Greetings, ImpactAlpha readers!
We were surprised when we tested a cool new online tool and discovered that several “gender-lens” mutual funds and ETFs got low scores… for gender equality. The story (see No. 1, below) has multiple lessons: The need to hold fund and wealth managers accountable, especially to their impact claims. The demand for more and better data. The still too-limited impact-investing options available to retail investors.
The biggest lesson may be that each development in impact investing sets the stage for the next level. A few years ago, screening companies for women on their boards of directors may have been the state of the art. Now, the range of relevant questions includes the gender pay gap, women’s advancement opportunities, material risks from sexual harassment and gender-based violence, human rights in the supply chain, access to financing for women entrepreneurs, and equity and opportunity for women of color. “It’s easier to count women,” Veris Wealth Partners’ Luisamaria Ruiz Carlile said this week. “What’s more challenging is moving from counting to valuing women.” What’s your take?
- Get gender smart. Join ImpactAlpha’s Agents of Impact Call No. 5: The Gender Alpha, Tuesday, Nov. 20. RSVP for The Call.
Featured: The Brief’s Big 9
1. We asked State Street why its SHE exchange-traded fund scored poorly on gender balance. A new online tool for scoring stock portfolios’ level of “gender equality” is already bringing transparency to the often-opaque world of mutual and exchange-traded funds. The largest public “gender lens” fund, State Street Global Advisor’s SHE ETF, with $353.2 million in assets, received mediocre scores across a dozen indicators of gender diversity and gender balance in the shareholder advocacy group As You Sow’s new Gender Equality Funds assessment tool. “I want to talk to the fund managers,”As You Sow’s Andrew Behar told ImpactAlpha. “We want to understand how they’re picking their funds and what the methodology is.” The full story.
- The response: “We believe the main driver of our below-average rankings is that our approach is sector-relative,” State Street’s Jennifer Bender told ImpactAlpha. “We are targeting companies that promote women into senior leadership roles and put women on boards relative to their sectors.” State Street’s index was built to track the universe of large U.S. stocks in a way that would be reasonable for institutional investors, she said, while rewarding companies for their efforts. “One could argue that the reason we have lower gender criteria than other products is because we have made a conscious decision to make the product more investable and fit for purpose in institutional portfolios,” Bender said.
- Shareholder engagement. As You Sow’s rankings don’t reflect funds’ engagement with portfolio companies, including proxy votes against all-male boards of directors. State Street says it has voted against more than 500 chairs of nominating committees on boards without women in each of the last two proxy seasons. Glenmede Investment Management’s Peter J. Zuleba III said he was likewise disappointed the As You Sow rankings overlooked proxy voting strategies.
2. European oil companies’ climate-resiliency advantage. A report from Carbon Disclosure Project shows that Europe’s oil companies are better prepared than their North American counterparts across transition and physical risks, transition opportunities and climate governance. Actual investments to hedge such risks remains minimal: the sector as a whole invested only 1.3% of its 2018 capital expenditure in low-carbon approaches. Climate-disruption watch.
3. Investing in the success of low-income students. Income-share agreements to fund education are more like equity than debt, aligning the interests of investors with students’ success. Experiments with ‘ISAs’ are underway at a growing number of universities, coding bootcamps, private schools and college alternatives in the U.S. and worldwide. The nonprofit Better Future Forward is testing ISAs with more than 200 low-income students in Chicago, Minnesota and Wisconsin. Results-based.
- Fast-forward 20 years. Nonprofit Finance Fund’s Antony Bugg-Levine (@ABLImpact) imagines a world in which organizations buy income-share agreement receivables at a discount, help students succeed, and profit when investees get and keep good jobs.
4. Impact innovations in infrastructure investing (podcast). A bipartisan infrastructure bill may be a fantasy, but state- and local-level experimentation is already underway. One market to watch will be water, suggests Imogen Rose-Smith on the latest episode of ImpactAlpha’s Returns on Investment podcast. Water markets can help allocate a scarce resource towards its most valuable uses, but also challenge established ideas of water as a public good that shouldn’t be privatized. “Coming up with solutions to those problems is something that impact investing can help solve,” Rose-Smith said. Read on and listen in.
5. Agent of Impact: Richelieu Dennis. Richelieu Dennis saw something of his own story in Mayvenn, which sells hair products, primarily to African-American women, through a distribution network of local stylists. So his Essence Ventures led Mayvenn’s recent $23 million round of funding. Dennis has been a man on a mission since Unilever bought Sundial Brands, the personal-care products company he co-founded, for an estimated $1.6 billion. Dennis, who was born in Liberia, started Sundial by selling homemade soap on street corners in Harlem. “We built this business on a micro-level, community by community,” he told The Wall Street Journal. “That’s how it needs to happen.” As part of the acquisition, Sundial and Unilever created the $100 million New Voices Fund, which has invested in three dozen businesses run by women of color, including Beauty Bakerie and Envested. “The pipeline exists. The voices are there. But we are left out of the table,” New Voices advisor Melissa Bradley said at this month’s Gender-Smart Investing Summit. “This is an investment in the belief that women of color have parity and have equity.” Follow ImpactAlpha on Instagram.
- Agents of Impact weekly roundup: Job openings, career moves, events and opportunities.
6. Deals of the week. Drink from the deal firehose all week long on ImpactAlpha.com. A few that stood out:
- Creative economy. Essence Ventures leads a $23 million investment in Mayvenn’s hair-products platform… For Days’ sustainable-clothing subscription service clinches $2.8 million.
- Inclusive fintech. PayJoy secures debt to advance economic inclusion through smartphones… MFS Africa raises $14 million to expand mobile money services… Amalgamated Bank joins Insikt’s $26 million social bond securitization.
- Food and farmer finance. Healthy fast-casual chain Sweetgreen raises $200 million… Bridges Israel backs precision irrigation company NDrip.
- New Revivalists. Evergreen Cooperatives catalyzes employee ownership.
- Missing middle. Capria Fund raises $33 million to invest in early-stage emerging-market funds.
- Gender lens. Rael raises $17.5 million for organic menstrual products.
7. Moving capital to the frontier of frontier markets. The development community, says the UNDP’s Achim Steiner, “needs to move out of our comfort zone, take more risks and adopt more flexible approaches to get finance going to where it’s most needed.” Of $81 billion in private capital for global development between 2012 and 2015, only $5.5 billion, or less than 7% of the total, went into the world’s 47 least-developed countries. Credit and risk guarantees, currency hedges and other tools are addressing real and perceived risks. What works.
8. Managing impact and moving capital to the Opportunity Zones that need it most. It could be risky to invest in Opportunity Zones without plans to understand or report on social impact, even without a federal mandate. Tideline’s John Griffith says projects that do not address a clear community need or deliver a tangible benefit to existing residents can be mired by objections from local stakeholders and face other roadblocks, leading to long delays and additional costs. Management tools.
- A new report from the Urban Institute rounds up nearly two-dozen tools to answer the question, “Where is Opportunity Zone capital needed most?” Meet real needs.
9. This economy is handmade. Work done with hands is the second-largest employer of women in developing economies. The “handworker economy” – the majority-female community of artisans key to supply chains in clothing, jewelry, sculptures and furnitures – accounts for 300 million jobs globally. It’s vastly underinvested, says Rebecca van Bergen of the nonprofit Nest, which supports over 450 global artisan businesses, giving them access to the digital learning tools and consulting they need to grow and scale their businesses. Market building.
— November 16, 2018.