The Week in Impact Investing: Producing Impact

TGIF, Agents of Impact! 

• Investing for inclusive prosperity
• Catalytic and commercial capital for small businesses
• ‘Bizarrely high payouts’ for impact fund managers

🗣 Inclusive prosperity. For decades, US economists viewed low-cost exports from China as a positive for consumers. Then came the hollowing out of US manufacturing, and with it, the American middle class. Likewise, cheap Chinese solar panels and wind turbines have been good for the low-carbon transition, but threaten to undermine the US clean energy industry, along with good jobs and economic growth. Treasury Secretary Janet Yellen is carrying a message to Beijing this week: We’ll build our own, thank you. That stance reflects a broader rethink of the economic value of workers, jobs and inclusive prosperity. “People are not just consumers. They are also producers,” as Michael Pettis of Carnegie Endowment points out. “The extent to which they can consume does not depend on how cheap consumer products are, but rather on how much they produce.”

And on how much they own. The Unlock Ownership Fund seeks first-time managers to finance employee-ownership conversions and increase home ownership rates in marginalized communities, as Roodgally Senatus reports. New fund manager Torana Group, featured on this month’s Liist of actively raising impact funds, is out with an employee ownership fund for frontline workers. Ownership and wealth-building strategies are taking center stage at conferences across the country, including next week’s Employee Ownership Ideas Forum and this fall’s SOCAP, reports David Bank. Inequality is one of the major systemic risks on the agenda of diversified shareholders like Legal & General Investment Management and the Nathan Cummings Foundation. Shareholders seeking to mitigate economy-wide risks have filed a record number of “systems-first” proposals for this year’s corporate proxy season, writes contributor Bill Gridley. 

This week, the Environmental Protection Agency awarded $20 billion in IRA funds to coalitions of green banks and community lenders to extend the green energy rollout to a wide swath of underserved US markets. Tideline’s Ben Thornley called the infusion “the largest single injection of catalytic capital into impact investing of all time.” Agents of Impact are focusing on bringing in private capital “to magnify the impact of the once-in-a-generation federal funds,” Amy Cortese reports. Early efforts from CNote, Opportunity Finance Network, and purveyors of municipal bonds point the way. Catalytic funding can go a long way in crowding in commercial capital, as Kusi Hornberger and Marcos Paya show in their analysis for ImpactAlpha of billion-dollar blended-finance deals. Agents of Impact are ready to finance not only the low-carbon transition, but a new economic model that works for consumers, producers and the broad new class of owners. – Dennis Price

The Week’s Podcast

🎧 This Week in Impact. Host Brian Walsh dives into ImpactAlpha’s top stories, with commentary from editor David Bank. Up this week: Unpacking the EPA’s announcement of $20 billion from the Greenhouse Gas Reduction Fund to mobilize commercial investment in community infrastructure and climate solutions. Learning lessons from dozens of blended finance transactions. And how shareholder votes can spur companies to address economy-wide risks.

• Listen to the new episode of This Week in Impact. Get the podcast in your feed by subscribing on Apple or Spotify. What are you waiting for? Search for “ImpactAlpha” wherever you listen and hit “subscribe.” While you’re at it, leave us a review.

The Week’s Short Signals

✅ Fixed income transition finance. Bloomberg has launched a climate-tilted index of government bonds. The index weights countries based upon their “relative preparedness in the transition to a low-carbon world,” including progress on climate goals and investment in clean energy. (Bloomberg)

☢️ Fusion first. In the latest advance for nuclear fusion, South Korean scientists were able to sustain plasma temperatures of 100 million degrees Celsius – that’s seven times hotter than the core of the sun – for 48 seconds. That bests by 18 seconds the previous world record set in 2021. (CNN)

🌈 Proxy for inclusion. The comptroller of the state of New York, who runs the state’s $260 billion pension fund, is leading a proxy push to protect LGBTQ+, Gen Z and Millennial workers. The New York State Common Retirement Fund is asking International Paper and homebuilder Lennar Corp. to disclose their stances on employee support groups, nondiscrimination policies, and equitable employee benefits. (Fortune)

⚡Community power. A ranking of state policies related to energy democracy and utility accountability suggests states have work to do. Just one, Illinois, got a B. Nine states received C’s; the vast majority of southern and western states received failing grades. (ILSR)

💰’Bizarrely high payouts.’ Executives at Climate Fund Managers, a Dutch fund that invests in renewable energy projects in emerging markets, were paid 60% more on average than their peers at other blended-finance funds, according to a journalistic investigation. The fund is backstopped by the Netherlands, US, Canada, and the EU. (Follow The Money)

The Week’s Deal Spotlight

Addressing the small business financing gap with catalytic to commercial capital. Small businesses’ demand for financing is strong, and creative entrepreneurs and fund managers are working to increase the supply. This week saw deals aimed across the full spectrum of needs and solutions, from catalytic capital for micro businesses in India, to commercial debt for small businesses in the Dominican Republic and mid-sized businesses in Bangladesh, to trade financing for businesses in East Africa, to a new bank for underrepresented founders in the US. 

• Pensions for private equity. Mauritius-based impact private equity firm Adenia Capital raised $470 million to invest in African businesses delivering essential goods and services. Adenia tracks an extensive list of impact metrics: 2X gender criteria, job quality, employee benefits, water and energy use, and carbon emissions across its portfolio and supply chains. Its fifth and largest fund is the first to secure backing from three African pension funds, which are showing cautious but growing interest in private equity and small business finance. South Africa’s Public Investment Corp. and funds from Kenya and Ghana committed roughly $50 million, “a great first step to opening up an important source of capital for Adenia and the industry,” Adenia’s Stéphane Bacquaert told ImpactAlpha. Major development finance institutions backed the fund as well.
  
• Creative capital. India’s Aavishkaar Capital provided $5 million to Bangladesh’s Midland Bank from its $250 million ESG First Fund to incentivize lending to textile businesses and nudge its borrowers to improve environmental, social and governance practices and reporting. Gawa Capital made an equity investment in Sindhuja Microcredit through its blended-finance Huruma Fund; the capital, invested alongside Oikocredit, will support microlending to India’s rural traders, shopkeepers and farmers.
  
• Diversified debt. First Circle Capital provided pre-seed financing to Ugandan fintech company Credify to help East African small enterprises pay for imported goods essential to their businesses. Commercial bank Citi extended loans to Banco Popular Dominicano and Banco Santa Cruz to expand working capital lending to small businesses in the Dominican Republic.
  
• Returns on inclusion. Known Holdings launched a US investment bank for “traditionally under-capitalized founders, and underutilized sectors that are ripe for investment and growth,” said Known’s Valerie Red-Horse Mohl. The entity, Known Growth, will provide mid-sized businesses with private equity, private debt and low-cost loans with a focus on helping founders scale while retaining ownership and control.
  
• Share this post. The full roundup of our deal reporting this week is up on ImpactAlpha.com. Go with the dealflow. 

The Week’s Talent and Jobs

💼 See and share more than a dozen new impact jobs posted this week on ImpactAlpha’s Career Hub and view hundreds of more jobs in impact investing and sustainable finance. Have a job listing to post? Submit it here.

Chelsea Adler, a veteran of Centerbridge Partners and Arsenal Capital Partners, joined MUUS Climate Partners as head of investor relations… The IFC promoted Maiko Miyake to country advisory and economics manager for North, West and Central Africa… The AGRI3 Fund appointed Deniz Harut, a former executive director at Pollination Group, as CEO and managing director… The Tennessee Center for Employee Ownership named Ashley Allen, former community impact director for the Nashville Kats, as program director.

Johan Rockström of the Potsdam Institute for Climate Impact Research won the Tyler Prize for identifying the boundaries of Earth’s life-support… Richard Williams was promoted to lead portfolio manager of Boston Trust Walden’s small- and SMID-cap equity strategies… David Socolow, previously with the New Jersey Higher Education Student Assistance Authority, joined Social Finance to head policy for the Social Finance Institute… LISC promoted Nadia Villagrán to vice president to Lead Rural LISC. 

That’s a wrap. Have a wonderful weekend.

– April 5, 2024