Greetings, Agents of Impact! Thanks to all those who turned out for our lively year-end call to debate the word(s) of the year. Tune in tomorrow for the big reveal.
Featured: Looking Ahead to 2023
Using ESG and impact to sort leaders from laggards in 2023. It’s not about the scores. It’s about the solutions. ESG – shorthand for environmental, social and governance considerations in enterprise operations and investment decision-making – has taken a beating from all sides this year. ESG is either a barely-disguised conspiracy to undermine capitalism or a toothless box-ticking fad designed to pump up wealth-management fees. When the history is written, ESG will be remembered instead as a transitional stage that established the materiality of factors previously considered external to business and finance. The historians may also say that ESG trends, rough as they were, helped distinguish the leaders who ushered in an economy built around sustainability, inclusion and equity, from the laggards who tried to block it.
In the middle is a group of institutional investors, corporate CEOs and asset managers (looking at you, BlackRock) who are hedged against the low-carbon transition and the diverse new majority but have not yet bet the company (or portfolio or endowment) on systemic reform and transformational change. In 2023 and beyond, that straddle will become harder to manage. This year’s “ESG backlash” is an early skirmish in a much larger contest, but poses a useful question: Which side are you on?
- Revenue materiality. The shift from ESG inputs to impact-oriented outputs, as shown by a company’s revenue mix, is increasingly central to how investors are valuing a company’s prospects in the 21st century. “We invest in companies which produce products and services that change the world, not the ones that change their operations,” says Robert Brown of Atlas Impact Partners, one of the first impact-themed long-short hedge funds. For its long investments, Atlas sets a bar of 80% of revenues generated from products and services addressing the Sustainable Development Goals. “Revenue-materiality is so important, because it’s not about tinkering around the edges,” said Oyin Oduya of Wellington Management, which for its impact strategies selects companies that drive 50% of revenues from impact solutions. “It’s about, ‘Is the majority of my reason for being as a company helping to solve these environmental and social problems?’” What we’re watching for: growth in the share of companies’ revenues generated by strategies for environmental regeneration and social inclusion.
- Worker power. Along with corporate accountability, better treatment of workers is the ESG plank with the most bipartisan popular support. A survey by the nonprofit Just Capital found that Americans believe workers to be business’s most important stakeholder. The public opinion polling company GQR found bipartisan majorities in favor of companies measuring their impacts on workers, as well as on communities and the environment. ESG investors would broaden their base of support by focusing more on workers, argued Margot Brandenburg, Bob Eccles and Leo Strine in a guest post. “If hardworking taxpayers and voters can see themselves in ESG strategies, they are much more likely to favor them.” One way to highlight corporate accountability to workers, they argue, is upgrading ESG to “EESG” to put employees at the forefront.
- Countering the ESG backlash. Coalitions of climate, labor and “stakeholder capitalism” organizations are coordinating their messaging, social media and state-level organizing to more quickly respond to rhetorical attacks and legislative proposals to roll back ESG policies and practices at state agencies and pension funds. It’s hard to argue that managing a corporation’s environmental, social and governance risks – and impacts – is not essential to long-term success, or even survival. “ESG is not a religious doctrine, or some kind of precious garden that needs to be protected,” ImpactAlpha’s Imogen Rose-Smith wrote in her Institutional Impact column. “ESG does best, and will thrive, when it is subject to rigorous and intense (good faith) debate.”
- Keep reading, “Using ESG and impact to sort leaders from laggards in 2023,” by David Bank on ImpactAlpha. Catch up on this week’s other lookaheads to 2023 in climate finance, emerging markets and abundance, ownership and inclusion.
Dealflow: Follow the Money
Investment news crossing our desks:
- Seattle-based Group14 Technologies raked in $214 million from Microsoft Climate Innovation Fund, Lightrock Climate Impact Fund and others to commercialize silicon batteries.
- Cote d’Ivoire’s Afrique Phyto Plus, which provides inputs to smallholder farmers in West Africa, secured €5.5 million ($5.8 million) in mezzanine finance from AgDevCo.
- Toast Ale, a London-based brewery that repurposes leftover bakery bread, raised £2 million ($2.4 million) from the National Geographic Society and other investors.
- Aviva snagged $2.2 million in pre-seed funding, backed by impact tech venture fund Seedstars, to deploy working capital to businesses in underserved communities in Mexico.
- Paris-based Everimpact scored €1.7 million ($1.8 million) to help municipalities and organizations measure and lower their carbon emissions.
Agents of Impact: Follow the Talent
IREX is recruiting a strategic partnerships director in Washington, D.C… ECMC Group’s Education Impact Fund seeks an impact investing associate in Minnesota… Pacific Community Ventures is hiring a policy counsel and manager in Oakland… Creative Commons is looking for a remote manager of open climate data… Chemonics International is recruiting a remote senior specialist of climate finance…
Rivian has an opening for a sustainability and impact reporting senior manager in New York… Mercy Corp Ventures seeks a financial systems consultant… RSF Social Finance is looking for a loan and investment operations director… Trust Neighborhoods has an opening for an operations manager in Kansas City, Mo… The Union of Concerned Scientists is hiring a managing director for its climate and energy program.
RH Capital is recruiting a fund operations specialist in Boston or San Francisco… Ford Foundation seeks a program officer in New York… Common Future is looking for a community director… The Decolonizing Wealth Project has an opening for a vice president and a director of communications… Convergence is looking to fill several positions, including a manager for a catalytic climate finance facility, and data and intelligence content senior associate.
Thank you for your impact.
– Dec. 22, 2022