The Brief | November 20, 2023

The Brief: Return to values investing, traffic congestion in Texas, TIME’s climate leaders, alt-ownership structure

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Greetings, Agents of Impact!

Featured: Institutional Impact

Making impact real, or: How I learned to stop worrying and love values investing. Companies that do bad things can be extremely profitable. Conversely, doing good may not mean doing well. “Sometimes quite the opposite can be true,” ImpactAlpha contributing editor Imogen Rose-Smithwrites in her latest Institutional Impact column. That confounds the prevailing thinking in asset management and academia, for the past decade or so, that positive impact or high scores on environmental, social and governance, or ESG, factors would help investors select for well-managed companies and at least keep pace with, if not outperform, the market. “Such thinking gets around the thorny issue of fiduciary duty,” Rose-Smith notes, because asset managers need not choose between social responsibility and profits. But what if they do need to choose? She tracks with NYU’s Michael Goldhaber, who in a recent paper calls for “a return to values investing.” “Start with, and actually invest in, what we believe in,” Rose-Smith says. “Not because it is always profitable, but because it is where we want the world to go.”

  • Constructive criticism. Just because Republican politicians have launched an attack on ESG, investing does not relieve the field from the need to fix real problems with the approach. “If there’s a villain in Goldharber’s paper, it is the large asset management firms – cough, BlackRock, cough – that are pumping out ESG index funds largely as an asset-gathering and marketing exercise, while having little-to-no impact on improving the quality of life for people or the planet,” Rose-Smith writes. Particularly objectionable is the practice of BlackRock and other ETF providers, of constructing “best in class” portfolios. Rather than excluding a sector or type of company completely, ETF providers select the best-scoring company or companies in each sector. That practice has led to ExxonMobil being a Top 20 holding in BlackRock’s $12 billion iShares ESG Aware MSCI USA Exchange-Traded Fund, or ESGU.
  • Materiality. Institutional investors can get most of the way to values investing simply by being clear-eyed about material risks. All investors should be thinking about the long term, Goldhaber says. “Not only in how destroying the climate will impact long-term value, but also what stoking inequality will do to destabilize the entire national and global economy.” For universal investors that “own the market” (and that includes anyone with a 401(k) as well as huge pension and sovereign wealth funds), there is good reason to think about how social and environmental issues affect the economy as a whole. “Against a backdrop of global unrest, and the tragedies playing out in Israel, the Gaza Strip and Ukraine, it no longer feels naive to want to lead with values,” Rose-Smith writes. “Rather, it seems refreshingly simple, and the right thing to do.”
  • Keep reading, “Making impact real, or: How I learned to stop worrying and love values investing,” by Imogen Rose-Smith on ImpactAlpha. Catch up on all of Imogen’s Institutional Impact columns.

Dealflow: Muni Impact

A $286 million bond seeks to grow north Texas out of its traffic jams. North Texas has been one of the fastest-growing metro regions in the United States, with a surge of more than 170,000 new residents between 2021 and 2022. An average Dallas-Fort Worth area driver loses 56 hours per year in congestion, or $953 per person in lost time. Congestion also results in high fuel consumption. The Texas Private Activity Bond Surface Transportation Corp. today is issuing $286 million of private activity bonds to refinance costs for the I-35 West corridor. Private activity bonds are municipal bonds that can be used to attract investment for qualified projects that have some public benefit, including stadiums and golf courses, as well as roads.

  • Climate risks. HIP deems the project “highly risky” from a climate resilience standpoint. Texas is one of the U.S. states most vulnerable to climate change, notes HIP’s Liana Lan. “Yet calls for crucial reform from environmental advocates in Texas were largely disregarded by legislators during this year’s legislative session.” The I-35W project aims to double traffic capacity by reconstructing lanes and express Lanes with tolls in each direction. HIP Investor gives the issuer an overall impact rating of 55% on a 100 point scale; Transportation District of Dallas-Fort Worth-Arlington scores particularly high on transparent governance.
  • Get the details on the transportation bondImpactAlpha is featuring the issue as part of our ongoing series with HIP to feature bond issuers with strong social and/or environmental practices.

Dealflow overflow. Investment news crossing our desks:

  • Around $2 billion in proceeds from the Brazilian government’s inaugural green bond will go to the country’s climate fund, managed by Brazilian development bank BNDES. The seven-year bond’s order book reached nearly $6 billion. (Reuters)
  • San Francisco Bay Area-based Element Energy raked in $111 million, including $73 million in Series B equity and a $38 line of credit from Keyframe Capital Partners, for battery safety and efficiency for EVs and energy storage. (Element Energy)
  • Nairobi-based CrossBoundary Energy, which finances, builds and operates commercial and industrial solar projects in Africa, secured $20 million in debt from South Africa’s Standard Bank. (Afrik21)
  • Germany’s Proxima Fusion scored €7.5 million in pre-seed financing, backed by Hummingbird CollectiveBosch Holding and other investors to build fusion power plants using a stellarator design. (Verdict)

Short Signals: What We’re Reading

☀️ Time’s climate 100. The magazine’s list of climate leaders in business includes “catalyts” such as Danielle Fugere of As You Sow and Geeta Aiyerof Boston Common Asset Management. Lucie Pinson of Reclaim Finance is a “leader.” Jigar Shah is a “titan.” Bhavish Aggarwal of Ola is an “innovator.” Among the “defenders”: Barbados Prime Minister Mia Mottley(Time)

💼 Corporate impact investing. A collection of case studies from the Global Impact Investing Network highlights the impact investing practices and strategies that PayPal, Schneider Electric, Telus and other companies are using to pursue sustainability objectives. (The GIIN)

🏛️ CalPERS’s climate solutions. CalPERS $100 billion plan for climate action includes $53 billion for climate solutions investments, the addition of 10 to its sustainability staff, and analyses of climate scenarios and options for divestment. (Venture Capital Journal)

🏆 Alternative ownership enterprises. A growing number of firms are shifting economic value and decision-making toward non-investor stakeholders such as workers and consumers. The models include employee ownership, multi-stakeholder ownership, steward ownership models, and other variations and hybrids. (Transform Finance)

🗞️ Appetite for climate news. Nearly two-thirds of survey respondents in Brazil, France, Germany, India, Japan, Pakistan, the UK, and the US believe that news media play a significant role in influencing climate change decisions by large businesses, government policies, and public attitudes. The survey shows a slight increase in climate change news use year-over-year. (Reuters Institute)

🗑️ Reducing food waste, systematically. A new case study charts the journey of ReFED to reduce US food waste and the family of Priceline co-founder Jesse Fink’s establishment of Millstone Farm, initial philanthropic grants, and private investments as they seek to change the food waste landscape in the US food system. (Sloan School of Management)

Agents of Impact: Follow the Talent

Ownership Works appointsMason Cabanas, ex- of TripleLift, as an ownership culture and employee engagement manager… Natalie Fredman, ex- of Dalus Capital, joins Social Finance as an associate… W.K. Kellogg Foundationseeks a program officer in Albuquerque… Mercy Corp Venturesis recruitingan investment principal and an innovation manager.

Putnam Investmentsseeks a sustainability analyst in Boston… Nestais hosting a webinar to launch the report, “Impact Investing in the Cultural and Creative Sectors,” Wednesday, Nov. 29, 12:00pm ET. Go deeper: Watch the replay of Upstart Co-Lab’s “Investing in an Inclusive Creative Economy.”

👉 View (or post) impact investing jobs on ImpactAlpha’s new Career Hub.

Thank you for your impact!

– Nov. 20, 2023