Greetings, Agents of Impact! We are deeply grateful for all of the Agents of Impact who make our work meaningful – and possible. For those observing the U.S. holiday, we wish you a thankful break. We’ll be back in your inboxes on Monday, Nov. 28.
Featured: Policy Corner
For pension fund managers, Department of Labor puts ESG back on the table – again. Cannot! Can so! Just as some states are trying to block ESG investing, the U.S. Department of Labor has given its blessing to the consideration of environmental, social and governance factors in selecting investments for pension fund beneficiaries. The Labor Department’s final rule, more than a year in the making, reverses Trump-era guidance limiting the ability of retirement plan managers subject to ERISA (short for the Employee Retirement Income Security Act of 1974) to consider ESG factors in selecting investments. The guidance has whipsawed with every change of administration since President Bill Clinton. The now-superseded 2020 rules, along with a period of uncertainty while the Biden administration formulated the new guidance, chilled allocations to ESG-labeled investment options. “Given the recent wave of misinformed political attacks seeking to undermine the validity of ESG investing strategies, this rulemaking comes at an important time and provides much needed clarity for investors and fiduciaries that ESG factors are indeed material,” says Fran Seegull of the U.S. Impact Investing Alliance.
- Climate agenda. The key issue in the rule change is the ability of managers of pension funds to consider the mounting risks of climate change. The defense of fossil fuel financing is likewise a key consideration for many of the red-state politicians who are seeking to block state agencies from working with financial institutions that integrate ESG factors in their investment decision-making (see, “Riskwashing: How the crusade against ESG is hurting businesses, taxpayers and retirees”). “Climate change and other environmental, social and governance factors can be useful for plan investors as they make decisions about how to best grow and protect the retirement savings of America’s workers,” Assistant Labor Secretary Lisa Gomez said in a statement.
- Prudence and care. The new rules, “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” clarify that climate change, along with other systemic risks, constitute material factors that pension fund managers can consider as part of their fiduciary duty. However, the new rules don’t mandate that fund managers must consider such risks. Ford Foundation’s Roy Swan and Margot Brandenburg called for additional guidance “to compel ERISA fiduciaries to appropriately factor ESG risks and opportunities into investment decision-making.” In their comment to the Labor Department, they said, “Failure to demonstrate appropriate consideration of ESG factors, given what we know, can no longer be considered consistent with fiduciary requirements of prudence and care.”
- Keep reading, “For pension fund managers, Department of Labor puts ESG back on the table – again,” by David Bank and Amy Cortese on ImpactAlpha. Catch up on the full range of impact investing policy developments at ImpactAlpha’s Policy Corner, sponsored by the U.S. Impact Investing Alliance.
Dealflow: Bridging the Gaps
C3 provides catalytic capital to accelerate the deployment of… catalytic capital. The Catalytic Capital Consortium, or C3, awarded nearly $1.4 million in grants to Village Capital, Pacific Community Ventures, Opportunity International, the Impact Investing Institute and five other organizations to expand the use of the patient, risk-tolerant, concessionary and flexible capital that is often needed for high-impact ventures and markets. “We are focusing on action-oriented projects that can translate into stronger deployment of capital while addressing deeply-embedded capital gaps and the needs of local communities,” said MacArthur Foundation’s Urmi Sengupta. Chicago-based Opportunity International will use the grant to de-risk micro and small loans for farmers and schools in low-income countries in Latin America, Africa and India. Village Capital will use the grant to create a digital matching platform for venture founders and investors for different types of financing. “These infrastructure projects are advancing solutions that support more efficient and effective delivery of catalytic capital,” said Chris Jurgens of Omidyar Network.
- Innovative finance. MacArthur and Omidyar, along with the Rockefeller Foundation, launched C3 in 2019 to expand the use of tools such as loan guarantees, first-loss reserves, low-interest loans and other types of flexible capital. Invest Appalachia will blend capital to catalyze community investment in the region. Pacific Community Ventures will develop a public, private and philanthropic model to channel capital to BIPOC entrepreneurs and community wealth-building. C3 will award another round of grants in the coming months. Last year, the consortium said it would award up to $10 million in grants over three years.
- On the beat. C3 sponsors ImpactAlpha’s ongoing coverage of catalytic capital. Check out our dedicated landing page featuring dozens of deals, people and strategies for using patient, risk-tolerant, concessionary and flexible capital to drive impact.
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Goodwell Investments raises €50 million to drive inclusive growth in Africa. The Dutch impact investor is looking to raise €150 million ($155 million) for its second uMunthu fund to invest in small businesses delivering basic goods and services to underserved consumers in Africa. “Across the continent, an increasingly favorable political environment, a young, highly motivated workforce, and significant infrastructure improvements are converging to create an atmosphere of exciting possibilities,” the firm said. With a first close of $51.5 million, Goodwell will invest in about three dozen companies. Target sectors: financial services, food and agriculture, mobility and logistics, healthcare, education and energy.
- Strategic partners. Lagos-based Alitheia Capital, a gender-focused fund and long-term investment partner of Goodwell, will co-manage the fund. Alitheia also co-manages a $100 million gender-lens fund with South Africa-based IDF Capital. Goodwell says its 35 portfolio companies in Africa and India have provided €2.5 billion worth of financial services to more than 30 million households and have directly created 35,000 jobs. Goodwell received commitments from family offices, foundations and other private investors for the new uMunthu fund.
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Dealflow overflow. Other investment news crossing our desks:
- WorkJam secured $50 million in a Series D round to help businesses in Europe, Asia, Latin America and the U.S. upskill and retain their frontline workers.
- Amsterdam-based Sympower raised €25 million ($25.8 million) in Series B funding backed by Rubio Impact Ventures for smarter and cleaner renewable energy in Europe.
- Climate tech nonprofit Rewiring America acquired Carbon Switch to expand consumer-focused research, guides and reviews for electrifying the home.
Impact Voices: Good Business
Five insights into the future of social entrepreneurship. As it marks 25 years of cultivating social entrepreneurship, the Miller Center for Social Entrepreneurship at Santa Clara University asked the field about transformation in the next quarter-century. A common aspiration: evolving beyond the need for the modifier “social.” “All entrepreneurship should ultimately create positive externalities—both financial and social,” says Geoff Davis of Sorenson Impact Center. Davis’ views are among the responses that Miller Center’s Brigit Helms rounds up in a guest post for ImpactAlpha. Helms says she dreams of a day “when all entrepreneurs will understand that their job is to apply innovation and business principles to solve intractable social and environmental problems around the world.”
- Bottom up. The Miller Center launched its social enterprise accelerator two years before the arrival of Y Combinator and five years before the first SOCAP gathering. For all the progress, social entrepreneurship can still be an uphill fight for founders. “Small enterprises in disadvantaged communities should get funding equally to the big enterprises,” says Joseph Nkonga, who runs a legal training network in the Democratic Republic of the Congo. “It’s very difficult for social enterprises to compete in a fair market,” says Mark Horoszowski of MovingWorlds. If corporates, foundations and/or governments can’t provide subsidies, he adds, “then more innovation is needed in regulation, taxation [and] incentives to create more market demand for products and services that represent the true costs of delivery.”
- Measuring impact. To ensure investments balance financial performance with positive social and environmental impact, investors must “connect entrepreneurs to the right ‘flavor’ of capital that meets their needs at each stage of their development,” Helms writes. James Militzer of NextBillion says social enterprises and their investors need a more effective way to measure impact, “so that both consumers and investors can separate the companies that are truly making a difference from those that merely want to latch onto the sustainability brand.” Among the things that need to change, says Acumen’s Yasmina Zaidman, is “the idea that social justice, inclusion, and sustainability are optional.”
- Keep reading, “Five insights into the future of social entrepreneurship,” by Miller Center’s Brigit Helms on ImpactAlpha.
Agents of Impact: Follow the Talent
Sir Ronald Cohen will chair the new International Foundation for Valuing Impacts, established to advance “impact-weighted accounts.” Harvard Business School’s George Serafeim will chair the IFVI’s valuation technical and practitioner committee (for background, see, “Big banks take on the challenge of accounting for their impact”)… JBG SMITH seeks a sustainability associate in the Washington, D.C. area.
Bain Capital is hiring an ESG manager for impact measurement and reporting in Boston… Also in Boston, Acre is recruiting a senior compliance officer… CEI-Boulos Capital Management is looking for an analyst in Brunswick, Maine… City First Enterprises is recruiting an impact data and reporting analyst in Washington, D.C… BerlinRosen is hiring a remote senior vice president for ESG, philanthropy and impact investing.
Thank you for your impact!
– Nov. 23, 2022