Greetings, Agents of Impact!
Featured: ImpactAlpha Original
This is the year capital markets set sail for an inclusive and sustainable future. Or else. ImpactAlpha is on the lookout for signals that global and local capital markets are shifting from exclusion and extraction to inclusion and regeneration. Long-term value creation may be the watchwords of this new capitalism. What’s really at stake is power. That a power shift is already underway can be seen in the groundswell of entrepreneurship and innovative finance; in the growing long-termism of the largest institutional asset owners; in the rising power of women; in the tipping points of climate finance; and in thousands of communities around the world. Here’s some of what we’ll be watching for in 2020:
- Stakeholder revival. The people are rising up and taking business and finance with them. Protests have erupted around the globe, while new tools of capitalism are giving communities a larger say and a larger cut. This year, the “S” in ESG stands for “Share the Wealth.” ImpactAlpha is watching for: Shared equity models that build local ownership. Opportunity Funds that create shared wealth for communities. “Good jobs” strategies for the low-carbon transition.
- Institutional shift. For “universal owners,” there are no externalities. Large pension and sovereign funds are pressing asset managers to mitigate climate risk and demonstrate ESG performance. ImpactAlpha is watching for: More public companies to reframe their strategies as climate and sustainability solutions. BlackRock’s Larry Fink’s annual letter to get more aggressive on climate. The first assessments, in April, for signatories of the International Finance Corp.’s Operating Principles for Impact Management.
- Capital on the frontier. It’s an historic market opportunity: small businesses solving big problems for large populations at dramatically lower costs (made possible by technology and new business models). Spoiler alert: Women are the key. ImpactAlpha is watching for: New ways to finance small and growing business in emerging markets. Ventures that serve the informal economy, expand education and up-skill the workforce. Pressure on development finance institutions to play a catalytic role in meeting the Sustainable Development Goals. And collateral damage, if perceptions of an impact “bubble” trigger a shake-out or market correction.
- Catalytic capital. Those able to accept higher risks, lower returns or more flexible terms get to bridge not only capital gaps, but conceptual gaps about what finance can do. ImpactAlpha is watching for: Blended-capital structures that aggregate assets and transfer risk. Investors attracted to low-risk, high-impact, single-digit returns in a volatile, low-yield world. MacArthur Foundation’s commitments of $10 to $30 million each in four to five demonstrations of the power of catalytic capital.
- Climate finance. If we halve emissions by 2030, halve them again by 2040, and again by 2050, we can reach net-zero emissions and the goals of the Paris climate accord. Of course, even that won’t be enough. The time is now for dramatic action that goes well beyond business as usual. ImpactAlpha is watching for: Revamped national plans for emission cuts at COP26 in Glasgow. Investor pressure on oil companies to write down assets and manage their own decline. Climate stress tests for banks and insurance companies. The breakout of green bonds and sustainable finance mechanisms. A U.S. presidential election will determine whether the world’s largest per capita emitter of greenhouse gases will be a climate leader or laggard.
Check out ImpactAlpha’s 2020 lookaheads all in one place: “ImpactAlpha 2020: Capital sets sail for the inclusive and sustainable future.”
Dealflow: Follow the Money
Inclusiv raises $45 million Southern Equity Fund to support credit unions. Low-income credit unions deploy capital to households and businesses deemed by many commercial institutions to be too “high risk.” Nonprofit Inclusiv, which has supported community development financial institutions, including credit unions, for 45 years, closed its $45 million Southern Equity Fund to invest in member-owned credit unions in underserved areas in the U.S. South. “Financial exclusion has been a persistent problem in the South, particularly for communities of color,” said Inclusiv’s Cathie Mahon. The fund offers “secondary capital” loans that credit unions can use for lending in their communities. Every $1 dollar from the fund can create up to $9 in new deposits and further lending, according to the Kresge Foundation, which in September anchored the fund with a $5 million investment. Inclusiv did not name other investors.
- Low-income community finance. New York-based StoneCastle offers an impact-focused federally insured cash account to boost liquidity for community banks and credit unions in underserved areas. Public banks in North Dakota, and soon California, can lend to and partner with other community finance institutions in underserved areas. JPMorgan Chase’s Entrepreneurs of Color Funds in Detroit, New York, San Francisco and other cities are designed to meet entrepreneurs’ locally-specific financial needs.
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Impact X raises fund to support underrepresented entrepreneurs. Like Harlem Capital and Impact America Fund in the U.S. and Unconventional Ventures in Europe, London-based Impact X is zeroing in on minority and female entrepreneurial talent often overlooked by traditional venture capital firms. It’s looking to raise £100 million ($131 million).
Swedish “impact-first” fund reaches €61 million first close. The fund is an initiative of Norrsken Foundation, launched by Niklas Adalberth, the founder of online bank Klarna. The fund is backed by the founders of H&M, gaming companies Minecraft and King Digital, and the Persson family office. It’s looking to raise €100 million ($112 million) to invest in Nordic and European early-stage impact startups.
Seed company Nu Genes raises $6 million to serve climate-vulnerable farmers. The investment in the resilient seed-breeding company is part of Hyderabad-based Innovation in Food and Agriculture Fund’s climate-smart agriculture strategy.
Signals: Ahead of the Curve
Water investments begin to flow. Millions of people around the world lack access to clean water due to physical shortages, poor infrastructure and governance. Global warming will exacerbate the situation as droughts and flooding become more common. By 2030, 40% of the world’s population will not be able to meet their water needs, and global water demand is expected to increase 55% by 2050, according to the OECD. “Companies alleviating water scarcity will be good investments” in the decade ahead, UBS Global Wealth Management’s Solita Marcelli told CNBC.
- L’eau and behold. Paris-based CityTaps has raised €2.2 million to help utilities bring running water to low-income urban households in developing countries. After a pilot in Niger, CityTaps is launching its smart metering system in the Kenyan city of Malindi and expects to expand across Kenya in 2021. Singapore-based family office Inheritance Enterprises and the Vitol Foundation, as well as existing investors, backed the round (see, “CityTaps raises funding to increase clean water access“).
- Pure water. In India, where 21 major cities are expected to run dry this year, Aquvio raised a pre-Series A last summer to provide purified water to schools, hospitals and government agencies. Beneficial Returns provided debt financing to Guatemala-based Ecofiltro and Indonesia-based Nazava, which make low-cost water filters for home use.
- Infrastructure. In Cambodia, Khmer Water Supply Holding snagged a $500,000 loan from Nexus for Development to expand small-scale water infrastructure.
- Wastewater. Fidelity launched a Sustainable Water and Waste Fund in the U.K. (its Luxembourg-based water fund surpassed $1 billion in just over a year). KKR is investing in wastewater treatment facilities to better monitor and remove harmful nutrients (see, “Why KKR is investing in wastewater treatment to manage ‘nutrients’”).
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Agents of Impact: Follow the Talent
Margot Brandenburg, ex- of Rockefeller Foundation and founder of MyStrongHome, is joining the Ford Foundation’s mission investments team as senior program officer (see, “Spotting mispriced risks in affordable housing, quality jobs and diverse managers“). MyStrongHome is being acquired by the National Energy Improvement Fund, based in Allentown, Pa. (see “MyStrongHome launches with $8 million from Calvert Foundation for coastal climate adaptation“).
The Global Impact Investing Network is looking for a manager in New York to drive adoption of its IRIS+ and impact measurement program… Tesla is scouting for a local government policy advisor in Fremont, Calif… The Decolonizing Wealth Projectseeks a program manager in New York… Impact investor Snowball is hiring an investment analyst in London… Credit Suisse has an opening for an impact advisory associate in Zurich… The Alternative Capital Summit 2will run January 29-30 in Kansas City, Missouri.
Thank you for reading.
– Jan. 6, 2020
