The Brief | January 13, 2020

The Brief: Shifting mindsets, procurement scorecards, economic justice fund accelerator, jumbo shrimp risks

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Greetings, Agents of Impact!

Series: What’s Next

Three ways asset owners can shift mindsets, incentives and portfolio theory. Pressure for systemic change in the financial markets is coming from both the bottom up and the top down. In the fourth installment in ImpactAlpha’s What’s Next series, in collaboration with the Global Impact Investing Network, Amit Bouri lays out three ways “to build a broad social mandate for a sustainable financial system” and “begin to transform the outdated systems underpinning our global economy.” The GIIN is responding to the broad sense that, as Bouri writes, “capitalism, in its current form, is not serving our planet or its people.” Like other advocates, he’s nominating impact investors to take leadership in creating the new form. “Impact investors can blaze the trail toward a new standard for investing that is better suited for our planet and our future.”

Such leadership, Bouri says, begins with the owners of the assets, whose “demands and priorities influence the actions of asset managers across the board” (cf. BlackRock’s decision to join the Climate Action 100 campaign to pressure the world’s largest carbon emitters). The long-term interests of the world’s largest pension and sovereign wealth funds are finding echoes among individual savings and checking account holders who increasingly are voting with their assets as well (cf. the new climate-action campaign Stop the Money Pipeline). Bouri’s three big ideas: Require that asset managers and companies transparently report the social and environmental impact performance of their activities; align incentives, such as cost of capital and compensation, with impact; and modernize the rules and assumptions of modern portfolio theory to embed impact alongside risk and return. In earlier installments, The What’s Next series has explored identity, training and policy. Now, Bouri argues that shifts in investor behaviors and mindsets can usher in “systemic change” and an inclusive and sustainable form of capitalism.

Dealflow: Follow the Money

Ecovadis inks $200 million investment to rate companies’ supply chain sustainability. Corporate operations are the key to sustainable business and to impact investing at scale. Corporations’ approximately $183 billion per year in climate investment dwarfs the $9 billion a year from institutional investors and $5 billion a year from venture capital, private equity and infrastructure funds. “The supply chain is the single greatest lever for creating real change and making an impact,” said Ecovadis’ Pierre-Francois Thaler. “But when left unmanaged, it becomes a breeding ground for hidden risk.” Ecovadis focuses on procurement practices to create sustainability scorecards for more than 60,000 companies. The company says its ratings system is used by the procurement teams at more than 450 corporations, representing $2.5 trillion in business spending. The French firm secured a $200 million equity injection from private equity firm CVC Growth Partners

  • Ratings reach. Ecovadis’ corporate customers include Johnson & Johnson, Verizon, L’Oréal, Subway, Nestlé and Salesforce.
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Boston Impact Initiative launches economic justice fund accelerator. The BII Fund-Building Cohort’s aim is to develop local fund managers who can build and raise impact funds to support communities of color across the U.S. Twenty-seven cohort members from 12 communities including Baltimore, Chattanooga, Tenn., and Indianapolis, will join the 18-month program.

Kazidomi raises €1 million for affordable online health food market. The Belgium-based startup’s focus is on improving access to healthy food through a membership-based system that offers products for up to 50% less than competitors.

Twin Cities affordable housing fund raises $62 million. The fund’s partners, Sunrise Banks, housing nonprofit Aeon, and three local foundations, aim to acquire and preserve 600 affordable rental units.

Croatan Institute secures grant to expand “soil wealth” financing initiative. The funding from the U.S. Department of Agriculture will support a Rural Regenerative Agricultural District pilot project to help agricultural producers and landowners secure capital to improve soil health (see, “Agriculture funds are investing billions to regenerate soil – and communities).

Signals: Ahead of the Curve

Shrimp farming poses jumbo risks for investors. Quick, do you pick beef or shrimp if you are concerned about greenhouse gas emissions per per kilo? Surprise! Factoring land-use change into shrimps’ footprint, the tiny crustaceans out-emit cattle per kilogram of production, according to Planet Tracker. The destruction of mangroves for for shrimp farming doesn’t get the attention of Amazon deforestation for cattle farming, but it’s potentially more harmful. 

  • Battered habitat. The $45 billion shrimp industry is responsible for 30% of mangrove deforestation and coastal land-use change across Southeast Asia and widespread pollution of ecosystems. Mangroves are being destroyed at five times the rate of rainforests as a percentage of total habitat. 
  • Material risk. Mangrove deforestation poses regulatory, reputational and financial risk for investors in farmed shrimp. One looming threat: a potential European Union ban on deforestation-linked commodities. 
  • Lack of transparency. Only four of the top 27 publicly listed companies involved in shrimp farming disclose their shrimp-specific revenue and operating margins. “Understanding the exposure of these companies to environmental risks is key for investors forecasting revenue, costs and profit margins,” said Planet Tracker’s Matthew McLuckie.
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Agents of Impact: Follow the Talent

The Beeck Center at Georgetown University is hiring an Opportunity Zone program management specialist in Washington, D.C… The Investment Integration Project (TIIP) seeks a part-time research assistant… Applications are open through Jan. 17 for Cisco’s Global Problem Solver Challenge for students and recent graduates developing impact tech ideas.

Thank you for reading.

– Jan. 13, 2020