The Brief | April 23, 2020

The Brief: Social bonds for COVID relief, pay-as-you-go solar software, Morningstar acquires Sustainalytics, Paycheck Protection Program let-down

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Greetings, Agents of Impact!

Hop on The Call. Impact management and verification is hot. We’ve boosted our capacity to handle the tremendous response to today’s Agents of Impact Call No. 15, so even if you haven’t RSVP’d, just log in to Zoom at 9am PT / 12pm ET / 5pm London. Tideline’s Christina Leijonhufvud, Nuveen’s Allison Spector, LeapFrog Investments’ Roshni BandeshaAlan Rousso of the European Bank for Reconstruction and Development and other special guests will join ImpactAlpha’s David Bank and Dennis Price to talk best practices and common challenges. Answer The Call.

Calling emerging market capital managers. In partnership with the Collaborative for Frontier FinanceImpactAlpha is seeking feedback (by April 27) from local providers of debt and equity to better understand COVID relief and recovery challenges for the businesses they support. Take the survey.

Featured: ImpactAlpha Original

Countries and companies tap the fixed-income market with ‘social bonds’ for COVID relief. Governments are not the only source of quick liquidity in the COVID crisis. Countries and corporations are tapping the $100 trillion global bond market with designated “social” and “sustainability” bonds. The offerings pledge proceeds to COVID-related efforts to save small businesses, subsidize healthcare costs or roll out new medicines. The global pandemic has pushed such bonds into the role that green bonds have played in recent years. (Green bonds raised $258 billion last year.) Both are safe and well-understood instruments from high-quality issuers that come with the added sheen of equity and social progress. With central banks running out of options and government relief funds quickly tapping out, such bonds may be a way for private capital to play a larger role in financing the COVID response and recovery.

Investor demand will certainly push social bonds past the less than $20 billion issued last year. Philips and Pfizer are among the corporate giants that have already issued billion-dollar-plus “sustainability bonds” targeted at COVID responses. Dozens of Chinese companies have issued “virus control” bonds. Development banks in Africa, Latin America and Europe have issued billions in COVID bonds. “As impact investors, we have a role to play in channelling sources of capital into investments that have the potential to contribute to today’s most difficult societal challenges,” said Philipp Müller of BlueOrchard, which invested in the International Financial Corp.’s COVID-19 social bond. Goldman Sachs underwrote Indonesia’s 50-year, $4.3 billion dollar bond to fight the pandemic, the African Development Bank‘s $3 billion social bond, and the Inter-American Development Bank‘s $2 billion Sustainable Development bond. The bonds enable corporations and companies to tap “the scale and depth of the capital markets,” says Goldman’s Kyung-Ah Park, “to be able to help fund some of the much needed social investments and help them with the COVID challenges.”

Keep reading, “Countries and companies tap fixed-income market with ‘social bonds’ for COVID relief,” by Dennis Price and David Bank on ImpactAlpha.

Dealflow: Follow the Money

Acumen backs Solaris Offgrid’s pay-as-you-go solar software. Early pay-as-you-go solar ventures had to manage everything from sourcing, selling and distributing equipment, to collecting payments and providing customer financing. Now that low-income, energy poor customers have shown they will pay for solar services, companies like Solaris Offgrid are taking on some of those tasks. Solaris’ software manages billing and customer engagement on a subscription basis for clients including Sun King and BioLite. Solaris “reduces solar energy companies’ operational pain points from cost to inefficiency, enabling them to reach more low-income customers, increasing their chances of scale, and catalyzing the growth of the off-grid energy sector at large,” said Acumen, which invested an undisclosed sum in the company. Compass also invested.

Morningstar fully acquires ESG research firm Sustainalytics. Sustainalytics offers data on 40,000 companies’ environmental, social and governance performance, and ratings on 20,000 companies. Financial research and ratings company Morningstar paid €55 million ($59.3 million) for Sustainalytics’ remaining equity, after buying a 40% stake in the company in 2017. Morningstar’s Kunal Kapoor said the global pandemic has amplified the relevance of environmental, social, and governance-focused investing. “ESG data will become even more relevant, particular[ly] in areas like supply chain management and the environment” (see, Sustainable investments are growing, and outperforming, in a volatile market). Morningstar bought out PGGM, ABN Amro, Jantzi Research and Sustainalytics’ senior management, executives and employee-owned stock, Responsible Investor reports.

  • ESG data deals. Last year, credit ratings and research firm Moody’s acquired a majority stake in climate risk analytics company Four Twenty Seven and ESG research firm Vigeo Eiris, while MSCI bought a share of climate analytics firm Carbon Delta.
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Signals: Ahead of the Curve

Will low-income and communities of color fall through the cracks of small business relief again? Hopes were high in community finance circles that the fresh round of federal small business relief funding would carve out a chunk of money for low-income and minority-owned businesses. Legislation that passed the Senate on Tuesday to re-fund the Paycheck Protection Program with an additional $310 billion did indeed set aside $60 billion for smaller lenders and “community financial institutions.” But it falls far short of what was hoped for, and it may not do much to plug the gap for relief funds in underserved communities. “We want all businesses to come out okay, but the places we know will be the hardest hit will be the low-income communities and communities of color,” says Jeannine Jacokes of the Community Development Bankers Association.

  • The fine print. CDFIs, which have a mandate to serve these customers, will be “competing with a lot of other folks that might not have the same orientation towards underserved communities,” says Jacokes. $30 billion of the new $310 billion in funding is earmarked for mid-sized banks and credit unions. Another $30 billion will go through “community financial institutions,” a catch-all category of financial institutions with less than $10 billion in assets. In addition to CDFIs, it includes the vast majority of banks and credit unions, as well as minority-owned banks and small lenders.
  • Missed opportunity. The new funding “is a band-aid on a flawed program,” says Small Business Majority’s John Arensmeyer. It will do little to “satisfy the massive need of the smallest and underserved businesses, specifically businesses in communities of color and women-owned and rural businesses.”
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Agents of Impact: Follow the Talent

Patrick Kay and Ryan Fraser join North Sky Capital as principal and vice president respectively… New Island Capital is looking for an associate counsel in San Francisco… The United Nations Environment Programme Finance Initiative seeks a sustainable banking expert and principles for responsible banking review and support lead in Geneva… New/Mode is recruiting a director of product in Vancouver.

Thank you for reading.

–Apr. 23, 2020