The Brief | September 22, 2020

The Brief: Today’s Call: Algorithms for racial justice, greenlighting off-grid solar, worker ownership in Cincinnati, climate stewardship leaders and laggards

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Greetings, Agents of Impact! 

Hop on The Call. Today’s Agents of Impact Call No. 23 takes on racial justice investing (see below). Join Illumen Capital’s Daryn Dodson, Mastercard’s Marla Blow, Beeck Center’s Erika Davies, Activest’s Ryan Bowers and other Agents of Impact in conversation with Transform Finance’s Andrea Armeni and ImpactAlpha’s David Bank and Monique Aiken, today at 10am PT / 1pm ET / 6pm London. Zoom right in.

Featured: Agents of Impact Call 

Changing the investment algorithm to advance racial justice. It’s time to recode market systems that generate racial injustice. Last month’s Agents of Impact Call joined two conversations that are too often separate: systemic risk and systemic racism. Today’s Call continues the effort to call out the ways racism shows up across the economic landscape and highlight strategies and designs that “center Blackness and the Black experience as a necessary strategy to ensure economic liberation for all Americans,” as the Insight Center’s Anne Price, Jhumpa Bhattacharya and Dorian Warren put it this summer. Identifying the ways finance drives racial injustice is essential for investors looking to do the opposite: Use their portfolio to root out racism.

  • Municipal finance. Cities that treat their residents fairly have longer, stronger fiscal outcomes, says Activest’s Ryan Bowers. Cities that do the opposite risk stranding assets of such injustice, including jail infrastructure and extractive revenues, leaving taxpayers and investors with liabilities and expenses. “Too many local governments have predicated their financial fortunes on the control and oppression of Black people,” writes Bowers, along with Activest’s Napoleon Wallace and Chelsea McDaniel. Until recently, Bowers struggled to get meetings with city budget directors to make that case. Now, Bloomberg Philanthropies has tapped Activest to help officials in 30 urban centers put equity at the center of their COVID recoveries. Activest has teamed up with investment firm Adasina to offer a fixed-income portfolio that invests directly in Black communities, primarily through municipal bonds.
  • Digging deeper. Investments in real estate need to consider displacement and gentrification in communities of color. Investments in waste plants that degrade air quality must take into account proximity to Black neighborhoods. “All investments lead to some kind of socioeconomic outcome,” declares Transform Finance in “How investments drive injustice and what investors can do about it,” a new report. “Some outcomes are more racialized than others.” More examples: Predatory practices at payday lenders and other financial services providers that lead to indebtedness and poor credit scores among Black customers, and just-in-time scheduling algorithms used by retail and other employers that cause high-levels of stress and limited quality parenting time in Black households. The report argues that an investment strategy to address racial injustice holistically would align investment capital with socioeconomic outcomes for people of color.
  • Asset allocation. Unexamined bias, and even explicit racism, in asset allocation is causing some of the world’s biggest money managers to leave returns on the table. The biases of asset allocators, says Illumen Capital’s Daryn Dodson, “inhibit them from seeing the value of the investments because of the person presenting the opportunity to them.” Illumen’s study of how investors evaluate funds and allocate capital, with Stanford SPARQ, found that racial bias actually increased with better performance by managers of color (see, “The better fund managers of color perform, the more bias they face”). Illumen works with fund managers to reduce racial bias in investment processes, hiring and promotions, and governance of portfolio companies. The tiny percentage of total investment assets managed by firms owned by women or people of color is a systemic risk, says Beeck Center’s Erika Davies, founder of The Racial Equity Asset Lab. VC Include, BLCK VC and Raben Group’s Diverse Asset Managers Initiative also are working to boost allocations to Black and Brown fund managers. 
  • Corporate impact. Mastercard “will tackle racism with the full force of our assets, be it our expertise, capital, digital products or extensive network of partners,” says Mastercard’s Marla Blow. The credit card issuer committed $500 million over five years to reduce racial wealth and opportunity gaps. Mastercard will focus on New York, Los Angeles, Atlanta, New Orleans, St. Louis, Dayton, Ohio, and Birmingham, Alabama. One avenue for change, Blow says, is Mastercard’s banking partners across the country.
  • Answer the Call. Zoom right into today’s Call. On ImpactAlpha’s #inclusive-capital Slack channel, you can share additional examples of how racism shows up in investment portfolios, as well as strategies, prototypes and products that center Blackness, early code for a redesigned economy.
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Dealflow: Follow the Money

Greenlight Planet raises $90 million to bring off-grid solar to new energy users. A number of off-grid solar power providers in Africa and Asia have moved upmarket in recent years to improve margins and reduce credit risks. Greenlight Planet’s hefty raise for low-cost solar lamps, appliances and home units is a contrarian signal in the $1.8-billion off-grid solar market. The 11-year-old company remains committed to first-time and low-income solar energy consumers in emerging markets. Greenlight has sold more than 15 million of its Sun King-branded products through distributors in 65 countries. “There’s almost limitless demand for these types of products and services,” Greenlight Planet’s Patrick Walsh told ImpactAlpha. “There’s just enormous growth in demand—even during the pandemic.” Greenlight aims to help customers climb the energy ladder by expanding its range of products, including high-efficiency fans and televisions. 

  • Energy access. More than 840 million people worldwide live without electricity and more than a billion more are connected to an unreliable grid, according to Lighting Global’s 2020 off-grid solar market report. Off-grid suppliers have made progress: more than 420 million people now have basic or improved energy access. Still, companies like Greenlight Planet have penetrated only about 17% of the available market. 
  • Off-grid dealflow. Mali’s Energy+ raised $1 million to sell basic solar products to first-time users. Netherlands-based Lumos raised $35 million to expand solar system sales to Nigerian businesses and households. Broadreach Energy secured $25 million to build and operate both rooftop solar installations and utility-scale solar farms across Africa. Solarise secured new funding as a solar project financing partner for industrial and commercial businesses in East and Southern Africa.
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Co-op Cincy and Seed Commons launch $3 million worker ownership fund. Even before the COVID pandemic, more than 5,500 businesses in southwest Ohio were at risk of closing due to lack of succession planning. Worker ownership can help save businesses and build wealth (see, Turning the small business crisis into an opportunity for equitable employee ownership). The Business Legacy Fund will enable Co-op Cincy to help Cincinnati-area businesses transition to employee ownership. The deadline to apply for the first cohort is Nov. 15. The $3 million was raised by Seed Commons, a national financial cooperative of locally-focused funds. Share this

Signals: Ahead of the Curve

Leaders and laggards among asset managers on climate stewardship. Among the world’s dozen largest asset managers, Legal & General and PIMCO were the toughest on corporate management when it came to voting their proxies. The most lax: BlackRock and Vanguard. “To investors’ portfolios, the systemic risk of climate change is large, material, and undiversifiable,” the corporate accountability group Majority Action says in “Climate in the Boardroom: How Asset Manager Voting Shaped Corporate Climate Action in 2020,” its new analysis of the U.S. proxy voting records of asset managers with a collective $27.7 trillion in assets under management. Legal & General Investment Management and PIMCO voted most often against management-proposed directors in the energy, utility, banking and automotive sectors. The two asset managers also supported all of the key climate-related proposals tracked by Majority Action. BlackRock and Vanguard supported just three and four, respectively, of the 36 “climate-critical” resolutions – causing more than a dozen to fall short of majority support. In the middle: Amundi, PGIM, BNY Mellon and JPMorgan Asset Management voted in favor of more than half of the climate proposals.

  • Roadblock. In his widely read letter in January, BlackRock’s Larry Fink vowed to center climate change and hold companies accountable. Yet BlackRock, along with Vanguard, voted against just 1% of company-proposed directors in the energy, utility, banking and automotive sectors, despite their lack of meaningful climate action. In its own stewardship report released in July, BlackRock said it voted against directors at 53 companies for climate reasons and put another 191 “on watch” (see, “With all eyes on BlackRock, asset manager’s stewardship falls short on climate action). However, most of the directors it voted against were at smaller or non-U.S.-based companies, says Majority Action. BlackRock and Vanguard have served “as a roadblock for global investor action on climate,” the report said. Fidelity and Goldman Sachs Asset Management also mostly sided with management.
  • Climate Week. The findings generally confirm what veteran governance watchers like GMO’s Jeremy Grantham already knew. Last year, Legal & General won a $50 billion mandate from Japan’s Government Pension Investment Fund partly on the basis of its more aggressive stewardship stance (see, “Japanese pension fund pushes asset managers to get tougher on sustainability). Majority Action’s report comes at the start of Climate Week NYC and a day before the Securities and Exchange Commission is expected to finalize a controversial rule that would raise hurdles for filing shareholder resolutions.
  • More.

Agents of Impact: Follow the Talent

Valerie Red-Horse Mohl, ex- of Social Venture Circle and an ImpactAlpha Agent of Impact, joins the East Bay Community Foundation as chief financial officer… David Bohigian, who led OPIC through its transition to the U.S. International Development Finance Corp., launches Pluribus Ventures, an impact-oriented fund of funds… Walton Enterprise seeks an impact investing associate… Inclusive Prosperity Capital is looking for a solar transaction manager and an associate of market engagement in Rocky Hill, Conn. or New York… FLOW is hosting a webinar on “Impact Investing in Water,” on Tuesday, Sept. 29.

Thank you for reading.

–Sept. 22, 2020