The Brief | June 28, 2023

The Brief: Pension and insurance funds’ shift to impact, community investment vehicles, sustainable proteins, recycling plastics, debunking ESG myths

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Greetings, Agents of Impact! 

Featured: Institutional Impact

Institutional investors shrug off ESG backlash to move forward on impact investing. The backlash against ESG is not (yet) hampering impact investing. It may even be driving some institutional investors toward investments more intentionally aimed at positive measurable social or environmental impact. Investing in communities, supporting workers and holding polluters accountable “has incredible resonance with a broad base of the population, across the political spectrum,” the Global Impact Investing Network’s Amit Bouri said in a briefing on the group’s latest survey of more than 300 global impact investors. Pension funds and insurance companies have boosted their impact funding at a compound annual rate of 32% and now make up 27% of the capital raised by the surveyed impact fund managers. “The transition to impact investment managers suggests a growing appetite for more active approaches to generate impact on issues that matter to pensioners or insurance clients,” the GIIN states. Institutional capital went overwhelmingly to the more than three-quarters of managers targeting market-rate returns; more catalytic capital – essential to crowd in investment or target difficult or emerging sectors – came from high net-worth individuals, family offices and development finance institutions.

  • Macro uncertainties. The survey aimed to shed light on investor sentiment in what the GIIN last year estimated is a $1 trillion market. Investors, including banks, foundations and investment managers, plan to pull back and invest an estimated $36 billion this year, down from $55 billion in 2022. Bucking the trend: family offices, which plan to boost their investments (see, “​​How wealthy individuals and family offices are embracing catalytic capital”). Yet the dry powder is accumulating. The investor subset raised an average $153 million last year, up from $29 million in 2017. Investment managers across all asset classes are feeling optimistic: they plan to raise an average of $160 million in 2023, up from $85 million in 2022.  
  • Private and public. Private equity and private debt, traditional impact strongholds, accounted for 26% and 22% of allocations. But public debt was the fastest-growing asset class over the five-year period, albeit starting from a small base. Allocations to publicly-traded bonds and loans more than doubled in the five year period and represented 14% of broader asset allocations last year, as rising rates – and emerging fixed income impact strategies – make such investments more attractive. Impact investors put another 14% to work in public equities. “We’re seeing more and more investors think about how to achieve impact in listed equities and public debt,” said Bouri. The GIIN earlier this year introduced guidance for impact in public equities (see, “Impact investors lay out a theory of change for driving positive outcomes in public equities.”)
  • Financial and social returns. Three quarters of surveyed investors target market-rate returns – and they are meeting or exceeding those targets. Some 79% said financial returns were in-line or outperforming expectations; 88% said the same of impact expectations. Just 11% of investors in advanced markets did not hit financial targets, compared to 22% of emerging market investors. Among a subset of investors tracked over five years, housing investments saw the biggest growth. Most investors continued to focus on basic needs, including energy, financial services and healthcare. Still lagging: education (2%) and water, sanitation and hygiene (2%).
  • Keep reading, “Institutional investors shrug off ESG backlash to move forward on impact investing” by Amy Cortese on ImpactAlpha.

Dealflow: Ownership Economy

TREND Real Estate Fund raises $10 million for real estate ownership for Black residents. The fund manager Chicago TREND acquired Edmondson Village, a 300,000-square-foot shopping center in Baltimore, for $17 million earlier this year; more than $450,000 of that came from 200 local residents. In the firm’s five deals so far, three in Chicago and two in Baltimore, nearly 350 local residents have invested an average of $2,100 and $2,300 to purchase the properties. “That’s the grandmothers, millennials, church leaders and others in the community,” says Chicago TREND’s Lyneir Richardson, who says local owners means local shoppers and possibly discounted rents for locally-owned businesses. 

  • Community investment vehicles. Investors in TREND Real Estate’s first close include the MacArthur, McKnight, Pritzker, Traubert, Kresge and Surdna foundations. The Chicago-based fund is looking to raise $50 million to purchase and renovate up to 20 blighted neighborhood shopping centers in majority-Black neighborhoods. It will invest alongside approximately 1,000 local residents through community investment vehicles. MacArthur’s Allison Clark told ImpactAlpha the strategy can revitalize commercial corridors while “meeting the needs of local residents so they can keep wealth in their communities.” Richardson launched Chicago TREND in 2016 with grant funding from McArthur and The Chicago Community Trust.
  • Keep reading

Joyful Ventures raises $23 million to invest in sustainable proteins. The LA-based firm’s first investments include New School Foods, a Toronto-based company making “whole cuts” of alternative seafoods from plants, and lab-grown meat company Orbillion Bio. Joyful is leaning into companies making products and ingredients for other food and beverage companies or retailers. The firm is a rare women- and LGBTQ-led venture capital firm in the male-dominant VC and agrifood sectors. It was founded by Milo Runkle, former founder of Mercy For Animals, New Crop Capital and The Good Food Institute; tech industry veteran Jennifer Stojkovic; and entrepreneur and startup investor Blaine Vess.

  • Market dynamics. Alt-proteins and meat alternatives remain among the hottest investment opportunities for agrifood VCs, despite a shakeout among plant-based producers. Lab-grown meats, which are cultivated from animal cells, reached a major milestone last week when the US Food and Drug Administration approved two companies’ lab-grown chicken products, the first cultivated meat to be approved for sale to consumers (see, “Deal spotlight: Plant-based versus lab-grown meat opportunity”). This week, women-led Supply Chain Ventures in LA scored backing for its sustainable food VC fund that focuses on women and diverse entrepreneurs.
  • Check it out

DePoly secures $13.8 million to recycle old plastic and cut fossil fuels in new products. Plastic use is still on pace to triple in the next 40 years. Less than 10% gets recycled (in the US, just 5%). In Switzerland, DePoly says it has developed a chemical-based recycling process to extract and purify the ingredients for PET plastic from bottles, clothing and other products. The process doesn’t require plastic sorting or cleaning. The powder and liquid materials DePoly produces can be used in lieu of fossil fuels in new plastic products. The company’s seed round was backed by BASF Venture Capital, Wingman Ventures, Infinity Recycling and others. Share.

Dealflow overflow. Other news crossing our desks:

  • General Motors inked a deal with Australia’s Element 25 for enough manganese sulfate to make one million EVs annually. Element 25 will build a US-based processing facility. (GM)
  • Ecosystem Integrity Fund’s latest investments from its fourth fund include Vibrant Planet, which makes forest fire risk management software, and EV charging tech developer Amp. (EIF)
  • UK nonprofit Fair4All Finance invested £400,000 ($508,000) in Singlify, a tech company helping credit unions digitize their operations. (Singlify)
  • Estonian agtech venture eAgronom raised $5.5 million to help farmers improve sustainability practices and enter the carbon markets. (TechEU)

Impact Voices: ESG in VC

Debunking six ESG myths to help investors drive real change. BlackRock’s Larry Fink is bailing on the term ESG now that it’s been “misused by the far left and the far right,” he said at this week’s Aspen Ideas Festival. Fink says he prefers to talk about “decarbonization,” “governance” and “social issues.” Others are stepping up in defense of the term and clarifying the long-term investment strategy. Not seeing ESG for what it is “prevents potentially well-intentioned investors from driving real change and action,” write Johannes Lenhard and Hannah Leach of VentureESG, which works with venture capital investors and their limited partners to advance the practice. In a guest post, they debunk six myths, including:

  • ESG and impact are basically the same. Simply speaking, impact is about outcomes, and ESG is about process. A carbon removal startup may have a positive environmental impact that increases in lockstep with company growth; that doesn’t mean that the company is also managed well. That’s why Tesla can be thrown out of an ESG index even while its EVs are impactful. “The seeming tension makes analytical sense, and the analysis helps us to clearly distinguish who does what,” argue Lenhard and Leach.
  • ESG is a long list of irrelevant issues. Questionnaires for public market ESG rating agencies even for VCs consist of dozens if not hundreds of questions. The universe of possible ESG issues needs to be filtered with a materiality lens, the authors say, to “decide which ESG issues are having a financial impact given the company sector and stage.”

Agents of Impact: Follow the Talent

Harlem Capital promotes Gabby Cazeau to partner and Nicole DeTommaso to principal… Common Trust is recruiting an investment director… Global Fund for Women is hiring a manager of emerging opportunities… Total Impact Capital seeks a senior accountant… Matrix Renewables has an opening for a commercial operator analyst in Madrid. 

Builders Vision is looking for a vice president for ESG and impact investments… Workforce incubator JFF Labs is accepting applications from entrepreneurs with climate-resilient solutions… The Native Voices Rising grant pool from Common Counsel Foundation and Native Americans in Philanthropy is open to donors and applicants.

Thank you for your impact.

– June 28, 2023