The Brief | June 23, 2021

The Brief: Securitization for sustainable development, forest carbon, home healthcare, Backstage’s portfolio, Engine No. 1’s shareholder strategy

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Greetings, Agents of Impact! 

  • Call No. 29: Capitalism Reimagined. In partnership with Omidyar Network, ImpactAlpha is seeking your ideas for “Rewriting rules and designing policy for the stakeholder economy.” Join Michael McAfee of PolicyLink, former Delaware Chief Justice Leo Strine Jr., the U.S. Impact Investing Alliance’s Fran Seegull, Andres Vinelli of the Center for American Progress and hundreds of other Agents of Impact, Tuesday, June 29 at 10am PT / 1pm ET / 6pm London. RSVP now.

Featured: Impact Securitization

Securitizing future cash flows to advance the Sustainable Development Goals in Africa. In Nigeria, Primero Transport Services securitized receivables from bus ticket sales to raise funds to expand its fleet. In Côte d’Ivoire, a national electricity company securitized more than $120 million in receivables to help manage its cash flow and liquidity needs. And Kenya is looking at securitizing water utility payments to improve water services. Many activities related to the Sustainable Development Goals have cash flows that lend themselves to securitization, say Alison Harwood and John Schellhase of the Milken Institute’s Center for Global Market Development. “Despite their potential to advance development outcomes, securitization markets in African countries have been a challenge to build,” Harwood and Schellhase write in a guest post on ImpactAlpha. “These recent exciting and relatively uncelebrated deals suggest securitization’s time may have finally come.”

A securitization is a bond collateralized by a pool of predictable cash flows to provide risks and returns that appeal to institutional investors and let smaller borrowers access capital markets. They are not without their dangers (as demonstrated by the collapse in March of Greensill Capital in the U.K.) But Harwood and Schellhase say “future flow securitizations” could accelerate the financing needed to meet the Sustainable Development Goals across Africa. Climate goals (SDG Nos. 6, 7 and 13) could be advanced by securitizing utility payments for solar, wind, and hydroelectric energy. Transportation projects (Nos. 3, 9 and 11) provide receivables such as tolls, bus tickets, city bike receipts, and leases for motorcycles and automobiles, including electric and hybrid vehicles (see, “Shift to electric rickshaws and motorcycles is drawing investors to emerging markets”). In education (No. 4), school tuition presents predictable cash flows that are ideal for a securitization structure. Early deals have involved state-owned enterprises, but a range of private-sector cash flows can also be securitized, the authors say. “Local stakeholders and their partners should identify targeted SDG areas and build performance data on their cash flows so that securitization can be done with confidence in the future.” 

Keep reading, “Securitizing future cash flows to advance the Sustainable Development Goals in Africa,” by the Milken Institute’s Alison Harwood and John Schellhase on ImpactAlpha. 

Dealflow: Carbon Markets

J.P. Morgan Asset Management acquires Campbell Global to secure forest-carbon credits. The acquisition gives the bank exposure to the growing market for carbon offsets (see, “That feeling when investors realize carbon is going to $100 a ton sooner than they expected”). Portland-based Campbell Global manages $5.3 billion and 1.7 million acres of timberland, which is sold for lumber and pulp. The company has begun generating revenue by selling credits based on the carbon it sequesters. “We wanted to play an active role in carbon-offset markets as they’re developed,” said J.P. Morgan’s Anton Pil

  • Carbon crush. J.P. Morgan is getting active in the market for carbon offsets as companies scramble to meet their net-zero pledges (see, “Farmers harvest ‘soil carbon’ to meet rising corporate demand for emission offsets”). Forest-based carbon marketplace NCX (formerly SilviaTerra) raised $20 million last month from investors including Salesforce’s Marc Benioff, Union Square Ventures and Microsoft’s Climate Innovation Fund. BP, a major buyer of carbon credits, in December took a majority stake in Finite Carbon, a market maker for forest-based carbon.
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Generation invests in AlayaCare to streamline home healthcare. Montreal-based software company AlayaCare raised $185 million for its platform to help home healthcare agencies retain staff and improve patient outcomes. “We fundamentally believe that treating people in the home is key to building a sustainable health system that provides better outcomes at lower cost,” said Dave Easton of Generation Capital Management, which led the Series D financing. Klass Capital and earlier investors Inovia Capital, CDPQ and Investissement Québec also participated. AlayaCare says more than 500 home and community care organizations use its software.

  • Care economy. The global home health care market could reach $383 billion by 2030, estimates Precedence Research. Aging populations and an increase in chronic diseases is driving demand as a global shortage of home health workers looms. In South Africa, Quro Medical raised $1.1 million to make affordable care at home an alternative to hospital stays.
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Backstage Capital portfolio companies raise follow-on investments. Arlan Hamilton created the L.A.-based venture firm in 2015 to back “underestimated” founders and unlock value (see, “Agent of Impact”). Backstage was an early backer of inclusive tech platform Bitwise Industries, caregiver training company CareAcademy and fashion company Haute Hijab, which together have raised nearly $100 million, according to Crunchbase.

  • Follow-on funding. Other Backstage companies include Black female-led The Mentor Method, an inclusive virtual mentor matching platform that raised $1.4 million in a seed round. BookClub snagged $20 million in Series A funding to connect authors with readers through book clubs. Black-led Nickson Living, an on-demand apartment furnishing startup, secured $12 million in Series A financing. Women-led Hello Alice scored $21 million to support small businesses.
  • Dig in.

Dealflow overflow. Other investment news crossing our desks:

  • Bamboo Capital-managed BUILD Fund invests $500,000 in Kenyan solar energy products distributor Mwezi.
  • Nairobi-based MarketForce acquires Digiduka, a fintech that helps Africa’s informal retailers digitize their operations.
  • Fifth Third Bank invests $2.5 million in Detroit’s First Independence Bank, a Black-owned minority depository institution and community development financial institution.
  • Singapore-based fintech Finantier secures seed funding to provide financial services for un- and under-banked customers in Indonesia.

Signals: Stewardship Challenge

Engine No. 1’s VOTE ETF aims to wield shareholder power for E, S and G. Divest or engage? In the running debate over public-equities impact strategies, engagement is gaining ground. In the proxy season that just ended, shareholders notched historic victories in prodding companies to improve their practices around diversity, lobbying, plastic pollution and especially climate. The capper: the surprise success of Engine No. 1’s campaign to shake up the board at ExxonMobil. The activist investment firm is leveraging that victory to launch an exchange-traded fund, the Transform 500 ETF, which will begin trading today under the ticker “VOTE.”  Instead of screening out companies or sectors, the standard market-cap weighted index fund of the 500 largest U.S. stocks will attempt to drive impact through proxy voting and activist campaigns. “We want to be impact investors defined not by what we hold but what we do as active owners,” Engine No. 1’s Michael O’Leary told ImpactAlpha

  • ESG economics. Engine No. 1’s approach could pressure other asset managers to raise their “stewardship” game. In an analysis of sustainable funds’ voting records in last year’s proxy season, Morningstar found that some of the largest environmental, social and governance funds, including Vanguard’s FTSE Social Index and BlackRock’s iShares ESG Aware ETF, supported less than one in five key ESG shareholder resolutions. “Racial equity issues are economic issues,” says O’Leary. “Worker issues are economic issues. Investing in your customers, communities, and the environment—these are all economic issues.”
  • Read on.

Agents of Impact: Follow the Talent

Laurie Spengler of Courageous Capital and non-executive director of CDC Group joins Lendable’s board of directors. Lendable also designates Chris Wehbe as CEO and Daniel Goldfarb as executive chair… Morgan Stanley’s Audrey Choi, Sorenson Impact Foundation’s Jim Sorenson, Ford Foundation’s Roy Swan and Andrew Kassoy of B Lab brief the staffs of the U.S. Senate banking, finance and small business committees about driving private capital for public good. Watch the video…World Education Services names Smitha Das, ex- of Social Finance, as impact investing principal for its Mariam Assefa Fund.

Doug Walker joins Better Markets’ as communications director… Diane-Laure Arjaliès of the Ivey Business School at Western University in Canada wins the How We Teach This award from the Impact & Sustainable Finance Faculty Consortium and the Financial Times. Other winners: Bhakti Mirchandani (Columbia), Alex Edmans (author), Shawn Cole and Vikram Gandhi (Harvard), Alnoor Ebrahim (Tufts), Andrea Armeni (NYU), John Tobin de la Puente (Cornell), Marjolijn Dijksterhuis (Amsterdam Business School) and Deborah Burand and Scott Taitel (NYU).

JPMorgan Chase is looking for a head of sustainable investing for its International Private Bank in London… LEAP | Pecaut Centre for Social Impact seeks a director of finance and operations in Toronto… VC4A Venture Showcase is accepting applications from early-stage Africa-focused startups for its fifth cohort… The Ford Foundation’s Darren Walker talks with Ursula Burns, Wednesday, July 7… The Plug and Citi are hosting a conversation with Black venture capitalists, including Dami Osunsanya of Softbank, Antonio Key of Samsung Next, and Justin Núñez of TPG, today, June 23.

Thank you for your impact.

–June 23, 2021