The Brief | November 9, 2018

The Brief’s Big 10: Adventures in stakeholder capitalism, Opportunity zone experiments, innovations in donor-advised funds, CNote’s Agent of Impact

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TGIF, ImpactAlpha readers!

Featured: The Brief’s Big 10

1. Don’t blame the robots. Shareholders are stealing our jobs. Sure, automation and the gig economy can undermine quality jobs with good wages, reliable benefits, advancement opportunities and paths to ownership. Likely even more culpable: Short-term investors who pressure companies into squeezing workers and disgorging cash, according to a new report, published in full on ImpactAlpha. Transform Finance’s Andrea Armeni and NYU’s Tensie Whelan call on asset managers and owners to reject shareholder primacy and embrace investment opportunities that create quality jobs and value human capital. Stakeholder capitalism.

2. Mitigating the investment risks of rising income inequality. Investors have been slow to appreciate the risks of increasing income inequality, and slower to act. “As long-term investors, we need to think about social instabilities that are possibly caused by income inequality and their negative impact on long-term investment return,” warns Hiro Mizuno, chief investment officer of the $1.4 trillion Government Pension Investment Fund of Japan. A new report from The Investment Integration Project and Principles for Responsible Investment outlines risk-mitigation strategies, including treating workers as assets, not liabilities; redesigning executive compensation; and, yes, making clear that corporations should pay their share of taxes in order to support long-term investments. Get mitigating.

3. Agent of Impact: Yuliya Tarasava. The native of Belarus spent a decade on Wall Street developing investment solutions and wealth management frameworks before co-founding CNote in Oakland, Calif., with a novel approach to community capital-raising. CNote’s no-minimum, no-fee savings product lets retail investors put their capital to work through community development finance institutions that make loans for small businesses, affordable housing, health clinics and charter schools in underserved communities. Says Tarasava: “It’s not just giving an opportunity to invest, but to think differently about your money and where it sleeps at night.” The Y Combinator-backed company is on a roll: In little more than a year, CNote’s account holders have invested $18 million. Subsequent loans have supported more than 280 businesses – half minority-led and more than a third led by women – and helped create or maintain 1,400 jobs. “All the dollars go to work to make our communities safer, healthier and better place to live for all of us,” Tarasava says. Follow ImpactAlpha on Instagram.

4. Raj Shah on Opportunity Zone experiments to revive economic mobility. The head of the Rockefeller Foundation calls new tax-advantaged Opportunity Zones the biggest experiment in the American economy today “to tackle the lack of opportunity that so many American households suffer through, and to change the hopefulness and aspiration they have for their children.” The Rockefeller and Kresge foundations are putting up $25 million in grants and guarantees to fuel such experimentation. It’s on impact investors to help realize the social potential of the new legislation, Shah says. “I feel like we’ve got to take the shots on goal we have and make them the best shots we can take.” The Q&A.

5. New York City eyes low-interest loans and pipeline support to get into the opportunity zone. New York City is keen to attract private capital to 306 designated opportunity zones across the five boroughs, says Eric Clement of the city’s Economic Development Corp. Clement’s ideas: Low-cost loans for opportunity fund managers; pipeline support to guide investors toward attractive projects; and additional advisory and consulting services. Impact Capital Forum’s Carolyn Kim Allwin and Orrick’s Perry Teicher share the takeaways from a gathering of  New York real estate investors, fund managers, impact investors, attorneys and consultants. Strong interest.

6. Donor-advised funds start to add tools for impact investing. The tax-advantaged accounts managed by community foundations, public charities and financial-services giants like Fidelity, Schwab and Vanguard have primarily been used to make charitable donations. But in the same way that some big foundations have begun to go beyond grant-making to advance their missions, some sponsors of such “DAFs” are allowing donors to direct their principal toward impact investments. Nicholas Salter of Progressive Philanthropy Group suggests improvements for donor-advised funds as vehicles for impact investing. Our favorite: “Outcome portfolios” constructed by donor-advised fund sponsors to help donors mix grants and investments in specific issue areas. Building the market.

7. Deals of the week. Drink from the deal firehose all week long on A few that stood out:

8. The Russell Family Foundation’s journey to align its endowment with its mission. It began with a question: Does an environmental foundation undermine its grants to improve water quality by investing in businesses that pollute local waterways? The inquiry jump-started a process that led the $141 million foundation to embrace its role as an investor, asset owner and shareholder seeking to protect the environment and empower local communities in the Pacific Northwest and Puget Sound. In the past five years, the Russell Family Foundation’s mission-aligned portfolio outperformed its benchmark by nearly 3%. The 75% solution.

9. Using impact measurement to drive business value. Metrics are less critical than management “to minimize risks, manage underperformance and drive impact further,” says Martina Castro, who designs management systems at CDC Group, the U.K.’s development finance institution. In the latest post in our Measure Better series with Acumen, ImpactAlpha spoke with Castro and her CDC colleague Sara Taylor, who runs an impact investing fund of funds that has committed about $175 million across Africa and South Asia. Their goal: making sure measurement of the agency’s investments help portfolio companies better serve underserved populations in developing markets. Measure better.

10. The Conduit: Doing good while eating and drinking well (podcast). ImpactAlpha gathered Agents of Impact last week in the basement speakeasy of The Conduit, a new club in London’s Mayfair district that bills itself as a home for people passionate about social change. Conduit co-founder Paul van Zyl has turned what are often considered overhead burdens or operating costs – such as technical assistance for entrepreneurs – into drawing cards for a club that people are clamoring to join. In an interview for ImpactAlpha’s Returns on Investment podcast, van Zyle shared his journey from human rights lawyer and entrepreneur to social-impact convenor. “If you’re going to build an impact business with impact at its core,” he says, “you need a posse of people around you to help you.” Meet Paul van Zyl.

November 9, 2018.