The Brief’s Big 9: What impact gets right, billion-dollar babies, north-bound innovation, buy back the block, climate shareholders as Agents of Impact



TGIF, Agents of Impact!

What impact investing gets right. In the land beyond trade-offs impact investors are finding new ways to more accurately price risk, and discovering a broader range of investment opportunities. In this week’s Beyond Trade-offs podcasts, we learned from the Ford Foundation that U.S. affordable and workforce housing is among the most stable assets in real estate. Elevar Equity invests in companies that can make up in volume what they may lose in margin by affordably meeting the real needs of emerging middle-class consumers. What connects the two strategies? Impact alpha.

Omidyar Network’s Robynn Steffen again provided a time-coded guide to ImpactAlpha’s conversation with Ford’s Roy Swan and Christine Looney and called out three things the market get wrong: The low risks of affordable housing (13:10). Labor is an asset, not just an expense (16:30). And diverse asset managers perform as well or better than homogenous teams (19:17). “Pricing risk correctly is a critical driver in impact investing,” tweeted Bridgespan’s Michael Etzel. “How can we scale that to a broader set of investors?”

We’re taking a “brief” break on Monday for the U.S.’s Memorial Day weekend. See you back here Tuesday, with a podcast conversation with Liesel Pritzker Simmons of Blue Haven Initiative. Don’t forget to sign up for The Call No. 9 next Thursday, May 30, when we’ll try to finally wrestle trade-offs to the ground. RSVP today.

– Dennis Price, editorial director

Featured: The Brief’s Big 9

1. Ford Foundation finds institutional-grade impact investments in mispriced risks. The trade-off between financial returns and social impact is enshrined in the overwhelming majority of foundations that allocate to their mission each year only the obligatory 5% of their assets. The emergence of institutional-grade impact investment strategies has called out the social impact and environmental sustainability of the other 95% of foundation assets. “We’re talking about endowments here,” says Omidyar Network’s Robynn Steffen. Ford Foundation is one of only two dozen or so foundations making mission-related investments from their endowments. “We’re trying to prove that it is possible to generate both financial returns that would be appropriate for endowments… and social returns,” Ford’s Roy Swan tells ImpactAlpha in Episode Five of the Beyond Trade-offs series of podcast, produced with Omidyar Network. Ford has invested nearly $130 million of a $1 billion endowment commitment in affordable housing, financial inclusion, quality jobs and diverse fund managers. Listen in.

2. Elevar’s ‘method’ prioritizes product affordability to drive impact for millions. Elevar Equity’s investment due diligence starts with the customer. “We want the DNA of the company to be focused on the end customer in the low-income community,” Sandeep Farias tells ImpactAlpha. Elevar wants its investments to impact as many people as possible and to make money doing it. Best positioned to deliver are companies whose products and services are designed for affordability. In Episode Six of our Beyond Trade-offs series, Farias lays out the Elevar Method. “If you do the right thing by the customer, then the entrepreneur will do well,” says Farias. “If you do the right thing by the entrepreneur, then the fund will do well. If you do the right thing by the fund, then the LPs will do well.” Hear him out.

3. Generation Investment Management joins the club of billion-dollar impact funds. Other $1 billion impact funds have come from hybrid investors like TPG Growth and what was previously Abraaj. Now comes a $1 billion fund from pure-play sustainability investment manager Generation Investment Management. The $22 billion sustainable investment manager founded by Al Gore, the former U.S. vice president, and David Blood in 2004 just closed its third private equity fund and first to reach $1 billion. The Sustainable Solutions Fund will target investments of $50 to $150 million in companies with solutions in climate, health, financial inclusion and the future of work. It already has a $60 million stake in Andela, the African tech-talent connector. “Sustainability companies are winning,” Generation’s Lilly Wollman told ImpactAlpha. “The pure investment opportunity is extremely attractive today, and broad.” Here’s what we know.

4. Zipline’s drones deliver innovation from the Global South. Legacy investors haven’t flocked to invest in sub-Saharan Africa. A company that integrates high-tech autonomous drones, sophisticated cold-chain management and software-driven automation has gotten their attention, and $190 million in financing. California-based Zipline has been delivering blood, vaccines and medications to clinics and hospitals in Rwanda and is replicating its model in Ghana and rural North Carolina. The $70 million it raised last year, and now a fresh $120 million more from TPG Growth’s Rise Fund, investment firm Baillie Gifford, Singapore sovereign fund Temasek, Goldman Sachs, and Toyota Tsusho Corporation will help it prove out its model for just-in-time medical delivery. Zipline’s signal achievement: getting global investors to effectively subsidize emergency care for rural Africans. Check it out.

5. Agents of Impact: Climate shareholders. The proxy season is in full swing and the results on 75 climate-related resolutions are… mixed. This week’s Agents of Impact are the climate-smart asset owners, asset managers, proxy advisory services, investor networks, shareholder activists and engaged employees and citizens engaging corporate managers through their voting power. Among asset owners, the $210 billion New York State Common Retirement Fund and the $10.5 billion Church of England are pressing Exxon to face up to climate risks at this week’s annual meeting. Exxon successfully appealed to the SEC to quash a shareholder proposal to ask Exxon to disclose emission-reduction targets (see, “As shareholders get active on climate, the SEC lets companies duck votes).

At BP, Climate Action 100+, which includes more than 300 investors with $33 trillion in assets, won nearly unanimous approval to demand the company explain how its carbon emission targets align with the Paris climate agreement’s 2-degree limit on global warming. But shareholders voted down a second, stronger proposal to reduce emissions from the use of BP’s products. At Amazon, the investment advisory firms ISS and Glass Lewis recommended a vote ‘For’ a proposal asking for a company-wide climate change plan after nearly 7,700 Amazon employees signed an open letter to Jeff Bezos. The resolution failed. The nonprofit shareholder advocacy group As You Sow has a helpful resolutions tracker and a useful proxy preview. Climate shareholders can still finish strong, but time is running out and activist organizations like 350.org are growing impatient with “engagement” strategies. If the urgency of last fall’s reports on catastrophic climate change doesn’t spur corporate change, they say, it’s time to do what more than 1,000 investors have already done: divest.

6. Deals of the week. Stay on top of the dealflow all week long on ImpactAlpha.com. A few that stood out:

7. Buying back the block. Ensuring those living and working in Opportunity Zones are empowered to use the tax incentive to take an ownership stake in their own neighborhoods is emerging as a focal point among the incentive’s proponents, reports Rachel Reilly of Economic Innovation Group from this week’s Forbes Opportunity Zone Summit in Newark. “Why do other people see gold in our neighborhoods and we don’t?” asked New York hip-hop radio host Charlamagne Tha God. The Confluent Group’s David Gross, business partner of late Agent of Impact Nipsey Hussle says the Our Opportunity initiative he co-founded with Hussle is a playbook for people to “buy back the block.” Philanthropies like Rockefeller, Kresge and the Mastercard Center for Inclusive Growth are providing catalytic support for cities and impact-oriented fund managers. Others, including Launch Pad’s Anne Driscoll, are touting education, training and agency. Seizing opportunity.

8. Equity crowdfunding is diversifying startup funding. Women entrepreneurs only get 13% of traditional venture capital deals. Founders of color get just 1%. But when diverse founders turn to equity crowdfunding platforms, which allow almost anyone to invest in startups, they do much better. New research suggests women have higher success rates than men in regulated crowdfunding (though men often have larger funding targets.) At equity crowdfunding platform Republic, a quarter of the companies funded have founders of color; 44% have are female-led. At Wefunder, which has helped more than 279 startups raise more than $92 million, 18% are companies funded are female-founded. Though equity crowdfunders earn a return, Wefunder’s Jonny Price, told ImpactAlpha, “their motivations to invest are so much broader,” than financial rewards. Check the stats.

9. Scouting the impact ecosystem at SEED. Investors, entrepreneurs, educators, consultants, turned out for the San Francisco conference for early-stage social ventures. Among the startups seeking funding: Native Women Lead, a cooperative focused on mentoring, investing in and helping to build companies led by native American women; Savvy Cooperative, a patient-owned co-op built that connects health care companies doing market research for new products; and Flourish, which probes how Uber drivers and other underbanked populations spend their time. The venture is integrating games and lottery-like experiences to help people save money. Seeding impact.

May 24, 2019.

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