The Brief | October 29, 2019

The Brief: Popular protests, Twiga’s smallholder shift, Total’s carbon neutrality fund, community wealth models, Saudi spotlight

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Greetings, Agents of Impact!

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Impact investing’s road to relevance led through Santiago – until it didn’t. The fall circuit of impact investing conferences was supposed to end next month in Santiago. Then the capital of Chile erupted with street protests over prices and services. The Global Steering Group on Impact Investing, or GSG, on Monday canceled plans to hold its fifth annual “summit” in Santiago, citing violent protests and a continuing curfew as dangers to participants. The global eruption of popular protests is bringing the relevance of impact investing into sharp relief. Four million global climate strikers in September and millions in the streets of Hong Kong, Jakarta, Baghdad and Haiti, as well as Santiago, are demanding impact now. From yellow vests in France, to Dutch farmers on tractors to women in Washington, people power is mobilizing.

That leaves impact investing caught between a stalled global agenda, represented by the Paris climate agreement and the Sustainable Development Goals, and surging populism on the left and the right that is properly skeptical of bankers, corporations, billionaires and fund managers. Youthful climate protesters arguably are more “pro-business” than recalcitrant global leaders slow-walking climate action and putting the global economy at risk. So too are social protesters, who could mitigate systemic risks of income inequality by ushering in an economy in which the poor get richer, expanding prosperity and driving growth. Protesters in Chile already have won commitments from President Sebastián Piñera to raise the minimum wage and pensions, roll back increases in electricity prices, hike taxes on the wealthy and invest more in health care. The impact investing movement “must get political,” the GSG’s Amit Bhatia told ImpactAlpha even before the cancellation. “We are going from an investor movement to a mainstream movement, and engaging the poor in whose name we speak.”

Keep reading, “Impact investing’s road to relevance led through Santiago – until it didn’t,” by David Bank on ImpactAlpha.

Dealflow: Follow the Money

Twiga Foods enlists Goldman and shifts supply away from Africa’s small farmers. Kenyans spend nearly half their income buying food. The high cost of food reflects the markups from mostly small farmers, though a series of brokers, before produce is sold in local markets and informal kiosks. By digitizing logistics and cutting out middlemen, Twiga believed it could deliver better prices to both farmers and consumers. In five years, the company has built a logistics network to deliver produce directly from 17,000 mostly small farmers to 8,000 informal retailers. Goldman Sachs led Twiga’s $23.8 million Series B equity round to fuel its next phase of growth. OPIC and Alpha Mundi invested $6 million in debt on top of the equity investment.

  • Smallholder shift. Twiga’s growth comes with a shift to reduce the role of smallholder farmers by integrating larger, commercial producers into its supply chain. The company has largely sourced its supply from small-scale farmers, who produce 75% of Kenya’s fresh food. “It’s not profitable business working with so many small farmers,” Twiga’s Peter Njonjo told ImpactAlpha. Cost of food is the problem Twiga set out to solve, he says. “We’re not trying to solve a smallholder farmer issue.” Twiga is turning to partners like International Finance Corp. (also a Twiga equity investor) to work with local banks to provide risk guarantees for farmer lending.
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Shiksha and Credenc attract investment to finance education in India. A new crop of fintech startups are mobilizing lending power to boost the quality of and access to education in India. Network India backed Delhi-based Credenc, which uses predictions of university students’ future income to make student loans. Northern Arc Capital and Triodos invested in Chennai-based Shiksha Financial Services, which is tackling both ends of primary and secondary education finance: tuition loans for parents and working capital and infrastructure loans for schools.

Oil and gas giant Total commits a $400 million venture fund to carbon neutrality. The French multinational energy company will grow Total Carbon Neutrality Ventures to $400 million over five years and back start-ups with tech solutions to help companies reduce their energy consumption and carbon intensity (see, “Cleantech venture capital rebounds with smarter, more patient investors).

Elevar Equity backs Canasta Rosa’s marketplace for Mexico’s artisans. Canasta Rosa launched last year to help small artisans and craftsmen ride the growth of e-commerce in Latin America. Impact investor Elevar led the company’s $3 million equity round.

Signals: Ahead of the Curve 

Moving from community development to community wealth. With income inequality at an all-time high, cities are rethinking their decades-old approach to community revitalization. A “quiet revolution” is transforming their work, particularly in underinvested urban areas, according to a new reportOut: top-down, one-size-fits-all, debt- and subsidy-dependent solutions. In: locally-driven, collaborative solutions that foster community ownership and prosperity. Opportunity Zones legislation, aimed at long-term equity investments in neighborhoods, is accelerating the shift. The emerging community wealth model focuses on “developing people rather than buildings, with a blend of public, private, civic and community leadership and capital,” write coauthors Ross Baird and Daniel Palmer of Blueprint Local and Bruce Katz and Jihae Lee of the Nowak Metro Finance Lab at Drexel University. The approach “has the potential to bring hundreds of billions of market and civic capital off the sidelines and spark transformative outcomes for disadvantaged communities.” Among the strategies the authors suggest:

  • Uncover community assets. Big data can reveal hidden economic potential, for example, by identifying street corners that are ripe for market rejuvenation or categorizing different types among the nation’s 8,762 opportunity zones, facilitating investment.
  • Expand businesses owned by people of color. Increasing the number, size, and scale of businesses owned by their residents is central to community wealth building. Key ingredients: capital, physical spaces, rich ecosystems and the support of anchor institutions. In Chicago, where just 2% of local businesses are Black-owned and less than 6% are Latinx-owned, Accion Chicago and Small Business Majority are stepping up to take on the role of ecosystem builders.
  • Integrate capital. The “two-pocket” divide between philanthropic giving and market investment is beginning to give way as investors align their investments with their values. “One-pocket investment marries private and civic capital and channels the vast stores of local wealth back into local communities,” write the authors.
  • Spread the wealth. New structures and mechanisms could give residents a share of the value created by investments in their neighborhoods. Rent-to-own models, employee stock ownership, and neighborhood trusts build local ownership and control. Shift Capital is looking to test “neighborhood trusts,” a mashup of a community development corporation and community land trust, in Philadelphia (see, “Philadelphia’s impact investors step up to finance local job-creation and a storefront revival).
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Impact washing in the desert. The controversial Future Investment Initiative in Riyadh, Saudi Arabia gets underway today. The secret (until yesterday) agenda of the Saudi investment conference is full of legacy investment firms now trotting out impact investment products. Last year, business and investment leaders largely boycotted “Davos in the Desert,” after Saudi Crown Prince Mohammad bin Salman was tied to the murder of Washington Post journalist Jamal Ahmad Khashoggi and the subsequent cover up. Wall Street and Washington are mostly returning this year (Bloomberg’s reporters pulled out at the last minute). ImpactAlpha reached out to some of the would-be impact investors on the agenda, none of which responded to requests to comment.

  • Blackstone’s Steve Schwarzman, whose $512 billion firm is pushing an impact investing initiative, will join hedge fund manager (and impact investor) Ray Dalio, Mastercard’s Michael Froman and HSBC’s Noel Quinn on a panel to discuss how businesses can “optimize positive outcomes.”
  • Eric Cantor (the former U.S. House majority leader and current managing director at investment bank Moelis & Co.) is on an “Investing for impact” panel weighted toward corporate responsibility issues. He’s joined by Mastercard’s Froman and Societe Generale’ Frédéric Oudéa. Both firms have very public inclusion or climate investing initiatives.
  • Jim Yong Kim, the former head of the World Bank, now a vice chair and partner at Global Infrastructure Partners, will be interviewed about investing to “close both the physical and human capital gaps.”
  • Heather Henyon of gender lens investor Mindshift Capital and Shelley Zalis of The Female Quotient are set to speak on “the diversity dividend.”
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Agents of Impact: Follow the Talent

Mercy Corps Ventures is looking for an Africa principal in Nairobi, Kenya or Abuja, Nigeria… Open Society Foundations seeks a director for its education program in London… Bloomberg Philanthropies is hiring a senior program manager in New York for its government innovation team… Applications are open to Financial Solutions Lab’s U.S. fintech accelerator for startups with financial health solutions for workers and students.

Thank you for reading. 

– Oct. 29, 2019