The Brief | July 1, 2024

The Brief: The impact of the Supreme Court’s dismantling of the administrative state

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Greetings, Agents of Impact! 

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In today’s Brief:

  • SCOTUS whips up policy headwinds
  • North Africa’s small businesses
  • ESG and the death of the Friedman doctrine

Supreme Court rulings threaten to turn policy tailwinds into headwinds for impact investors. Impact investors in the US for several years have been able to crowd in behind aligned public policies, banking on pushes from the federal government to complement the pull of market forces. In a series of rulings last week, the Supreme Court threatened the Biden administration’s climate and social justice agenda just as it has started to deliver results. The court decisions could lead to regulatory instability and uncertainty for investors and businesses. “They represent an attack on corporate accountability and consumer welfare, given that the federal agencies likely to be implicated are responsible for keeping our food safe, our water and air clean, and our roads and bridges open,” Fran Seegull of the US Impact Investing Alliance tells ImpactAlpha. “This is a strike against efficient, fair policymaking and a resilient, competitive US economy.” 

  • Dismantling ‘the administrative state’. Conservative activists have sought to systematically dismantle what they call “the administrative state.” In the highest-profile case, Loper Bright Enterprises v. Raimondo, the court reversed 40 years of precedent and effectively transferred power to implement laws passed by Congress from experts in federal agencies to judges with little subject-area knowledge. The majority overturned the so-called “Chevron deference,” which had held that federal agencies are usually best equipped to interpret and make such rules. The defeat opens the door to legal challenges to regulations on worker safety, public health and environmental protection. In another ruling last week, SEC vs. Jarkes, the SCOTUS majority further clipped the enforcement abilities of federal agencies.
  • What’s at stake. The ruling is likely to tip the scales in lawsuits already underway aimed at rolling back rules from the Environmental Protection Agency cutting emissions from power plants, cars, and heavy duty vehicles; from the Interior Department addressing methane emissions from oil and gas leaks and flaring; and from the Securities and Exchange Commission mandating corporate disclosure of material climate risks. Also at risk: the Treasury Department’s handling of Inflation Reduction Act tax credits for clean tech. 
  • Activist judges. Conservative funder Charles Koch’s Alliance for Prosperity backed the fishermen who challenged federal rules that put observers on boats to combat overfishing, giving the court the chance to undermine the Chevron doctrine. The Chevron decision will “ensure that policy and ideological preferences on the part of judges will play a far greater role in deciding regulatory cases,” said Josh Zinner of the Interfaith Center on Corporate Responsibility. It “is impossible to pretend that today’s decision is a one-off, in either its treatment of agencies or its treatment of precedent,” Justice Elena Kagan wrote in her dissent. “In one fell swoop, the majority today gives itself exclusive power over every open issue—no matter how expertise-driven or policy-laden—involving the meaning of regulatory law.”
  • Anti-regulatory legacy. The 1984 case articulating the deference principle, Chevron v. Natural Resources Defense Council, was once seen, ironically, as an anti-regulatory decision. A unanimous Supreme Court upheld a Reagan administration air pollution regulation that environmentalists challenged as too weak. That rule was issued by the late Anne Gorsuch, then the head of the EPA and a fierce opponent of regulation. Last week, her son, Supreme Court Justice Neil Gorsuch, authored a lengthy opinion that concurred with sweeping away the Chevron precedent. “It seems to me that in a world without Chevron, very little would change,” he wrote, “except perhaps the most important things.” Dive deep with Marianne Lavelle’s take on Chevron deference from ImpactAlpha’s partner, Inside Climate News.
  • Keep reading, “Supreme Court rulings threaten to turn policy tailwinds into headwinds for impact investors,” by Amy Cortese on ImpactAlpha. ImpactAlpha’s Policy Corner is supported by the US Impact Investing Alliance. 

Dealflow: Small Businesses

SPE Capital raises $140 million to invest in North Africa’s small and growing businesses. Tunisia-based SPE Capital Partners launched in 2016 to provide growth capital to small and mid-sized businesses in North Africa and the Middle East. Then, much of the region was recalibrating after the Arab Spring political movements, only to be rocked again by the pandemic. SPE’s first fund of $258 million invested in education, healthcare, manufacturing, consumer goods and essential services businesses in Tunisia, Egypt and Morocco. The fund manager has since expanded to Cote d’Ivoire, Jordan and Turkey, and also invests in French companies serving the region. SPE has inked $140 million from the Swiss Investment Fund for Emerging Markets, FMO, EBRD, European Investment Bank and the International Finance Corp. for its third fund, which has a $350 million target. The IFC has earmarked $20 million for co-investments in SPE’s portfolio companies.

  • Investing in women. With the latest fund, SPE plans to invest in a dozen companies, allocating 25% of the fund for women-led ventures. The firm is a signatory of the Operating Principles for Impact Management and will track impact metrics around sustainable economic development, job creation, and gender and financial inclusion. It says the nine companies in its first fund’s portfolio employed 7,650 people, more than half of whom are women. The portfolio included GlobalCorp, an Egyptian financial services provider for small businesses, and Amanys, a Moroccan pharmaceuticals producer and distributor. SPE exited Amanys in 2020.
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Backpack Healthcare lands $14 million for youth mental health services. The Maryland-based startup offers an AI-based app and teletherapy services for youth. It partners with the few providers who accept Medicaid for mental health services. Backpack’s Series A round was led by Chicago-based PACE Healthcare Capital with participation from ECMC, Techstars, Collab Capital, Rethink Education and other investors. The funding comes a year after Black woman-led BackPack acquired Hurdle Health to connect diverse youth with therapists.

  • Youth mental health crisis. Some 27 million children under age 18 are on Medicaid. Yet amid America’s exploding mental health crisis, the government program for low-income individuals and households has just three providers specializing in disorders like depression and anxiety for every 1,000 enrollees of all ages. More than four in 10 students reported feeling persistently sad or hopeless in 2021, and 29% cited poor mental health, according to the Centers for Disease Control. 
  • Private capital. Digital healthcare startups raised $1.1 billion across 77 global deals in the first quarter of 2024. Earlier this year, pediatric mental health startup InStride Health in Boston picked up $30 million in a series B round led by General Catalyst. Pittsburgh-based Blackbird Health, a youth mental health provider, raised $17 million in a series A round led by Define Ventures

Dealflow overflow. Investment news crossing our desks:

  • BlackRock agreed to acquire private markets data provider Preqin for £2.6 billion ($3.2 billion) in cash. The $9 trillion asset manager said the move marked “a strategic expansion into the fast-growing private markets data segment.” (BlackRock)
  • Belgium-based Sirona Technologies raised a €6 million ($6.5 million) seed round to open its first direct air capture plant, in Kenya. (Sifted)
  • Switzerland-based Libattion secured €14 million ($15 million) to repurpose old EV batteries into energy storage systems for companies. (TechEU)
  • Tenacious Ventures reached an $18 million first close for its second fund to invest in climate-smart agtech ventures in Australia. (Startup Daily)

Impact Voices: Fiduciary Future

Milton Friedman’s economic doctrine failed. Get over it. Audience members leapt to their feet to boo As You Sow’s Andy Behar at a recent debate on the merits of ESG. At the event, hosted by the National Review Institute and the University of Arizona’s Center for the Philosophy of Freedom, Behar had dared to declare that the economic doctrines of the late Milton Friedman had failed. His argument: The notions of shareholder primacy and short-termism implied by the Friedman doctrine have been supplanted by material, longer-term concerns for multiple stakeholders. In his latest Fiduciary Future column on ImpactAlpha, Behar points to the 2019 New Purpose for a Corporation from the Business Roundtable, signed by 181 CEOs. Though many corporate leaders have since backed away from such formulations, Behar sees a trend “toward long-term benefits for all stakeholders, including shareholders, employees, customers, supply chain, and communities where they operate.” 

  • Who’s pro-business now? Behar argues that ESG opponents in Congress and statehouses are “utilizing big government to oppose the free markets.” That wastes corporate resources and undermines boards of directors, the Security and Exchange Commission, and the rights of shareholders, he says. The anti-ESG crowd is “fighting the same ‘free market’ forces that they once championed,” Behar writes. “As otherwise-conservative business groups and corporations have said, anti-ESG actions are anti-business, anti-capitalist, anti-freedom and anti-conservative.”
  • Keep reading, “Milton Friedman’s economic doctrine failed. Get over it,” by As You Sow’s Andy Behar on ImpactAlpha.

Agents of Impact: Follow the Talent

Opportunity Finance Network announces several new executive vice presidents, including Jessel Amin, formerly of JPMorgan Chase, as chief investment officer; Anthony Berkley, previously with the Future Investment Initiative Institute, as chief development officer; and Kevin Fryatt, previously with the Washington Area Community Investment Fund, as chief operations officer. OFN also welcomes Ariel Meyerstein, head of the ESG program office at US Bank, to its board of directors. 

Common Future is looking for an impact investments manager and a controller in Oakland, Calif… The Miller Center for Social Entrepreneurship has an opening for a program coordinator… Climate United is hiring a director of asset management, vice president of risk, chief strategy and partnership officer and for many more rolesJust Community seeks a director of finance… Public Finance Initiative is hosting a webinar, “Engaging investors and residents in equity and public finance strategies,” tomorrow, July 2.

👉 View (or post) impact investing jobs on ImpactAlpha’s Career Hub.

Thank you for your impact!

– July 1, 2024