Greetings, Agents of Impact!
Featured: Market Sizing
The numbers may be fuzzy, but the trends are clear when it comes to sustainable investment. The top-line numbers from the Global Sustainable Investment Alliance’s biennial review back the now-conventional wisdom that interest is surging in environmental, social and governance, or ESG investing. Sustainable investing grew to $35 trillion globally by early 2020, a 15% increase from 2018, and now makes up 36% of all professionally managed assets, the alliance reports. Dig deeper and it’s clear that methodological issues make comparisons, and even the totals, suspect. What to make, for example, of the review’s finding that global ‘impact investing’ – a tiny but more rigorous subset of ‘sustainable investing’ – fell by 26%, to $444 billion, even before the pandemic, and that U.S. impact assets dropped even more steeply to $212 billion? Or that $2 trillion in sustainable investments vanished in Europe?
The drops should be taken with a large grain of salt (ideally on the rim of a margarita) and may actually reflect progress, not problems. The alliance attributed the 13% drop in sustainable investment in Europe to legislation meant to flush out greenwashing. “Not all products or strategies considered in the past would meet these new regulatory definitions,” the alliance says. Europe’s Sustainable Finance Disclosure Regulation, or SFDR, requires investors, asset managers and advisors to classify their products and explain their approaches. The U.S. Securities and Exchange Commission has formed a climate and ESG taskforce to mull similar regulations. The lack of standard definitions and disclosure metrics has opened the way for greenwashing and “risks derailing hard-won progress,” warns Generation Investment’s Al Gore.
- Fine print. The review acknowledges that comparisons with previous totals can be misleading. The alliance’s member organizations in the U.S., Europe, Japan, Canada and Australasia sized their sustainable investment markets using different methodologies, which in some cases differed from prior years. To reach its impact investment estimates, for example, alliance member US SIF extrapolated from a subset of 1,800 financial firms; it used a different subset for its 2018 estimate. And both are different from a separate tally by the Global Impact Investing Network, which changed its methodology and used extrapolations to show an increase in impact investments in 2019 (see, “Impact investing assets reach $502 billion, plus or minus $50 billion”).
- Inflated definitions. A more fundamental flaw may be the Global Sustainable Investment Alliance’s broadly inclusive view of sustainable investing. The review’s most dilute categories, ESG integration and negative screening, together make up roughly two-thirds of the tally’s total. Sustainability-themed investing, best-in-class screening, and impact and community investments represent a small portion of investments. An observation in GSIA’s foreword is spot-on, however: “This year’s report highlights an industry that is in transition, with rapid developments across regions that are resetting expectations of sustainable investment, with an emphasis on moving the industry towards best standards of practice.”
- Dig in.
Dealflow: Catalytic Capital
Guarantee from Kresge Foundation catalyzes $30 million for Memphis fund. The city’s medical district, with about 10,000 residents and more than 30,000 employees and students, has a high poverty rate and a shortage of housing and commercial space. Three local banks, First Horizon, Regions Bank and Truist, each committed $10 million to the Memphis Medical District Fund, secured by a $6 million loss-guarantee from Kresge Foundation. Pathway Lending, a Nashville-based community development financial institution, or CDFI, will underwrite residential and mixed-use projects. Pathway’s Clint Gwin said the fund “will bring catalytic capital to the Medical District to facilitate redevelopment and new development advancing the district’s growth and long-term sustainability.”
- Detroit model. Memphis is a key geographic focus for Kresge, along with New Orleans and Detroit. The medical district fund builds on a similar Kresge-backed fund in Detroit’s Woodward corridor. A 2019 review found that property values and rents increased, but income diversity was unchanged, “indicating that longer-term residents across the income scale were able to remain in the community.” Kresge’s Aaron Seybert said, “We know from our experience in Detroit that once you accelerate inclusive development in a neighborhood, it builds upon itself.” Through the Memphis effort, he added, “We think we can see 15 or 20 years of that kind of mission-oriented development happen in the next five to seven.”
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Community Equity Fund readies small checks for Black and Brown proprietors in North Carolina. More than 90% of Black-owned businesses in the U.S. are sole proprietorships that lack access to “friends and family” funding or other sources of capital. Asheville, N.C.-based Community Equity Fund is designed to help businesses qualify for loans from community development financial institutions, or CDFIs. The fund’s early pipeline includes two co-working spaces, Spillway Bridge and GrindAvl, and a commercial landscaping business, Mclean Landscaping. The evergreen fund, which has raised $1 million, is the brainchild of SOCAP co-founder Kevin Jones and Stephanie Swepson Twitty, who leads the nonprofit Eagle Market Streets Community Development Corp. It’s backed by a $700,000 donation from Buncombe County, where Asheville is based, and other donors.
- Revenue share. Community Equity Fund will cut checks of up to $75,000 to sole proprietors that have been in business for three to five years and have annual revenues of up to $100,000. Investments will be repaid through a 7% revenue-share agreement, and then reinvested into new businesses. Jones said the $300,000 management fee on the $1 million fund is expected to decline to a more typical 10% once the fund reaches $10 million.
- Check it out.
New Forests expands sustainable forestry portfolio in California and Oregon. The Australia-based fund acquires and manages forestlands for both sustainable timber production and conservation (see, “Taking an ‘impact tranche,’ Packard Foundation pushes forest fund beyond business as usual”). Its latest deal: acquiring 156,000 acres of conifer forest from Fruit Growers Supply Co., a nonprofit agricultural-supply cooperative. The deal brings the $4.5 billion asset manager’s U.S. portfolio to $800 million. New Forests is aiming to invest $500 million in forests in the U.S. over 24 months. Check it out.
Dealflow overflow. Other investment news crossing our desks:
- Fungi-based protein company Nature’s Fynd raises a $350 million round led by SoftBank to launch its products for consumers.
- Mighty Buildings secures $22 million to make low-carbon, 3D printed homes from sustainable materials.
- Oikocredit offers $9.3 million in credit to Unitas Kenya to help Kenya’s small agribusinesses recover from the pandemic.
- DigiKhata raises $2 million to help Pakistani retailers with digital bookkeeping.
- AgDevCo extends mezzanine debt to Kenyan aquaculture company, Victory Farms.
- International development nonprofit ACDI/VOCA invests in Ghana-based agribusiness Maphlix Trust Ghana via its impact investing arm, AV Ventures.
Agents of Impact: Follow the Talent
Kartik Desai, formerly with Asha Impact, joins Kois as partner… Guillaume Mascotto, ex- of American Century Investments, joins Jennison Associates as managing director and head of ESG strategy… Adam Jagelewski and Ilse Treurnicht, ex- of MaRS Discovery District, and Eric Wetlaufer, ex- of Fidelity, Putnam and Canada Pension Plan Investment Board, are launching TwinRiver Capital in Toronto and Boston (and building out a team)… B Lab is hiring a senior manager of social impact standards in Amsterdam… ImpactPHL is looking for a director of community and content.
Boston Impact Initiative is recruiting a director of finance and administration… Atlanta Wealth Building Initiative seeks a director of strategic programs… Pomona Impact is accepting applications from cleantech startups in Costa Rica as part of a partnership with GreenTech Costa Rica… Croatan Institute is hosting “Redirecting Capital to Accelerate Racial Equity: Leveraging Cash Allocation,” with Mary Bruce Alford of Hope Credit Union, Cathi Kim of Inclusiv/Capital, Ebony Perkins of Self-Help Credit Union and Croatan’s Sharlene Brown, today at 1pm ET.
Thank you for your impact.
– July 20, 2021