The Brief | September 3, 2019

The Brief: Opportunity Zones on the defensive, housing insecurity solutions, long-term exchange, fintech in Mexico, edtech in India, corporate climate engagement

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Greetings, Agents of Impact!

Signals: Ahead of the Curve

The Opportunity Zones glass may not yet be half full, but it’s too early to call it empty. No one should be surprised when the rich and powerful take advantage of a capital gains tax break. That makes Sunday’s New York Times lead story on Opportunity Zone investments something of a dog-bites-human story. A half-dozen reporters turned up projects backed by well-connected investors that appear to have little positive benefit on low-income communities. Last week, ImpactAlpha also called out possibly sketchy deals, but turned up even more compelling examples of community-based investments that hold promise for more inclusive economic development (see “Investments in ‘people and places’ start to demonstrate impact in Opportunity Zones). The juxtaposition of the two pieces was stark. What gives? 

  • Positive deviants. It was inevitable Opportunity Zones would enable all sorts of bad behavior. Less clear was whether community leaders could mobilize enough good things (see, “Getting into the zone of inclusive opportunity). Economic Innovation Group’s Kenan Fikri cites projects to deliver mental health in Phoenix, residential solar in Chicago, affordable housing in Los Angeles, historic preservation in Springfield, Mass., senior living in rural Alabama, returning citizens in Delaware and Washington DC, startups in Scranton and economic reinvention in Erie, Penn. “Opportunity Zones are literally knitting together economic and community development in front of our eyes here in Alabama,” tweeted Opportunity Alabama’s Alex Flachsbart, who was featured in the Times’ piece. “Somehow none of that got mentioned in this article.”
  • Inclusion alpha. The earliest Opportunity Zone investments are flowing to projects with the lowest risks and highest returns. Longer term, “Impact-led collaborations are showing that deep engagement with communities can mitigate investment risk and accelerate project timelines,” wrote ImpactAlpha’s Dennis Price. Develop LLC’s Steve Glickman points out the bulk of the tax breaks kick in only after 10 years. “That means smart money will look for places that have a long runway for growth,” such as the south side of Chicago and Detroit. “There are good return opportunities that also have good and sustainable impact,” tweeted Blueprint Local’s Ross Baird. “They almost always take longer to put together and are more complicated than one-off deals.”
  • Impact accountability and community ownership. Times’ columnist Paul Krugman points out the Opportunity Zone legislation (like the rest of the 2017 tax bill of which it was part) was rushed through without adequate hearings or oversight. Ever since, impact investing advocates have been pushing for greater community ownership (see “Empowering communities to take ownership of their own Opportunity Zones) and regulations requiring impact measurement disclosure (see, “How and why to measure the impact of investments in Opportunity Zones). Watchdog journalism like the Times’ article only makes both cases stronger.
  • Cognitive bias. Media is indeed biased, but it’s not about left vs. right. Editors instinctively trust stories on problems over solutions. “Friends, this is a wakeup call,” wrote Launch Pad’s Chris Schultz (see, “A launch pad for businesses that can make Opportunity Zones thrive). “We have to get moving if we want the Opportunity Zone legislation to be around and have the impact it was designed to do.”
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Dealflow: Follow the Money

Access Ventures seeks new ways to lower costs for the housing insecure. It’s expensive to be poor in America. Low- and moderate-income communities face a shortage of at least 7.2 million affordable housing units. With its Reconstruct Challenge, Louisville-based Access Ventures, aims to identify approaches to reduce ancillary costs, including transportation and food costs, that can push many families’ total housing costs north of 50% of disposable incomes, founder Bryce Butler told ImpactAlpha. The impact investment firm awarded $1.8 million in grants to a half-dozen companies to test and evaluate innovations in Louisville and southern Indiana over the next 18 months. Austin’s Haven Connect, for example, has brought online the affordable housing application process. Chicago-based mRelief streamlines the process for accessing food stamp benefits. The DC think-tank Urban Institute will test a new micro mortgage product to streamline down payment costs and fees for affordable homes. Dig in.

The Long Term Stock Exchange raises $50 million to allow companies to grow over time. Companies aiming to outperform over years and decades, rather than quarters, may soon have a stock exchange on which to raise patient capital. The Long Term Stock Exchange, founded by Lean Startup’sEric Ries, raised Series B financing of $50 million, led by Founders Fund. Other repeat investors include Collaborative FundAndreessen HorowitzObvious VenturesUprising and Initialized. “A new generation of companies aspire to serve customers, build their businesses and advance their visions over time,” Ries said in a statement. “They want to run their businesses with the stewardship that stakeholders and society demand.” The exchange does not yet have a launch date but “early next year seems plausible,” a spokesperson told Axios. The U.S. Securities and Exchange Commission recently approved the company’s standards. More.

Mexico’s Credijusto raises $42 million. The financing came from Goldman Sachs and Steve Cohen’s Point72, among others. The fintech company seeksto close the financing gap for small and medium-sized companies, which make up 99% of Mexico’s businesses but receive only 15% of loans from big banks.

India’s Vedantu raises $42 million to expand online tutoring platform. Tiger Global and WestBridge Capital led the round, which also included existing investors Accel, Omidyar India and TAL Education, along with Vedantu’s co-founders.

Signals: Ahead of the Curve 

For shareholder engagement on climate, is talk enough? Blackrock and Vanguard voted against shareholder resolutions pressing climate change concerns in the past year at ExxonDuke EnergyDominion Energy, GM and Ford, among others. The two asset-management giants have both called for greater corporate consideration and action on social and environmental issues and both endorsed the recent statement on corporate “purpose” from the Business Roundtable. But when it comes to wielding voting power to compel corporate change, BlackRock and Vanguard often favor talk over action. In a review of climate-related shareholder resolutions, Majority Action, a nonprofit shareholder activism organization, found the two biggest asset managers worldwide opposed proposals to supporting independent chairmanships and climate-related lobbying disclosures.

  • In their own words. BlackRock and Vanguard emphasize responsible social and environmental policies in their latest stewardship reports. Per BlackRock: “Over our clients’ long-term investment horizon, in our experience, companies with leading practices in [social and environmental] areas are more likely to deliver sustainable financial returns.” And per Vanguard: “We believe that many core governance functions—such as robust board oversight and meaningful company disclosure—are imperative for managing climate risk.”
  • Voting record. Two years ago, BlackRock and Vanguard voted to pass a resolution calling for greater transparency from ExxonMobile on the company’s climate impact and risks. This year, they voted down two other climate-related resolutions against Exxon, including one which blamed Exxon’s unsatisfactory progress on “a board that is not functioning” and calling for an independent chairman. “Instead of using their considerable shareholder power to promote leadership on climate change, BlackRock and Vanguard are wielding it to shield industries driving the climate crisis from accountability,” wrote Majority Action’s Eli Kasargod-Staub.
  • Diplomacy first. BlackRock and Vanguard say direct engagement with corporate boards and leadership is their preferred approach to coaxing corporate change. “While voting at shareholder meetings is important, it is only one part of the larger corporate governance process,” a spokeswoman for Vanguard told ImpactAlpha. Without addressing specific resolutions, she wrote in an email that some of the recent shareholder proposals on climate change were “too prescriptive to have a positive impact.” Instead, she said: “we have pursued an engagement strategy that focuses on boards’ climate governance and oversight of climate risk or climate strategies, and on comparable and investor-relevant disclosures.” A BlackRock spokesperson referred ImpactAlphato the firm’s 2019 Investment Stewardship Annual Report. A separate report found that over the past decade, BlackRock’s fossil fuel investments have lost investors $90 billion in value. Three-quarters of those losses came from investments in ExxonMobil,Chevron, Royal Dutch Shell and BP.
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Agents of Impact: Follow the Talent

David Erickson, ex- of the Federal Reserve Bank of San Francisco, joins the New York Fed as head of community outreach and education… Jennifer Isern is leaving her role at the World Bank to launch Catalyze Global Impact… New Markets Support Company, a subsidiary of LISC, is hiring a vice president of partner services and vice president and chief lending officer in Chicago… Sunwealth seeks a vice president of capital markets in Somerville, Mass… NatureBank is looking for a forest carbon project manager in Vancouver… Convergence is hiring an associate of training and engagement in Toronto.

Thank you for reading. 

– Sept. 3, 2019