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The Brief: Reshaping finance (Part 2), Opportunity Zone windfall, IIX’s Women’s Livelihood Bond, hub shutdown, Lighter’s alt-finance fund, remembering Leila Janah



Greetings, Agents of Impact!

Series: What’s Next

More Agents of Impact answer the call for new tools to reshape finance. Capitalism must change to respond to climate change and widespread inequality. But how? More than two-dozen Agents of Impact answered our call for ways to shift investor mindsets and behavior and drive systemic changes as part of ImpactAlpha’s What Next series with the Global Impact Investing Network. Here’s Part Two of their responses (Part One is here):

  • Make impact-based compensation models public. Aligning financial incentives with impact objectives will increase demand for impact investments, says KKS Advisors’ Anuj Shah. “I believe creating open-source, impact-aligned compensation frameworks would help catalyse new capital towards impact.”
  • Educate institutions to drive shift to impact. Institutions move out of extractive investments and into community wealth-building initiatives when they understand the extent of the racial wealth gap, writes Common Futures’ Katheryn Witt. Common Futures’ Shift Capital campaign has catalyzed $220 million for equitable investments, she says, “but we can, and must, do more.”
  • Tap cash assets with real impact. “A large percentage of the population has cash sitting around in accounts where it isn’t doing anything to solve problems, and we can work together to change that,” writes CNote’s Catherine Berman. Most options to put cash holdings to work to date are short on real impact, or don’t provide true cash-like liquidity. 
  • Create long-term investment models. Intergenerational investing can drive solutions to the climate crisis and wealth inequality, says Ejido Verde’s Shaun Paul. “We need to evolve from the three-to-five year exit mentality and its antiquated nest of modern portfolio theory.”
  • Support new managers and vehicles. “Asset owners and managers must work be willing to work with new and emerging managers,” says Windmill Capital Management’s Brian Jones, who urges asset owners and managers to pursue sustainable investments directly, rather than sticking to public markets. 
  • Build trust with stakeholders. The financial community must rebuild trust through transparency and collaboration, says Dmitriy Ioselevich of 17 Communications. Asset owners can demand that managers report on their alignment with the Sustainable Accounting Standards, the Task Force on Climate-Related Financial Disclosure and the Paris climate agreement.
  • Audit impact. A firm that isn’t appropriately paying attention to how climate change or mistreatment of employees could negatively impact returns won’t have a clean audit – and everyone wants a clean audit, says David Lynn of Mission Driven Finance.
  • Focus on purpose. Zebras UniteBuilder CapitalismThe New Mittelstand Work are among the efforts to focus on purpose in order to build businesses with positive social and environmental impact, says Sphaera’s Astrid Scholz, also a founder of Zebras Unite. 
  • Share this post and catch up on the full What’s Next series.

Dealflow: Follow the Money

Fifth Third Bank commits $100 million to Opportunity Zone impact. The Cincinnati-based bank will invest a capital gains windfall in affordable and workforce housing and other community development projects. The $100 million will be divided between the Raymond James Tax Credit Funds, National Equity Fund (an affiliate of New York-based LISC) and other partners within its 10-state footprint. The partners will underwrite Opportunity Zone investments and report on the number and quality of jobs created, median income levels and other impact metrics. “We have always thoughtfully invested in our communities, and the Opportunity Zone legislation allows us to take the next step,” said Fifth Third’s Catherine Cawthon. The first projects are expected to be announced by mid-year.

  • Bank rarity. Fifth Third’s commitment is a rare capital gains investment in Opportunity Zones by a traditional bank. More banks have made loans to Opportunity Zone developers, qualifying for Community Redevelopment Act credits but not capital-gains tax breaks. PNC Bank created a $486 million Opportunity Zone fund in 2018 to invest in affordable housing and revitalization projects.
  • More

IIX closes second Women’s Livelihoods Bond at $12 million. Impact Investment Exchange, or IIX, launched its first Women’s Livelihood Bond in 2017 to help low-income women in Southeast Asia transition to sustainable livelihoods. IIX, which raised $8 million for its first bond, closed $12 million for its second bond; a third is planned for later this year. IIX’s Durreen Shahnaz hopes to eventually raise up to $150 million through the bond series. Proceeds are invested in financial institutions and social enterprises supporting women.

  • Investor base. The second bond was backed by Nuveen, Blue Orchard, and investors from Asia, Australia and New Zealand. Rockefeller Foundation and USAID provided first-loss capital and loan guarantees to investors for both Women’s Livelihood bonds. The bonds are “a prime example of catalytic capital at work, where risk-tolerant, impact-prioritizing funding is leveraged to unlock private sector capital,” said Rockefeller Foundation’s Lorenzo Bernasconi.
  • Liquid asset. Both bonds are listed on the Singapore Stock Exchange to support liquidity for investors and provide “additional comfort to investors due to the added reporting requirements of a public exchange,” an IIX spokeswoman told ImpactAlpha
  • Check it out

Software Motors Co. raises $25 million to build more efficient motors. Electric motors power everything from appliances to cars, and consume an estimated 45% of the world’s electricity. Software Motor Co.’s goal is to cut global electricity consumption by one-quarter with more efficient, software-driven motors. The Sunnyvale, Calif., company has focused on the HVAC industry, a major source of global carbon dioxide emissions and says it has delivered energy savings of more than 60%. SMC is moving into electric vehicles and attracted BMW’s i Ventures as a corporate venture investor. SMC has raised a total of $70 million since 2014.

  • Sustainable motors. SMC’s motors have potential “to improve the efficiency, cost, and safety of developing electric drivetrains, while reducing dependence on unsustainable rare earth minerals,” i Ventures’ Greg Smithies said in a statement. “That is a huge opportunity across all vehicle manufacturers.” 

Mission Hub shuts down Impact Hub San Francisco. The co-working space, one of the first to join the global Impact Hub network, ceased operations last week. The hub moved to its new 25,000-square foot location in 2016; its parent company sold the SOCAP conference in part to pay for the buildout. “With the recent relocation came unforeseen higher costs and intense competition,” Mission Hub said in a statement. A community-led collaboration is seeking ways to re-open the Mission District space for evicted individuals and organizations. “The rest of the global network is variably alive and well, as it is a distributed association “co-op” model, not a central company,” Mission Hub’s Tim Freundlich told ImpactAlpha.

Wyclef Jean scores $25 million to back geographically diverse musicians. Through Carnival World Music Group, his publishing and distribution company, Jean wants to help launch more musicians from Africa, the Caribbean, and other under-represented markets. Jean, a founding member of the Fugees, ran for president of Haiti in 2010.

Lighter Capital raises $100 million to accelerate revenue-based financing. The venture debt investor, known for its flexible financing terms, plans to also offer term loans and lines of credit.

Agents of Impact: Follow the Talent

Samasource’s Leila Janah died Thursday from complications from epithelioid sarcoma, a rare form of cancer. Janah, who was 37, pioneered “impact sourcing” of digital work as a strategy to help people move out of poverty; the company said last year it had helped more than 50,000 people make meaningful income gains. It recently raised $15 million to expand. Wendy Gonzalez takes over as Samasource’s interim CEO.

Candice Morgan, ex- of Pinterest, joins GV (formerly Google Ventures) as equity, diversity and inclusion partner… Chantel Rush is named managing director of the Kresge Foundation’s American Cities Program… the Catalytic Capital Consortium’s New Venture Fund seeks a grant-making program officer in Chicago… Access Ventures is hiring an investment associate and a digital marketing associate in Louisville, Ky… The Natural Capital Coalition and the Social & Human Capital Coalition have merged to become the Capitals Coalition.

Thank you for reading.

– Jan. 27, 2020

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