The Brief | September 16, 2020

The Brief: Pushing ESG from intentions to outcomes, AI + alternative proteins, sustainable packaging, Mexico’s SDG bond, WEF’s COVID alliance

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Greetings, Agents of Impact! 

The Call: Changing the racial justice algorithm. Racism is a relic of an outdated economic operating system – and remains entrenched in almost every investment asset class, from alternatives to municipal bonds to public equities. Building on new research by Transform Finance, ImpactAlpha’s Agents of Impact Call No. 23 will explore how anti-racist investment strategies can help flip the economic algorithm from extraction and exclusion to regeneration and justice. Join the conversation, Tuesday, Sept. 22 at 10am PT / 1pm ET / 6pm London. RSVP today.  

Signals: Ahead of the Curve

Better data and stewardship help ESG investing move from intentions to outcomes. The accelerating flow of capital into ESG-themed funds is being accompanied by a raft of new products, strategies and tools. “The era of transparency has begun,” declared Harvard Business School’s George Serafeim and Sir Ronald Cohen in a Harvard Business Review post this month. In conversation with KKS Advisors’ Bronagh Ward this week, Serafeim said the accumulating evidence of the materiality of environmental, social and governance factors means ESG issues “need to be measured, the risk needs to be underwritten, and the opportunity needs to be identified.” The net inflow of nearly $21 billion into sustainable funds in the first six months of 2020 nearly matches the record total for all of last year, according to Morningstar. Serafeim said better data and more effective stewardship strategies enabled UBS’s announcement last week that it would make sustainable investments the default option across its $2.6 trillion wealth management business. Policies, principles and disclosures are not enough, he said. “We need to actually start thinking in terms of outcomes to understand if we are effective.”

  • ESG activism. ESG does not create change, Inclusive Capital’s Jeffrey Ubben said at the Bloomberg Green Festival. “It makes people feel good and is maybe a great way to grow your asset management business.” The founder of activist investor ValueAct created a stir this summer with his jump to impact investing (see, “Life imitates art as hedge fund manager Jeff Ubben launches public-market impact fund). He said the new fund goes beyond ESG by prodding legacy companies – like oil giant BP and power company AES – toward sustainability. “We’re gluttons for punishment,” he said. “We like to create the value, and be part of the change.” One strategy: linking compensation to environmental and social metrics. Ubben said such “not-yet-financial metrics” can drive “massive” returns. No CEO has been fired for missing emissions targets, he said. Yet.
  • Portfolio construction. To mitigate systemic as well as company risks, ESG investors need to go beyond long-only public equity strategies and add strategies that trade interest rates, commodities and currencies, as well as equities, writes Basil Williams of Welton Investment Partners in a guest post on ImpactAlpha. Williams says such portfolio construction can address both company-specific risks and systemic market risks to create better outcomes for both investors and society. His take
  • New tools. Five global sustainability reporting standards, including the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) are coming together to resolve confusion in ESG reporting… The Fossil Fuel Non-Proliferation Treaty Initiative, launched last year (see, “Agent of Impact: Mark Campanale), is seeking to build a global registry of fossil fuels as a baseline for climate action… Reclaim Finance, a European-based climate organization, released an online tool to compare the coal policies of global financial institutions. The leaders: France’s Credit Mutuel and Italy’s Unicredit. The laggards: Blackrock, Vanguard, State Street, JP Morgan Asset Management, Fidelity and others… A Net-Zero Company Benchmark from Climate Action 100+ will help investors identify climate leaders and laggards. 
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COVID Alliance for Social Entrepreneurs rallies support for frontline enterprises. Social enterprises need new sources of capital, as well as non-financial support, to maintain and expand operations now, when it’s needed most. “For decades, social entrepreneurs have effectively reached and helped vulnerable populations and have served as the guardians of people and the planet,” write the authors of a new report from the World Economic Forum and the Schwab Foundation. Those serving low-income populations are facing their own urgent financial challenges while demand for their services is spiking. The WEF launched an alliance of 60 organizations to answer the call to action. Among those signing on are Global Impact Investing Network and Acumen as well as Kiva, USAID, B Lab and CASE at Duke University. (ImpactAlpha is a media partner.) “Everything we do during and after this crisis must be with a strong focus on building more equal, inclusive and sustainable economies and societies that are more resilient in the face of pandemics, climate change and the many other global challenges we face,” the authors write. 

  • Roles for all. “Marginalized communities worldwide are being hit the hardest by the health and economic effects of this crisis,” the report says. The alliance’s COVID-19 Action Agenda calls on “(Impact) investors to adapt their investment priorities and processes, and provide flexible capital and must-have technical assistance,” and on corporations “to stand with the social entrepreneurs in their supply chains and ecosystems.” Government institutions must increase funding, reduce regulatory barriers, and open existing service delivery channels to social enterprises engaged in COVID relief. 
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Dealflow: Follow the Money

Food startups NotCo and Climax Foods raise financing for plant-based alternatives. Chile-based NotCo uses machine learning and artificial intelligence to identify plant-based proteins as substitutes for animal-based food products. NotCo secured $85 million to expand its alt-meat and dairy product line to the U.S. The company raised $30 million last year for its line of plant-based mayonnaise and ice cream. San Francisco-based Climax Foods likewise uses machine learning and AI for its line of plant-based alternatives, starting with cheese. The company, started by former Impossible Foods and Google researchers, raised $7.5 million. 

  • Food finance. Baltimore’s produce delivery service Hungry Harvest picked up $13.7 million from Creadev, Danone Manifesto Ventures, Quadia and Maywic Select Investments to prevent food waste, Axios reports. 
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Closed Loop clinches $30 million from Nestlé to invest in sustainable packaging. Nestle committed to use 100% reusable or recyclable plastic and to cut virgin plastic use by one-third by 2025. The food giant earmarked nearly $260 million to invest in sustainable packaging alternatives; $30 million is going to circular economy investment firm Closed Loop Partners,  which invests in U.S.-based companies increasing recycling, developing new types of packaging, and cutting waste from supply chains. Nestlé backed Closed Loop with a $6 million investment in 2017.

Mexico issues $890 million Sustainable Development Goals bond. The issuance is the first sovereign SDG bond, according to the UNDP. Proceeds from the seven-year bond will target vulnerable populations across Mexico, addressing SDGs for hunger, health, education, work and infrastructure at the city level. “This initiative is an important step forward in the development of a market for SDG financing at a large scale, and an innovative mechanism to tap into the private capital market to finance SDG-related programs,” said UNDP’s Achim Steiner. More than 250 global investment firms participated. Share this post.

Agents of Impact: Follow the Talent

Lisa Hall, previously with Georgetown University’s Beeck Center and Calvert Impact Capital, joins Apollo Global Management as chair of impact. The co-leads of Apollo Impact will be senior partner Marc Becker and Joanna Reiss, ex- of Cornell Capital… Roksana Ciurysek-Gedir, ex- of Bank Peako in Poland, will chair a new impact advisory board for White Oak Global Advisors.

Thank you for reading.

Sept. 16, 2020