Greetings Agents of Impact! ImpactAlpha’s Sherrell Dorsey is on the ground at the DNC in Chicago. A bit of what she’s hearing:
- “Democracy is fragile but also requires participation,” Deval Patrick, the former Massachusetts governor and advisor to The Vistria Group, told a Business and Democracy Initiative panel. “Business leaders have to get off the sidelines.” Added Arizona Secretary of State Adrian Fontes, “Business doesn’t exist without democracy.”
- “Never before has it been less expensive for regular, everyday people to invest in clean energy for their own homes or for businesses or for school districts,” former Wisconsin Lt. Gov. Mandela Barnes told ImpactAlpha.
- Plugged In: Live from Chicago. Don’t miss Dorsey’s conversation with Meredith Shields,head of the $500 million Citi Impact Fund. Bonus: Sherrell’s update from the DNC. Get Plugged In, today at 8am PT / 11am ET / 4pm London. Still time to RSVP.
- ICYMI: “Beyond Chicago, Harris seeks to ride a revival in wages, entrepreneurship and ownership”
In today’s Brief:
- ‘Blue state’ pension funds outperform their ‘red state’ peers
- Just Climate makes first investment in India
- Blended finance for clean energy in Asia
- Applying a behavioral lens for women’s financial inclusion
– David Bank
Featured: LP / GP
Pension funds in pro-ESG ‘blue’ states outperform those in anti-ESG ‘red’ ones — to the tune of $159 billion. Financially material environmental, social and governance factors play a major role in investment decisions at many public pension funds — except for those in states that have joined the conservative-led backlash against consideration of ESG risks. A study of more than 200 US pension funds found that those in pro-ESG “blue” states tend to outperform their peers in Republican-controlled “red” states that disparage so-called “woke investing.” Funds in Democrat-led states, which allow and sometimes require the use of ESG criteria when selecting investments, returned an average 9.1% a year over more than a decade through 2022, according to a new report, shared exclusively with ImpactAlpha, by HIP Investor, an impact investment advisory firm in Laguna Beach, Calif. By contrast, the average yearly return by public pension funds in Republican-led states over the same period was a lower 8.8%. “The self proclaimed ‘party of business’ — Republicans — can’t seem to systematically achieve higher pension returns for state pensions,” HIP’s R. Paul Herman told ImpactAlpha. “The GOP sounds off regularly as a defender of free markets, yet pursues anti-ESG laws and proclamations that appear to correlate with lagging pension returns.”
- Financial toll. The cumulative loss for pension funds in red states with an “anti-ESG” stance, including those with laws that ban ESG criteria when investing or otherwise using taxpayer dollars: $159 billion over 12 years, the HIP report said. Some $133 billion of that total comes from states with “anti-ESG” laws. The HIP Investor study doesn’t address the performance of any particular investments in ESG-themed index or private equity funds. Instead, Herman said, the study underscores the core, data-driven finding that ESG can “generate stronger financial returns, and lower financial risk.”
- Rising cost. Firefighters, teachers and other public sector officials pay a heavy price for the Republican stance against ESG. Other recent analyses have highlighted the cost to taxpayers and local economies in states such as Texas and Florida that have adopted laws banning public agencies from doing business with investment firms that consider ESG risk. After banning municipalities from hiring ESG-affiliated banks, for example, Texas incurred up to a half-billion dollars in additional interest on borrowing of $31.8 billion as a result of decreased competition among underwriters. In March, Texas banned Blackrock from financial management of $8.5 billion in state assets, citing a Texas law that prohibits state investment in companies that “boycott” energy companies and Blackrock’s “dominant and persistent leadership in the ESG movement.”
- Striking back. Many public pension funds see ESG-themed investments as a hedge against future risks posed by climate change, inequality and other environmental and social factors. Such institutional investors, including CalPERs, the country’s largest, and New York State Common Retirement Fund, aren’t retreating. CalPERS’ Peter Cashion told PitchBook last month that the fund has earmarked $100 billion for climate investing “in the midst of a climate revolution.” More than one in three global pension funds have “overt ESG goals,” according to a study last year of 152 funds, a little more than half in the public sector, by Bermuda-based Apex Group. Nearly three in four said they were aiming to maintain or increase their allocations to ESG-related funds over the next three years. Pension funds in New York and California, along with dozens of state treasurers, are mobilizing under the banner “Freedom to Invest” to present a unified message to policymakers: “Protect the freedom to invest responsibly.”
- Keep reading, “Pension funds in pro-ESG ‘blue’ states outperform anti-ESG ‘red’ ones – to the tune of $159 billion,” by Lynnley Browning on ImpactAlpha.
Dealflow: Energy Transition
Just Climate invests $150 million in Continuum Green Energy to reduce industrial emissions in India. London-based Just Climate was launched in 2021 by Al Gore’s Generation Investment Management to provide growth capital to asset-heavy companies that are reducing greenhouse gas emissions. Its portfolio includes Sweden-based H2 Green Steel and biogas producer Meva Energy, as well as Swiss EV charging company ABB E-Mobility. The firm has taken a stake in Continuum Green Energy, one of India’s largest sellers of renewable energy to commercial and industrial buyers. The deal is Just Climate’s first in India, a coal-dependent country with surging energy demands and a goal of reaching net zero by 2070 (see, “India’s residential rooftops sprout solar panels with generous government subsidies“). The capital will enable Continuum Green Energy to develop an additional 1.3 gigawatts of renewable energy and storage projects on top of its existing 2.2 gigawatt portfolio.
- Displacing coal. India is sending mixed signals about its commitment to the green energy transition. Coal-fired energy growth outpaced India’s renewable energy growth last year for the first time since 2019; state-run Coal India said it will expand its coal output (see, “Modi sends conflicting messages on climate as Indian voters brave the heat“). Continuum serves business customers as well as state-owned electricity distribution companies in the states of Gujarat, Maharashtra and Madhya Pradesh. “Continuum’s deployment of renewable energy will help displace coal power generation, realizing the type of significant greenhouse gas emissions abatement that we at Just Climate look for in our investments,” Just Climate’s Tushar Kumar said.
- Going public. Continuum has been majority-owned by Morgan Stanley since 2012, when the bank acquired 92% of the company via its infrastructure division. (The rest is owned by Continuum’s founders.) Continuum earlier this year sought a $200 million loan to buy back a portion of Morgan Stanley’s share. Just Climate’s investment suggests that Morgan Stanley reduced its stake. India’s Economic Times reported in May that Continuum was preparing to raise funds from two unnamed global private equity investors that would give the company a $1 billion valuation ahead of a planned initial public offering.
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Keppel, Asian Development Bank and Enterprise Singapore mobilize $800 million for clean energy in Asia. Public-private partnerships to shift Asian countries off of coal-fired power plants, such as the Just Energy Transition Partnerships in Indonesia and Vietnam, have stalled. Singaporean asset manager Keppel is teaming up with the city-state’s enterprise development body and the Asian Development Bank, or ADB, to develop investable projects across the region, in clean and bio-energy, waste-to-energy, green mobility and green real estate. Blended finance and concessionary capital “will further improve bankability, support development outcomes, and help mobilize private investment for the projects,” the partners said in a statement. Their goal is to invest $800 million by 2030 and offset 1.2 million tons of CO2 annually.
- Catalytic capital. About $434 billion is needed annually through 2030 to significantly shift the energy mix in Asia’s emerging economies to clean, affordable energy. “The demand for financing to support clean energy transition and environmental projects across the Asia Pacific has never been greater,” said Keppel’s Cindy Lim. Keppel reached a $575 million first close of its APAC-focused infrastructure fund last year. The partnership combined ADB’s concessionary and first-in financing, Keppel’s expertise in large-scale infrastructure and Enterprise Singapore’s market access and networks.
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Dealflow overflow. Investment news crossing our desks:
- Mindset Care, a maker of AI-enabled tools to streamline access to Social Security Disability Insurance, raised $13 million from Science Inc., Wellington Management and the disability tech investor Enable Ventures, a Sorenson Impact Fund, along with other investors. (Enable Ventures)
- Mumbai-based Ankur Capital received backing from British International Investment and MacArthur Foundation for its third fund, which is looking to raise $150 million to invest in digital solutions for agriculture, education, small business, climate tech and healthcare. (YourStory)
- Milestone: Local Initiatives Support Corp. has surpassed $200 million in Impact Notes. (LISC)
Podcast: Agents of Impact
Women’s World Banking is bringing women’s financial habits online to accelerate financial inclusion. In Indonesia recently, Mary Ellen Iskenderian of Women’s World Banking had an ‘aha’ moment about how to bring more financial services to rural women. “It is a traditional practice for an expectant mother to save for her prenatal care, the delivery of the child, and immediate postnatal care, with her midwife. That was a trusted person,” Iskenderian tells ImpactAlpha’s David Bank on the latest Agents of Impact podcast. “She knew that if the money was safely with the midwife, nobody else was going to have claims on that.” Women’s World Banking teamed up with Indonesian state bank BNI to design a digital savings product and recruit midwives as rural banking agents. “The best products we’ve designed are ones built on things that people are already doing,” she says.
- Cracking the code. For 45 years, New York-based Women’s World Banking has been working to expand the economic participation, financial security and opportunity of low-income women and their households. The nonprofit provides gender-lens advisory services to commercial financial institutions and large fintech companies. It also invests directly in financial inclusion opportunities through Women’s World Banking Asset Management, which manages two emerging market investment funds. The organization has reached more than 50 million women in emerging markets through its programs, partnered with 74 financial institutions in 34 countries, and supported inclusive finance policy and regulation in 47 countries. “I think we’ve cracked the code a little bit on how to reach those who have been underserved by the financial sector,” Iskenderian says.
- Gender + climate. Women’s World Banking in 2017 set a goal of reaching 100 million women by 2027. Advising on a bundled savings and credit product in India has helped it achieve more than one-quarter of its target. “The simple savings and credit combo,” says Iskenderian, “is turning out to be a really important climate resilience product.” Amid India’s extreme heatwaves, rural farming families with savings and credit accounts have been able to cover emergency expenses, keep their children in school and replant devastated fields faster than those without. “Understanding what the pressures are on a low-income household and designing products that meet those pressures – I think that’s the challenge for all of us in this industry.”
- Keep reading, “Women’s World Banking is accelerating financial inclusion by bringing women’s financial habits online,” by David Bank and listen to the Agents of Impact podcast. Check out all the shows on the ImpactAlpha Podcast Network.
Agents of Impact: Follow the Talent
Teresa Kashaba, previously with Dexus, joins Conscious Investment Management as a senior associate in Sydney… Align Impact named Greg Tanner, formerly of Mobilize Capital Partners, as chief operating officer… Illumen Capital promotes Jeremy Sookhoo to principal… Acumen is hiring for several roles including an associate director for its impact debt fund, a chief of ventures and a finance senior associate.
Inyova seeks a customer success intern and a marketing and impact intern… Accion is recruiting an operations analyst for the Accion Venture Lab… Pisces Foundation has an opening for a program director… The Interfaith Center On Corporate Responsibility is recruiting a climate change and environmental justice director… McKinsey Global Institute is hosting a webinar, “The hard stuff: Navigating the physical realities of the energy transition,” on Thursday, Sept. 5.
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