The Brief: Upgrading ESG metrics, affordable housing in L.A., electrochemical carbon removal, soil health in Mexico, banking Black customers, race-conscious community finance

Greetings, Agents of Impact!

Featured: Frontiers in Social Innovation

Three practices to help make ESG metrics as reliable as financial metrics. Measures of a company’s financial performance have broad consensus. By contrast, the factors of environmental, social and governance, or ESG, are dissimilar, measurement techniques are complex, and scores vary widely across ratings agencies. A new body, the International Sustainability Standards Board, has released frameworks for sustainability and climate-related disclosures, and the U.S. Securities and Exchange Commission is considering rules to require publicly traded corporations to disclose their greenhouse gas emissions and fund managers to truthfully label their ESG offerings. “We believe that practices developed in financial reporting can contribute to high-quality ESG reporting,” write Paul Brest, former dean and professor emeritus at Stanford Law School and Colleen Honigsberg, an associate professor at Stanford Law School, in the next post in ImpactAlpha’s series, Frontiers in Social Innovation, in partnership with Stanford’s Center for Social Innovation. Brest and Honigsberg’s three-part framework for standardized ESG reporting: 

• A robust framework and scalable system that captures a company’s major ESG metrics and permits comparisons among different companies. 
  
• An independent standard-setting body, like the Financial Accounting Standards Board, to develop those metrics. “If financial reporting is politically controversial and subject to immense lobbying, imagine the potential controversies related to ESG reporting,” write Brest and Honigsberg. 
  
• Reporting infrastructures that allow companies to accurately collect, report, and verify the relevant metrics.

ESG metrics are unlikely to have the accuracy, validity, reliability, and commensurability of financial metrics, concede the authors. “But in the spirit of not letting the perfect be the enemy of the good,” they say, “it makes sense to rely on the metrics that have reached maturation while working to bring others up to their level.

• Keep reading, “Three practices to help make ESG metrics as reliable as financial metrics,” by Stanford Law’s Paul Brest and Colleen Honigsberg on ImpactAlpha. 
  
• ICYMI. Catch the first post in the series, “Five metrics to help investors point their investments toward impact,” byBernadette Clavier and Neil Malhotra of Stanford’s Center for Social Innovation, and Jill Lanney, a graduating MBA student.

Dealflow: Return on Inclusion

SoLa Impact affordable housing fund secures $15 million from Equitable. Financial services giant Equitable investedin the L.A.-based firm’s Black Impact Fund, which invests in affordable housing in Black and brown communities in the U.S., particularly low-income communities in South L.A. The investment “advances economic mobility through affordable and workforce housing, access to education, mentorship and career advancement,” said Equitable’s Steve Joenk. The fund has secured commitments from PayPal, Skoll Foundation, Ally Bank, Pacific Premier Bank and the California Teachers’ Retirement System. 

• Civil suits. A lawsuit from a Los Angeles nonprofit alleges SoLa exposed tenants in one of its buildings to “health and safety threats on a daily basis” including rats and cockroaches and water damage, reports the Los Angeles Times. At least five lawsuits citing harsh living conditions are pending against the fund manager. SoLa’s Martin Muoto has been praised by Oprah Winfrey and L.A. Mayor Eric Garcetti (see, “Agent of Impact: Martin Muoto”). Muoto is pushing back against the lawsuits, which he called “commonplace tools used by predatory, contingency lawyers in California.” His personal reaction to the article: “A renewed and intensified commitment to continuing to improve and continuing to be excellent.”
  
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Travertine raises $3 million to commercialize carbon capture technology. Travertine’s Laura Lammers founded the company to respond to the twin challenges of atmospheric carbon and sulfate waste. “By mimicking and enhancing earth’s natural weathering process, we can solve both these problems at a massive scale in partnership with mining and fertilizer companies,” Lammers told ImpactAlpha. The Boulder, Colo.-based company’s electrochemical process captures and sequesters carbon and recycles sulfate to extract critical elements and produce sulfuric acid for fertilizer.

• Climate tech. Grantham Environmental Trust and Clean Energy Ventures co-led Travertine’s seed financing. “Every aspect of our process we think of as being inherently scalable, and has already been tested at large scale,” Lammers said. “We’re making novel combinations of tested processes so that we can commercialize within a short period of time.”
  
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Dealflow overflow. Other investment news crossing our desks:

• Kinley, a Black-led neobank backed by actress Gabrielle Union, former NFL player Marshawn Lynch and basketball start Kevin Durant, raised $15 million to serve underbanked Black customers, in a round led by Kapor Capital. 
  
• Mexico’s Solena secured an undisclosed amount of funding from CerraCap Ventures to help farmers improve soil health and crop yield. 
  
• U.K.-based fintech venture Swoop snagged £5.4 million ($6.5 million) to connect global small and medium-sized enterprises with lenders. 
  
• OhmConnect raised $55 million in a round backed by Citi Impact Fund and Elemental Accelerator to build a residential energy flexibility platform.

Impact Voices: Policy Corner

Ensuring the Community Reinvestment Act addresses the racial wealth gap, as intended. More than 40 years after the Community Reinvestment Act was put in place to undo racist policies in banking, the racial wealth gap persists. “New CRA regulations cannot continue to be color-blind,” Bulbul Gupta of Pacific Community Ventures and Lenwood Longof the African American Alliance of CDFI CEOs write in a guest post on ImpactAlpha. A proposed rule to strengthen the CRA, issued jointly by three federal agencies last month, provides necessary upgrades. However, it fails once again, say Gupta and Long, to take a race-conscious approach. “This is not acceptable.”

• Modernizing community finance. Key to addressing CRA’s original failures: Data. CRA exams should include the racial and ethnic makeup of borrowers, argue Gupta and Long. “We need banks to be able to show that they are serving the entire community, which includes the Black and brown community members who have been most excluded.” Race-conscious updates to the CRA can help shrink the racial wealth gap and triple investments in communities of color, say Gupta and Long. “The CRA is an incredible tool to make this happen, but only if its implementation serves that original purpose.”
  
• Keep reading, “Ensuring the Community Reinvestment Act addresses the racial wealth gap, as intended,” by Bulbul Gupta and Lenwood Long on ImpactAlpha.

Agents of Impact: Follow the Talent

Risa Edelman, ex- of US Environmental Protection Agency, joins the Department of Energy as an international policy advisor in the Office of Energy Efficiency and Renewable Energy… Paul van Stiphout, ex- of CBRE Investment Management, joins Catella Residential Investment Management as manager of the firm’s pan-European residential impact fund… Global Steering Group for Impact Investment is convening the first part of its Impact Summit Series, “Financing a Better World Through Impact Transparency,” with guests including Sir Ronald Cohen, Nick Hurd and Emmanuel Faber, today, June 15.

Thank you for your impact!

– June 15, 2022