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#Featured: ImpactAlpha Original
B Lab’s annual list of top-ranked impact funds includes some you may not have heard of — yet. Private-equity firm CoreCo has an investment thesis you’re not likely to read about in The Wall Street Journal. The $54 million fund spots high-growth businesses in Central America that operate with sustainable business practices.
CoreCo is among this year’s Best for the World funds named by nonprofit B Lab, based on an assessment of the impact of each company in a fund’s portfolio. More than 90 funds have now opted to have their portfolios independently measured and verified as B Lab’s GIIRS Impact Rating system, a rating system analogous to Morningstar. Of those, B Lab identified 28 funds for their outperformance in social and environmental impact.
The list includes many funds familiar to those who have followed impact investing in recent years, such as Leapfrog Investments, Village Capital, Deutsche Bank and Vox Capital. We highlight five others with distinct impact strategies that helped them stand out.
Read, “The impact investment strategies that helped make these funds among the ‘Best for the World,’” by Dennis Price, on ImpactAlpha:
#Dealflow: Follow the Money
World Bank approves $20 million “blue bond” for Seychelles. Funds will be used to strengthen the island nation’s management of its fisheries and marine resources. It is the first World Bank project in the Seychelles in 30 years. The financing includes a $5 million credit from the Global Environment Facility and €5 million ($5.9 million) from the International Bank for Reconstruction and Development. The Seychelles is tapping innovative financing to meet its goal to protect 30% of its coastal economic zone by 2020. Last year, it partnered with The Nature Conservancy in a “debt-for-nature swap” that restructured $21.6 million of the country’s sovereign debt to create a protected marine area and fund climate adaptation efforts.
LiftFund raises $1.3 million for hurricane relief. The San Antonio, Texas-based non-profit lender will use the capital to make no-interest loans to small businesses in areas affected by Hurricanes Harvey and Irma, where the cost of damages could approach $300 billion. Investors include J.P. Morgan Chase, which seeded the fund with $1 million, Groupon and Goldman Sachs. “Small businesses are the backbone of the communities they serve, and many absorbed significant damage from the recent hurricanes,” says Groupon CEO Rich Williams. “Helping businesses with much-needed access to capital is a key way we can help these communities along the road to recovery.” LiftFund launched similar efforts in the aftermath of Hurricanes Katrina, Ike, and Sandy.
Farm Taaza raises $8 million to strengthen India’s farming supply chain. The Bangalore-based company, launched in 2015, buys produce from farmers and sells it to shops, restaurants, and hotels. Its Series A funding was backedby Hong Kong-based Epsilon Venture Partners and IL&FS Investment Managers. A number of startups aim to improve India’s agriculture supply chain. Last year Farm Taaza acquired two of them: Bangalore-based Kaivalya Farms and Mysore-based Farm Exotica. The company is eyeing business-to-business e-commerce. “The greatest potential comes from the digitisation of supply chain,” says Mahesh Vaidya, general partner at Epsilon Venture Partners.
#Signals: Ahead of the Curve
Nudges for good. “Nudges” are small changes designed to have a big impact on individual behavior. Richard H. Thaler, a behavioral economist won this year’s Nobel Prize for his work on the idea. Automatically enrolling employees in retirement programs, for example, instead of asking them to opt in, leads to more savings. Nudges have been adopted to make all sorts of public policies more effective, from increasing car registration to getting kids to choose healthy school lunches. Impact investors have taken note. The Gates Foundation has “nudged” biotechnology startups to tackle neglected diseases in the developing world. Don’t ask investors to “opt in” to environmental, social and governance reporting, Matthew Weatherley-White, a managing director at Caprock Group, suggested at SOCAP last year. Instead, they should have to opt out. “If we made ESG the opt-out setting, the system would change fundamentally and irrevocably,” he said. Nobel-winner Thaler has three principles for the use of nudges: Nudging should be transparent and never misleading. It should be as easy as possible to opt out of the nudge. And there should be good reason to believe that the behavior being encouraged will improve the welfare of those being nudged.
The age of superabundant capital is here. Tackling the problems targeted by the United Nations’ Sustainable Development Goals will require trillions of dollars in new investment every year. That sounds daunting until you consider new research from Bain & Co.’s Macro Trends Group. Rather than a scarcity of investment funds, researchers found, too much money will be chasing too few good investments for a long time into the future. Global capital balances more than doubled to more than $600 trillion (9.5 times global GDP) in 2010, from $220 trillion (about 6.5 times global GDP) in 1990. They could surpass a quadrillion dollars by 2025.
In the Harvard Business Review, “Strategy in the Age of Superabundant Capital,” the authors argue this superabundance of capital could last through 2030 and beyond, thanks to a couple of key factors. First, financial markets are surging in such emerging economies as China and India. These countries will account for more than 40% of the increase in financial assets globally between 2010 and 2020. They will continue fueling capital growth well beyond 2020. And second, more people moving into middle age. Those between 45 and 59 are past their prime spending years and are making greater contributions to savings and capital formation than any other age group. These “peak savers” will represent a growing percentage of the global population until 2040.
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