The Brief | July 2, 2020

The Brief: Unlocking returns on inclusion, COVID lending in West Africa, Hamilton Lane’s impact fund, Rise Fund’s green infrastructure, capturing carbon – at a price

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Greetings, Agents of Impact!

Featured: Impact Voices

How to unlock the value of diversity and inclusion in impact investing. Investors continue to undervalue diversity, equity and inclusion, even as the broader public acknowledges the systemic racism faced by Black people and other communities of color. The few fund managers unlocking returns on inclusion with intentionality, unique investment theses and anti-bias strategies include Backstage Capital and Kapor Capital, which have each backed 18 Black founders, along with Camelback Ventures, Illumen Capital and Founders First Capital Partners (see, Diverse fund managers are ready to shift capital at scale). Overall, less than 1% of founders backed by U.S. venture capitalists are Black and less than 2% are Latino. “It’s time for the impact investing community to lead the investing world in breaking through the systemic barriers that impede capital from flowing to Black leaders and other leaders of color,” Bridgespan Group’s Michael Etzel and Willie Thompson write in a guest on ImpactAlpha.

The first step, according to Etzel and Thompson: Track the racial composition of portfolios. The lack of systematic data on the diversity of investees has blocked research on diverse ownership or management. Bridgespan found no systematic collection of data on the racial composition of investment portfolios by impact investing data providers. Kellogg Foundation built its own tool by tapping Progress Investment Management’s database of asset management firms owned and led by people of color to carve out its $100 million commitment for emerging managers. Next: Set explicit targetsGoldman Sachs and TPG, both past Bridgespan clients, have committed to more diversity on boards of companies in their investment portfolios. It’s a small step, write Etzel and Thompson, who argue that “this type of explicit target-setting establishes a clear yardstick for future accountability.”

Keep reading, “How to unlock the value of diversity and inclusion in impact investing,” by Michael Etzel and Willie Thompson on ImpactAlpha.

  • Boosting Black investors and owners. Harlem Capital, Rethink Education and Impact America Fund have each backed about a half-dozen Black founders (here’s the full list)… Blck VC kicks off “Breaking into Venture,” a seven-week program to prepare Black candidates for venture capital careers… The Black Innovation Alliance aims to strengthen ecosystems for Black entrepreneurs and creative technologists and to boost Black ownership in the innovation economy.

Dealflow: Follow the Money

Societe Generale and CDC launch $100 million facility to spur lending by West African banks. The French bank and the U.K. development finance institution want to encourage banks in Africa to increase lending to local businesses importing essential goods. Food and agriculture product importers struggle to access trade financing even in normal times. Pandemic-related border closures and disruptions have hit these businesses hard. Societe Generale will increase lending to banks in West Africa, with a focus on Francophone countries.

  • Shared risk. CDC will share the risk of default on the part of borrowers in proportion to its funding contribution to the facility, which has not been disclosed, a spokesperson for CDC told ImpactAlpha.
  • Ramping up relief. The initiative is the latest COVID relief fund to focus on helping emerging markets’ small businesses weather the pandemic. Three other funds are under development, in addition to billions of dollars pledged by development finance institutions and multilateral banks.
  • Read on.

TPG Growth’s Rise Fund launches renewable infrastructure investing group. The private equity giant is piling onto the green infrastructure opportunity with the acquisition of a one-gigawatt portfolio of solar energy projects in Spain and Latin America from China’s Trina Solar. The Rise Fund assembled the portfolio under a new group, Madrid-based Matrix Renewables, which will make solar energy acquisitions worldwide.

Omidyar Network India backs 67 projects with $1.5 million in COVID relief. Most of the funding went to organizations providing direct health services and relief, with another quarter supporting data and app solutions. Omidyar Network India designed the facility in March, before India faced today’s fast-rising caseload. One third of Omidyar’s relief funds were committed by the impact investors’ own employees.

Philadelphia releases results of its COVID-19 Small Business Relief effort. The City of Philadelphia and PIDC deployed $13.3 million in grants and zero-interest loans to over 2,000 Philadelphia small businesses impacted by the pandemic.

RSF Social Finance extends loan guarantee to Communities Unlimited. The $100,000 guarantee will help drive more capital to Black women-led businesses in Mississippi via Higher Purpose Co., an economic justice nonprofit.

Hamilton Lane closes $95 million impact fund. The first impact fund from the Philadelphia-area asset manager targets health and wellness, energy and environment, community development and financial empowerment, primarily in developed markets.

Lazard launches U.S. sustainable equity portfolio. The fund, led by Andrew Lacey and Ross Seiden, will hold 40 to 50 public equities with products and services “aligned with an equitable, inclusive and green future” and will seek to outperform the S&P 500.

Signals: Ahead of the Curve

Key to 10x’ing the capture of carbon? Put a price on it. Technology to capture, store and use carbon dioxide could take 500 million tons of the greenhouse gas out of the atmosphere per year by 2030 – a 10-fold increase from today, according to McKinseyKey to the scale-up: a price on carbon. Experts estimate that a carbon price of $50 to $100 per ton of CO2 by 2030 is needed to reduce emissions in line with the temperature goals of the Paris Agreement. Even a 10x scale-up would represent just 1% of current annual emissions and 5% of the 10 gigatons of carbon dioxide that scientists say we need to capture annually by midcentury (see, “Catalyzing capital to develop carbontech for gigaton-scale CO2 removal). “Every scenario to stabilize the climate depends on investment in negative-emissions technologies,” McKinsey concludes.

  • Policy moves. A Climate Action plan released this week by Democrats in the U.S. Congress calls for financial incentives, research and development to boost carbon capture technology and markets, though it only hints at carbon pricing. The U.K. committed £100 million to support carbon capture technology.
  • Price signals. There already exists a price, or rather prices, on carbon, but they have to go up, and apply to a much bigger share of emissions. The U.S. established a de facto price via a 2018 tax credit that pays $35 per ton for CO2 use and $50 per ton for storage. Oil giant BP recently hiked its price estimate for CO2 emissions in 2030 to $100 per ton, up from $40 (see, Write-downs of stranded fossil fuel assets are here – and getting bigger).
  • Technology roadmap. McKinsey identifies a wave of creative energy around carbon capture and usage tech. Cement made with up to 40% CO2 could remove up to 150 tons of CO2 per year by 2030. Synthetic fuel made from CO2 could cut aviation emissions. Scaling direct carbon capture technology could bring down costs from $500 per ton of CO2 today. Farther out: Carbon fiber, plastics and biochar. An inconvenient truth: Enhanced oil recovery accounts for around 90% of all CO2 usage today.
  • Much more.

CDFIs outperform on PPP lending. More than 300 community development financial institutions made just over 100,000 Paycheck Protection Program loans for a total of $7.3 billion, according to Opportunity Finance Network. The largest PPP lender was JPMorgan Chase. With $2 trillion in total assets, the bank is about nine times the size of the entire CDFI industry, OFN says, “but made only four times the amount of PPP loans that CDFIs did.”

Agents of Impact: Follow the Talent

Bhairvee Shavdia is promoted to principal at HCAP Partners… Victoria Carrion, ex- of Glovista Investments, is named director of membership and partnership at Catholic Impact Investing Collaborative… CarbonTracker is teaming up with the 2° Investing Initiative on climate scenario analysis… Ceniarth is hosting “Racial Justice: What Can I Do Now?” The July 15 webinar will feature HOPE Enterprise Corporation & Credit Union’s Bill BynumDonna Gambrell of the African American Alliance of CDFI CEOs, Karama Neal of Southern Bancorp Capital Partners, Chrystel Cornelius of Oweesta, Juanita Hallstrom of RCAC, and Ceniarth’s Greg Neichin.

Thank you for reading.

–July 2, 2020