The Brief | February 27, 2020

The Brief: Prudential’s billion-dollar blueprint, sustainable alt-leather, prison education, stormwater and waste reduction bonds, Carlyle’s strategy

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Greetings, Agents of Impact!

Featured: ImpactAlpha Original

Prudential’s $1 billion portfolio of impact investments offers a blueprint for institutional investors. Long before $1 billion became table stakes for impact investment funds, Lata Reddy went to the White House to announce Prudential Financial’s plan to build a $1 billion impact investment portfolio by 2020. Today, back in Washington, D.C., the Newark-based insurance company will announce that it has surpassed its $1 billion goal at an event dubbed “Toward a New Capitalism” at the Aspen Institute. “If you’re willing to put in the time and energy and effort to understand those markets, we do think from an investment perspective you can generate good returns, if not slightly better than if you were in more of the vanilla parts of the economy,” Prudential’s Ommeed Sathe told ImpactAlpha on a podcast last year.

Prudential’s billion-dollar pledge was market-making back in 2014. Prudential committed not foundation funds, but balance-sheet assets, sending a signal to other institutional investors that the universe of impact funds, products, vehicles and companies was ready for prime time. Prudential has helped anchor many signature impact deals, including LeapFrog Investments’ $350 million Strategic African Investment Fund, a $12.4 million “social impact bond” in Massachusetts to fund immigrant and refugee workforce development, and Washington, D.C.’s $25 million “environmental impact bond” to to reduce stormwater overflows. Last year, Prudential committed $100 million to bridge capital gaps in communities of color in Memphis, New Orleans and Atlanta. One of Prudential’s biggest contributions may be its “80/20” blueprint for managing risks and returns in its impact investment portfolio. The bulk of Prudential’s $1 billion impact portfolio is expected to generate risk-adjusted returns in line with the rest of Prudential’s $1.5 trillion in assets. A 20% “catalytic” carveout is able to take on a small amount of additional risk. Says Sathe, “More creative, more thoughtful capital can be really crucial in unlocking solutions at scale.”

Keep reading, “Prudential’s $1 billion portfolio of impact investments is a blueprint for institutional investors,” by Dennis Price and David Bank on ImpactAlpha.

Dealflow: Follow the Money

MycoWorks raises $17 million for sustainable alt-leather. The San Francisco-based company makes a durable “mushroom leather” that it touts as being both animal- and plastic-free. The company raised its Series A round from the “bio fund” of venture capital firm DCVC, along with Novo Holdings, 8VC, Future Tech Labs, AgFunder, Susa Ventures, Cthulhu Ventures and Wireframe Ventures.

  • Alt-everything. Innovative food startups raised $1 billion in 2019, double the deal volume from 2018. The sector is dominated by consumer-facing food companies like plant-based burger rivals Beyond Meat and Impossible Foods. But a growing number of startups like MycoWorks are expanding the space with sustainable and animal-free textiles and food ingredients.
  • New materials. MycoWorks’ alternative materials peers include Denmark’s The Apple Girl, which is making apple-based leather from agricultural waste, and New York-based lab-grown leather company Modern Meadow, which raised $40 million in Series B financing in 2016.
  • More.

Renewal Funds backs water management software company Olea Edge. Austin-based Olea Edge Analytics uses sensors to help municipal water companies manage and distribute city water supplies. Renewal Funds, a Vancouver-based impact investor, led Olea Edge’s $9 million Series B round (see, Renewal Funds closes third impact fund at $109 million). Ananta Family Office and Mercury Fund also invested.

Prison education startup Nucleos attracts investment from founder of Dave’s Killer Bread. Nucleos offers tablet and computer-based education and vocational training programs for people serving time in prison. It raised $250,000 from Dave Dahl, founder of organic bread company Dave’s Killer Bread, who himself served 15 years in prison.

Buffalo gears up for $30 million environmental impact bond. The upstate city is drawing on green infrastructure models in Washington, D.C. and Atlanta to mitigate stormwater runoff, but it is including private properties as well. The city is working with Quantified Ventures, which also helped develop environmental impact bonds for D.C. and Atlanta.

Signals: Ahead of the Curve

Waste reduction bonds can make green bonds greener. One person’s garbage patch may be another’s opportunity. That’s the message of Future of Waste from UBS Global Wealth Management, the first of a series of white papers exploring longer-term sustainable investment opportunities. The report details the challenges and investment opportunities to be found in reducing waste, from food and plastics to energy waste. The $1.7 trillion annual waste management market is projected to quadruple over the next 30 years. Investors can find long-term value across asset classes and regions. “Waste management is going to play an increasingly important role in delivering commercial returns, as well as tackling the climate crisis,” Partners Group’s Urs Wietlisbach says in the report.

  • Waste reduction bonds. Green bonds are growing fast, but just 4% address waste. French recycling company Paprec issued $1.8 billion in bonds to expand its recycling, but most companies use just a small portion of bond proceeds for waste reduction. UBS proposes “waste reduction bonds” that can raise dedicated financing with less red tape to attract more issuers. One idea: linking the cost of corporate debt to waste reduction. The bank sees particular opportunities for companies trying to reduce food and consumer goods packaging. Nestlé, for example, has pledged to make all its packaging recyclable or reusable by 2025.
  • Waste not. China Everbright International’s waste-to-energy facility in Sanya processes more than 100 tons of food waste daily. The Danish company Too Good to Go has more than 400 “Waste Warriors” who stalk kitchen restaurants for wasted food and then distribute it to families in need; the organization has distributed 20 million meals.
  • Private equity. Innovative companies need growth capital, says UBS. London-based Winnow uses artificial intelligence-linked cameras to track the amounts of food being thrown out by 1,300 commercial kitchens in 40 countries. The company, which has raised more than $30 million in venture funding and counts Ikea as one of its biggest customers, says it can reduce its customer’s costs by up to 8% a year. “What gets measured, gets managed,” says founder Mark Zornes.
  • Recycle this.

Carlyle Group previews ESG strategy. The $224-billion private equity firm plans to integrate environmental, social and governance principles across its broader portfolio. The strategy is distinct from the approach private equity firms such as TPG Growth, KKR and Bain Capital, which have stood up individual impact funds. “We’re taking a much more thematic approach to areas like energy and climate change,” Megan Starr, who joined Carlyle last year from Goldman Sachstold Bloomberg. “It’s no longer possible to generate high rates of return unless you invest for impact. It reflects the economic reality.” Carlyle, with a history of investments in defense contractors and fossil fuel companies, last year established AlphaStruxure, a joint venture with Schneider Electric to finance and build renewable-energy microgrids (see, “Global corporations start to capitalize on positive externalities”).

Agents of Impact: Follow the Talent

Alex Kravitz was named director of Total Impact… Erika James, ex- of Emory University, was named dean of University of Pennsylvania’s Wharton School. She is the first woman and African American to occupy the post… Stephanie Gripne of Impact Finance Center is Net Impact’s first Innovator-in-Residence… Meghan French Dunbar is stepping down as CEO of Conscious Company Media. Conscious Company was acquired by Intentional Media in 2017… Aperio Group is looking for a SRI/ESG investment strategist in Sausalito, Calif… Village Capital seeks an investment manager on its strategic innovations team in Washington, D.C. (see, Village Capital to manage $3 million financial health fund for MetLife Foundation).

Thank you for reading.

–Feb. 27, 2020