The Brief’s Big 8: Fink vs. Fink, climate-smart investors, mission-matching money, conservation finance takeaways, impact-first capital preservation



TGIF, Agents of Impact!

The real Larry Fink letter released this week used the word “climate” exactly zero times. The fake Larry Fink letter, distributed a day earlier, had the BlackRock CEO calling climate change “the greatest threat to the long-term stability of our economy and our investors’ assets” and suggested companies must address climate risk “or fail in their fiduciary duty” (see No. 2, below). The impending bankruptcy of California utility PG&E – a result of climate-fueled wildfire liabilities – suggests the fake Larry Fink may have been on to something.

BlackRock, the world’s largest asset manager, is also the largest institutional holder of PG&E’s stock (see No. 1). But BlackRock’s “sustainable core” exchange-traded funds, introduced in October, don’t appear to be exposed to PG&E’s troubles. Other “ESG” funds, screened for environmental, social and governance factors, also heeded the company’s repeated warnings of the risks of ”climate-driven extreme weather.” Whose fiduciary duty is it to protect everybody else? In a volatile world, impact-related risk-reduction may be even more significant than the upside opportunities. Impact beta, anyone?

We’re honoring Martin Luther King Jr.’s birthday on Monday with a Brief break. We’ll see you back here Tuesday, Jan. 22.

– David Bank, editor

Featured: The Brief’s Big 8

1. Climate-smart investors dodged PG&E ’s bankruptcy. Staid and stable utilities have long been viewed as safe investments. Climate change has disrupted that assumption, at least in California, where PG&E faces more than $30 billion in climate-fueled wildfire liabilities and will seek bankruptcy protection. PG&E is “one of the first major financial casualties from climate change — and far from the last,” The New York Times reported. Added Bloomberg, “There’s a long list of those at risk, including farmers, homebuilders and insurers.”

  • Sustainability swagger. ESG investors largely avoided PG&E, which warned investors repeatedly of the risks of climate-related disasters. Of the roughly 1,200 sustainable equity funds tracked by Bloomberg, just 34 held shares of PG&E. “Our impact savvy lets us see where the market is mispricing risk,” says Nonprofit Finance Fund’s Antony Bugg-Levine.
  • Institutional shift. Last week’s Returns on Investment podcast was presciently titled, “Climate risk hits the market and other impact investing trends to watch in 2019.” Listen in.
  • Climate reality bites.

2. The real message in the fake letter from Blackrock’s Larry Fink. Publications, including the Financial Times, were pranked by a letter purportedly from BlackRock CEO Larry Fink. One reason for their credulity: the fake letter made cogent points that could plausibly have come from Fink himself. In the fake letter from still-unknown hoaxsters, the faux Fink ranked climate change at the top of global risks. The fake letter purported that BlackRock would divest from coal in its actively management funds, screen out fossil fuels and vote in favor of management “only when we find them to be working toward net zero carbon emissions by 2050.” #FakeLarryFink.

3. Fink’s real letter is out. The BlackRock CEO avoided mention of climate change, but said urgent challenges and government dysfunction mean “society is increasingly looking to companies, both public and private, to address pressing social and economic issues,” (real) Larry Fink writes. “Companies that fulfill their purpose and responsibilities to stakeholders reap rewards over the long-term. Companies that ignore them stumble and fail.”

4. The movement of money to match the mission. Revenues over rounds. That’s the ethos of entrepreneurs, investors and advocates who are rejecting high-flying venture capital in favor of financing that allows them to pursue real revenues, ethical operations and organic growth. The movement gained attention with a feature in The New York Times highlighting groups familiar to ImpactAlpha readers, including Zebras Unite, Village Capital and Indie.vc. Right capital for the job.

5. Agent of Impact: I-DEV’s Jason Spindler. Before the arrival of billion-dollar impact funds and hundred-million-dollar deals, Jason Spindler and I-DEV International cranked through dozens of five- and six-figure transactions that each could take 18 months or more to close. “He’d want to be remembered for his vision to invest in the growth of African businesses,” I-DEV co-founder Patricia Chin-Sweeney told ImpactAlpha after Spindler was killed in this week’s terrorist attack in Nairobi, Kenya. In total, I-DEV has helped 350 small and medium enterprises in 45 countries. At least 40 have gone on to raise $80 million in investments and growth capital. Spindler was driven by the promise of economic development, Chin-Sweeney said, through “attracting greater investment to responsible, innovative businesses.” Follow ImpactAlpha on Instagram.

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

7. Ceniarth wants to boost rural livelihoods while preserving its capital. Here’s where it invested last year. Diane Isenberg, founder of the $400 million family office Ceniarth, staked out a provocative impact investment strategy in a guest post in ImpactAlpha last summer. “If you are rich today and invest in a manner that generates deep impact, and returns your capital with a yield in line with inflation and reasonable expenses, you will still be rich tomorrow,” she wrote. Ceniarth pledged to shift more than $300 million over the next decade into a strategy it calls “Impact-First Capital Preservation.” In a follow up post on ImpactAlpha, Ceniarth’s Greg Neichin recaps the family office’s $40 million in commitments last year. Three key insights.

8. What we learned from an Althelia Climate Fund investment in Peru’s Amazon. The $115 million Althelia Climate Fund’s project to restore degraded areas of Peru’s Amazon was supposed to demonstrate how the sale of forest carbon credits could be harnessed to finance large-scale conservation and boost the livelihoods of local farmers. When a robust global market for such carbon credits or offsets failed to materialize, Althelia developed alternative revenue streams to make the project work. The takeaway: Invest in fund managers who can adapt when conditions inevitably diverge from initial plans. Conservation finance.

9. Linking impact to financial rewards can improve outcomes, and attract capital. Companies that reach impact milestones can reap a range of rewards aimed at making them more investable. For example, Clínicas del Azúcar, a network of low-cost diabetes clinics in Mexico, increased the ratio of low-income clients it served from 31% to 36% and improved blood-sugar levels. The firm, which was paid $134,000 by the Swiss development agency, says the incentives have helped it raise $1.5 million in equity from impact investors. A new report details direct payments, preferential financing terms and other incentives to hit impact targets. Get smarter.

January 18, 2019.

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