The Brief | May 26, 2020

The Brief: New York’s CDFI loan fund, aspirational neo-bank, imperfect food distribution, emergency loans for social enterprises, drivers of ESG outperformance

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New York’s $100 million loan fund for small businesses is a model for a $1 billion national fund. New York Gov. Andrew Cuomo may have been listening in to ImpactAlpha’s Agents of Impact call last week. The state’s New York Forward Loan Fund will channel $100 million through five local community development financial institutions to the kind of small, minority-owned businesses that have been left behind in hastily-prepared federal relief programs. The vehicle was designed with help from Calvert Impact Capital in Bethesda, Md., and Minneapolis-based Community Reinvestment Fund (see, Innovative CDFIs scale up to help underserved communities move from relief to recovery). Calvert acted as “lead arranger” and helped structure the fund and raise capital in coordination with the state. CRF’s Connect2Capital is providing a common intake platform for applications from small businesses. Calvert’s Beth Bafford and CRF’s Patrick Davis described the design on ImpactAlpha‘s Agents of Impact Call last Thursday.

Community development financial institutions, or CDFIs, are “having a moment” as a financial lifeline for small businesses and nonprofits in low-income, rural and minority communities. The New York fund is intended to be a model for a $1 billion national fund and, ultimately, a $20 billion government-backed fund to fuel a small business recovery effort. New York’s Forward Loan Fund will buy loans from CDFIs to relieve pressure on their balance sheets and free up capital for additional lending. It will be managed by the fund management arm of the Local Initiatives Support Corp., or LISC. The five CDFIs that will originate loans for the New York fund are TruFund, Accion East, NDCPursuit and CPC. (CPC will originate loans to small property owners.) The Ford Foundation, the Ralph C. Wilson Jr. Foundation and the BlackRock Charitable Fund provided a layer of junior debt. Senior debt capital came from Apple Bank, BNB Bank, Evans Bank, M&T Bank, Morgan Stanley, Wells Fargo and others.

Keep reading, “New York’s $100 million loan fund for small businesses is a model for a $1 billion national fund,” by Amy Cortese on ImpactAlpha.

Dealflow: Follow the Money

Aspiration secures $135 million to expand impact banking products. Aspiration launched in 2015 to offer a green and “conscious” digital alternative to mainstream banks. It has expanded from basic banking and checking to investment products, including a conservation-focused IRA. Aspiration closed its Series C round with backing from Alpha Edison, hedge fund manager UBS O’Connor, DNS Capital, Radicle Impact, Sutter Rock and Social Impact Finance. Early backers include Omidyar Network, Capricorn Investments and celebrity environmental activists Leonardo DiCaprio and Orlando Bloom.

  • COVID effect. Aspiration co-founder Andrei Cherny told Fortune the bank has seen an uptick in demand for sustainable finance products during the pandemic. “This crisis is accelerating trends that were already occurring, and one of those is the shift toward digital banking,” he added.
  • Check it out.

Imperfect Foods secures $72 million to expand affordable food delivery amid pandemic. The San Francisco-based company launched five years ago to cut food waste by aggregating foods deemed unfit for supermarkets—misshapen apples, short pieces of pasta, broken shrimp—for delivery directly to consumers. Demand for the service, designed to be accessible to low-income customers, has increased during the pandemic (see, The future-of-food distribution opportunity). Its Series C funding round was led by Insight Partners.

  • Food waste innovation. The raft of potential solutions to the U.S.’s $200 million annual food waste problem includes FoodMaven, which links producers of over-supplied or imperfect food to large-scale buyers. Full Harvest sells surplus food online. Apeel makes an edible protective coating to prevent produce spoilage. WISErg converts unused food into a fuel product.
  • Dig in.

Beneficial Returns raises emergency loan fund for social enterprises. The Truss Fund has raised $700,000 to backstop graduates of the GSBI Accelerator at Santa Clara University’s Miller Center. The fund’s first $50,000 loan goes to Limited Resource Teacher Training, which serves teachers in Africa and the Caribbean. The fund also approved loans to Pollinate Group and iKure.

  • Catalytic capital. Investors are making recoverable grants “because we need to move quickly and because this work is inherently risky,” Beneficial’s Ted Levinson told ImpactAlpha. “Now is the time for impact investors to dig deeper and support social entrepreneurs: the essential workers in the fight against global poverty,” said Jeff Miller of JAMM Ventures, an investor in Beneficial’s fund.
  • Check it out.

HSBC and IFC raise $474 million bond fund for climate action in emerging markets. Seven private investors joined HSBC Global Asset Management and the International Finance Corp., which each committed $75 million. The green bond fund will invest in a portfolio of green and sustainable bonds.

Signals: Ahead of the Curve

Focus on workers, customers and governance drive ESG outperformance amid COVID uncertainty. Sustainable funds outperformed their conventional peers in the first quarter downturn and held their own in the April bounce-back (see, “Sustainable investments are growing, and outperforming, in a volatile market). The outperformance was initially attributed to under-exposure to the energy sector, which cratered in Q1. As a fuller picture emerges, a bigger driver appears to be a strong focus on workers, customer relationships and governance. All but two out of 26 ESG indices saw less negative returns than conventional indexes in the first quarter, according to Morningstar’s Jon Hale, who attributes the outperformance to “the tilt in these portfolios toward companies with better ESG assessments and ratings.” Energy underweights were secondary, he says. “Actually the biggest single factor driving that [outperformance] was securities selection,” agreed Goldman Sachs’ John GoldsteinThe case:

  • ESG characteristics. An analysis by BlackRock, which manages about $100 billion in sustainable assets, suggests energy factors explain only a fraction of sustainable fund outperformance. “The outperformance has instead been driven by a range of material sustainability characteristics, including job satisfaction of employees, the strength of customer relations, or the effectiveness of the company’s board,” BlackRock concluded. The period of COVID-related uncertainty “has further reinforced our conviction that ESG characteristics indicate resilience during market downturns.”
  • Prioritizing workers. Companies like Nvidia, Salesforce and Microsoft that perform in the top quintile on “worker issues” in Just Capital’s rankings of publicly traded companies “significantly outperform” companies in the bottom quintile, on both return on equity and cumulative returns. Just Capital, which has tracked companies’ COVID-related actions, says 38 of the 100 largest U.S. companies have announced at least some financial assistance for frontline workers. A recent Goldman Sachs analysis found that higher employee satisfaction can drive better equity returns over time.
  • Trusted response. Harvard’s George Serafeim and State Street Associates crossed news coverage of corporate responses to the coronavirus with their financial performance to see if favorable sentiment would mitigate investor distrust during the market collapse. They focused on labor practices, supply chains and repurposing of operations for more than 3,000 companies. The takeaway: More positive sentiment is associated with less negative returns.
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Agents of Impact: Follow the Talent

Margret Trilli is the new CEO of ImpactAssets and retains her role as chief investment officer. ImpactAssets founder Tim Freundlich becomes executive director of strategic development (see, ImpactAssets sets up donor-advised fund to channel flexible capital to COVID responses)… Lisa Hall stepped down from her role at Georgetown University’s Beeck Center. Andrea McGrath will lead Beeck’s Fair Finance portfolio.

PG Impact Investments is looking for an Asia-focused private equity investment manager in London… Toniic is hiring an executive vice president… RSF Social Finance seeks a business development director in San Francisco… CREO Syndicate is recruiting an aquaculture investment summer fellow.

i(x) investments launched i(x) Securities, a registered broker dealer, to raise capital for impact-focused investments… Impact Investment Exchange’s (IIX) Women’s Livelihood Bond series won the P4G Scale-Up Partnership, a collaboration of a dozen countries funded by Denmark and the Netherlands.

Online this week:

  • Wednesday, May 27. Integrated Capital Investing’s Jen Astone is hosting “13 Strategies for Action” for foundation program officers, trustees, donors and investors.
  • Thursday, May 28. Spectrum Impact’s Rehana Nathoo is hosting “Value in a Virtual World: Successfully Running a Small Business During #COVID19” with Align Impact’s Jenn Kenning, RPCK’s Chintan Panchal and Kiva’s Will Jacobsen… Ten impact startups will present at a demo day for the Cox Enterprises Social Impact Accelerator, powered by Techstars.

Coming in June:

  • Wednesday, June 3. Faith & Finance: “Can Capitalism Be Healed?” with Eve Poole, author of Capitalism’s Toxic Assumptions.
  • Thursday, June 4. Transform Finance is hosting “Aligning Incentives and Managing Impact in Smallholder Farmer Financing: GAWA Capital’s Huruma Fund”… SVX Mexico is convening “MasterClass on Alternative Finance Instruments for Impact Investing.”
  • Thursday, June 11. i(x) investments is launching Family Impact, a series for family offices. Its first discussion is “Can we Build Back Better? The Role of Private Capital in the Economic Recovery”… Impact Entrepreneurs is hosting “Understanding the Impact of the Creative Economy” with Upstart Co-Lab’s Laura Callanan, Fundación Compromiso’s Carolina Biquard, HEVA Fund’s George Gachara and Conscious Endeavors’ Jack Meyercord.
  • Friday, June 12. Faith & Finance: “A Blueprint for Local Investing,” with Ross Baird, David Robinson Sr. and David Robinson Jr.
  • Thursday, June 25. SVX Mexico continues its Master Class with “Impact Investing Across all Asset Classes for the Mexican Stock Market.”

Thank you for reading.

–May 26, 2020