The Brief | July 5, 2022

The Brief: Legal headwinds for climate action, home ownership in India, renewable energy infrastructure, making employee ownership count

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Greetings, Agents of Impact! We’re back.

Featured: Climate Headwinds

Supreme Court’s attack on regulatory policy threatens SEC climate-disclosure rules. Fighting climate change just got even harder. In a case that reverberated across the regulatory landscape, the U.S. Supreme Court’s conservative majority curtailed the Environmental Protection Agency’s ability to rein in climate-warming greenhouse gasses. The 6-3 vote in West Virginia v. EPA came amid heat waves, droughts and wildfires across much of the country and the globe. “It is difficult to fathom what drives the majority members of the court to tear down the very systems that have made life livable, the sky clear, and waters clean,” said Danielle Fugere of As You Sow. The ruling opened the door to legal challenges for any regulatory policy deemed to exceed explicit direction from Congress. First up could be rules for corporate climate disclosure proposed by the Securities and Exchange Commission (see, “Call No. 38: Inside the generational opportunity to reshape rules of corporate disclosure).

  • Corporate action. Don’t call the decision “pro-business.” The utility trade group Edison Electric Institute and 15 corporations, including Microsoft, Cummins and Tesla, sided with the EPA in the case. “Most Fortune 500 companies are already moving to reduce their greenhouse gas emissions voluntarily,” said Mindy Lubber of Ceres. But she said smart, stable nationwide emissions regulations “are needed for the U.S. to capture these benefits and lead the world in the transition to a more just, innovative, and sustainable economy.
  • Major questions. The doctrine cited in the court’s majority opinion suggests that Congress must give agencies direct authority over issues with “vast economic and political significance.” Ceres tallied 230 actions across nine federal agencies since last April to tackle the financial risks of climate change. Many of those efforts already were expected to face legal challenges. “It is incumbent on our field to tell this story and counter false narratives that attempt to politicize the S.E.C.’s actions to regulate capital markets,” said Fran Seegull of the U.S. Impact Investing Alliance. “American investors deserve transparency and accountability, and the SEC is right to step in and do its job.”
  • Keep reading, “Supreme Court’s attack on regulatory policy threatens SEC climate-disclosure rules,” by Amy Cortese on ImpactAlpha. 

Sponsored by Microfinance Enhancement Facility

Tender offer. The Microfinance Enhancement Facility is launching a tender to select portfolio managers to implement an enhanced impact and investment strategy. MEF, a microfinance fund with $725 million under management, provides short and medium-term financing to microfinance institutions to improve livelihoods and income generation. Its board of directors and key sponsors – IFC, KfW and OeEB – wish to enhance the mission and investment strategy of the fund to invest in gender-smart and responsible financial services for underserved women as well as women-owned or women-led businesses in emerging markets.

  • Submit an expression of interest. MEF’s two-stage tender process will select two to three portfolio managers to implement, advance and manage MEF’s new gender-smart investment strategy. Interested parties can access the tender announcement on TED or contact [email protected]. The deadline for expressions of interest is Monday, Aug. 1, at noon CET.

Dealflow: Financial Inclusion

LeapFrog backs Shubham to deliver housing loans for low-income buyers in India. The Gurgaon-based mortgage lender launched in 2011 to give low-income families and workers in India’s informal economy access to affordable housing loans. Most such first-time buyers don’t have the documents required by other lenders. Shubham uses data collection, machine learning and other tech-enabled tools to underwrite its loans. LeapFrog’s investment will help Shubham “deliver home ownership to thousands of low-income Indian families for the first time,” said LeapFrog’s Michael Fernandes.

  • Scaling up. LeapFrog led Shubham’s $112 million investment round alongside British International Investment(formerly CDC Group), Asian Development Bank and Premji Invest. As part of the deal, LeapFrog, ADB and Premji will invest $78 million of primary capital in the business. LeapFrog and Premji will also acquire stakes from Elevar Equity and Motilal Oswal.
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TPG Rise Climate backs Intersect Power’s $750 million round to scale up renewable infrastructure. San Francisco-based Intersect Power is a utility-scale solar developer-owner with a project portfolio of about 2.2 gigawatts. The company will use the new capital to expand into green hydrogen and wind energy and grow its portfolio to eight gigawatts. TPG made the investment from its $7.3 billion climate impact fund led by Jim Coulter and former U.S. Treasury Secretary Hank Paulson. Last year, TPG Rise Climate cut a 10-figure check to India’s Tata Motors to accelerate the company’s electric vehicle production. The fund has made nine investments, according to Pitchbook.

Dealflow overflow. Other investment news crossing our desks:

  • Black-owned venture firm MaC Venture Capital raised $203 million for its second fund to back tech startups shaping culture and increasing access in underserved communities.
  • Yellow secured $23 million to provide loans for off-grid home solar products in Malawi and Uganda.
  • Women-led Proximie clinched $80 million in Series C funding from Emerson CollectiveSoftBank Vision Fund 2 and Minderoo Foundation to connect surgical operating rooms.
  • Mali-based crop insurance provider OKO raised $500,000 to expand into Côte d’Ivoire.
  • Austin-based True Wealth Ventures scored $35 million to invest seed capital in women-led companies with sustainability or health impact strategies.

Impact Voices: Worker Ownership

How private equity firms can fulfill the promise of employee ownership. Private equity giant KKR generated positive headlines in May (including in ImpactAlpha) when it shared with employees some of the proceeds of its exit from C.H.I. Overhead Doors. Impact investors who care about wealth inequality should be wary of private-equity firms’ claims of social impact, caution The Democracy Collaborative’s Marjorie Kelly and Karen Kahn in a guest post on ImpactAlpha. C.H.I. workers received an average $175,000, a life-altering sum for many, but puny compared to the nine-figure sums that KKR execs pull in annually. When KKR bought Gibson Guitars in 2018, write Kelly and Kahn, it piled $250 million in new debt on the company, channeling $225 million of that to the fund’s partners as a special dividend. Just $7 million went to Gibson’s 800 employees, or less than $9,000 each. “What these PE firms are doing falls far short of what authentic employee ownership represents,” the authors say, “which is the beginning of a truly democratic economy where ordinary people have more control over their lives, more stability in their work, a fair share in the wealth they create, and the chance to own and control the places where they work.” 

  • Risk and return. Almost 20 private equity firms committed to giving equity shares to employees at some portfolio firms earlier this year, as part of the Ownership Works initiative. Their goal: to create $20 billion in wealth for low- and moderate-income workers over the next decade. To deepen the impact, investors should look to scale authentic employee ownership through Employee Stock Ownership Plans (ESOPs), Employee Ownership Trusts (EOTs), and worker cooperatives. “Risk and return should not only apply to investors,” says Deborah Frieze of Boston Impact Initiative. “What risk should workers bear, and what is an appropriate return for their labor?”
  • Impact metrics. The Guidelines for Equitable Employee Ownership Transitions, developed by The Democracy Collaborative, the Soros family office and other leaders in the field, provides a framework for ensuring equitable deals that optimize benefits for workers (see, “Turning the small business crisis into an opportunity for equitable employee ownership). Also needed: more reporting by private-equity firms on wages and benefits, ratios of executive to worker compensation, job creation and losses, and worker engagement. Write Kelly and Kahn: “Only such metrics can tell us whether workers are receiving the long-term benefits their labor deserves.”
  • Keep reading, “Is private equity’s employee ownership plan the real deal” by Marjorie Kelly and Karen Kahn on ImpactAlpha.

Agents of Impact: Where to Meet

  • Tideline presents “State of the Impact Investment Market: Trends, Tailwinds, Challenges,” as part of its Compass series, July 12 at 11am ET.
  • Big Path Capital’s Impact Capitalism Summit convenes July 20-21 in Nantucket, Mass.
  • The Global Steering Group on Impact Investing gathers for the second part of its virtual Impact Summit Series, “Boosting Capital Flows in Emerging Markets,” September 22.
  • The GIIN Investor Forum will convene in The Hague, Netherlands, Oct. 12-13.
  • SOCAP will return on Oct. 17-20 at a new venue, the Yerba Buena Center for the Arts in San Francisco.
  • GenderSmart hosts its global summit, “Traction to Transformation,” Oct. 17-19 in London.
  • Enterprise Community Partners will hold its 40th anniversary conference Oct. 19-20 in Washington, D.C. 

Follow the TalentAisha Benson, ex- of TruFund Financial Services, is named CEO and president at Nonprofit Finance Fund… Amy Bell, ex- of Whole Foods Market, joins The Cook’s Nook as chief executive officer… Maya Winkelstein, ex- of Open Road Alliance, joins The 2030 Fund as partner… Monique Villa, ex- of Mucker Capital, is named chief investment officer at Launch Tennessee… Patrizia Baffioni steps down as lead of impact-linked finance programs at Roots of Impact… Caroline Flammer will lead a new sustainable investing research initiative at Columbia’s School of International and Public Affairs… Netflix is hiring a director of ESG in Los Angeles.

Thank you for your impact!

– July 5, 2022