voices and experience are too often left out of the conversation. Blavity “is helping to engage an entire generation of educated Black professionals who are going to be the folks that help us change the rules,” says Muller. This moment “reveals an opportunity that was always there,” says Daryn Dodson of Illumen Capital. Dodson’s Oakland-based impact fund of funds works with Stanford researcher Jennifer Eberhardt, known for her work reducing bias in policing, to root out implicit bias in investing. “The strategy of alpha generation through building a systems shift is a misunderstood part of investment analysis,” says Dodson. By working with fund managers to reduce implicit bias, he says, “We’ve helped them to see returns that are otherwise left on the table.” Common Future this week allocated $750,000 to Black-led organizations committed to investing in Black communities impacted by economic injustice. Said CEO Rodney Foxworth. “The opportunity to shift capital to shift power is in front of us.”

Keep reading, “Investing in racial justice by shifting narratives, power and capital,” by Dennis Price on ImpactAlpha.

Dealflow: Follow the Money

Varo raises $241 million to expand inclusive digital banking in the U.S. Varo is among the wave of online banking platforms promising to be more customer-friendly. Its basic account charges no fees, including on overdrafts up to $50. The company’s focus on inclusive financial services and financial management support “really matters at a time when so many American families are struggling in a volatile economy,” said Maya Chorengel of TGP’s Rise Fund, which re-upped its investment in Varo’s Series D round. Other backers include Gallatin Point Capital, HarbourVest Partners and Progressive InsuranceCheck it out.

OurCrowd eyes $100 million for “pandemic tech” startups. The Israel-based venture investing platform wants to support emerging health and medical tech innovations, as well as startups addressing social needs, like education access. “We must plan for future pandemics because this story is just beginning,” wrote OurCrowd’s Jonathan Medved. As many as 20 of OurCrowd’s portfolio companies are already working on solutions related to the COVID crisis, like vaccine developer MigVaxs. Last year, OurCrowd launched its first impact fund, linking its cut of returns to impact targets (see, Israel’s OurCrowd is targeting the Sustainable Development Goals – and measuring its own impact). More.

LanzaTech secures $50 million to convert industrial carbon emissions to new fuel sources. The company claims that recycling industrial “off-gases” could replace 30% of crude oil use if harnessed at scale. Investment from Suncor Energy, Mitsui & Co. and All Nippon Airways helped the company launch its sustainable aviation fuel business, LanzaJet. New funding includes a $14 million grant from the U.S. Department of Energy.

Signals: Ahead of the Curve

Mispriced risk: The fossil fuel industry’s $100 trillion blindspot. Negative oil prices. Asset write-downs. Low-cost renewables. The signposts are clear: The fossil fuel industry is in long-term decline as demand shifts to clean energy. Fossil fuel producers continue to invest in new production despite falling demand and calls to limit emissions and planetary warming. Banks keep financing their efforts. The price of that denial? More than $100 trillion, according to CarbonTracker. That’s the gap between fossil fuel profits in a “business as usual” scenario that many oil, gas and coal companies cling to ($129 trillion) and the projected profits in a world of declining demand and prices consistent with the Paris Agreement goals ($14 trillion). The finding is part of a sweeping analysis by CarbonTracker, following on previous landmark reports on stranded assets and the carbon bubble.

  • Mispriced risk. To assess the scope of the risk, the report takes a broad measure of the fossil fuel industry, including $32 billion in physical infrastructure, from supply-side oil wells and pipelines and demand-side cars, utilities and petrochemical plants. The upshot: “There is far more risk inherent in the fossil fuel system than is conventionally priced into financial markets,” said the report’s author Kingsmill Bond.
  • Bank exposure. CarbonTracker tallied an exposure of $18 trillion in public equities and $8 trillion in corporate bonds linked to fossil fuels – almost a quarter of the global equity market and 53% of non-financial corporate bonds. Unlisted or untracked debt could add another $30 trillion in exposure. Mining, oil and gas, and utility sectors, for example, raised $6 trillion in syndicated loans between 2010-2018, more than they raised with corporate bonds. Banks relying on old models and assumptions “will underestimate the risk they hold on their balance sheets,” says Bond.
  • Peak carbon. Technological innovation and government policy are driving peak fossil fuel demand across sectors and countries. COVID-19 has accelerated the decline in demand, which could fall by 9% in 2020. Already peaked: demand for oil, global fossil fuel-based power, gas-powered cars and coal. “Now is the time to plan an orderly wind-down of fossil fuel assets and manage the impact on the global economy rather than try to sustain the unsustainable,” says Bond.
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Agents of Impact: Follow the Talent

Conscious Capitalism’s New York chapter is accepting applications for paid and unpaid internships from students out of work or otherwise affected by COVID… Penn State University seeks an associate director of rural development… cKinetics is recruiting an economist for its carbon and offset markets team in Delhi… is looking for a communications director… 60 Decibels is hiring interns to deliver high-quality impact measurement and customer insights projects.

Thank you for reading.

–June 4, 2020