Greetings, ImpactAlpha readers!
#Featured: Climate Roundup
Trump’s pullout leaves U.S. climate action to cities, states, investors — and citizens. The Paris climate agreement lives on, even after President Trump’s decision to pull out of the global effort. Indeed, Trump’s abdication of U.S. leadership could galvanize a broad movement to accelerate, not slow, the transition to a low-carbon economy and keep temperature rise below two degrees Celsius. Already: Elon is out. California and New York are in. China and Europe are moving on together.
Read ImpactAlpha’s roundup of early reactions:
Nominate yourself or others by June 16. We’re looking for leaders driving impact investing around the world. The Global Steering Group for Impact Investment will honor investors, managers, entrepreneurs and market-builders. Submit an entry.
#Dealflow: Follow the Money
$10 million fund aims to spur pay-for-success programs in the U.S. The Reinvestment Fund, a community-development finance institution based in Philadelphia, created the fund to support the innovative financing mechanism for social services, which ties payment to the achievement of successful outcomes. Twelve pay-for-success initiatives have been introduced in the U.S. since 2012 when the first, which tackled juvenile recidivism at Riker’s Island in New York, launched (and then collapsed). The programs involve complex financial terms and impact assessment and often take one to two years to develop, but only small amounts of funding are available to help structure the deals. The fund “will bring efficiency to these transactions by reducing costs and speeding deal execution,” says Don Hinkle-Brown, the Reinvestment Fund’s CEO. QBE Insurance is committing $7 million and Living Cities is investing $2 million alongside a $1 million contribution from the Reinvestment Fund. The pay-for-success fund will look for senior debt opportunities in the $2 million to $4 million range. The Reinvestment Fund is expanding its impact-investing strategies. In May, it issued a $50 million impact-investment bond to support small businesses and community services in low-income areas.
Nestle targets unemployed youth with Latin America growth plans. First Danone, now Nestle. The Swiss food company is committing to tackling social problems like youth unemployment by expanding manufacturing in its growth markets. Nestle said that it was creating 2,900 new factory jobs in Mexico, Chile, Peru and Colombia. “We’re not proposing the jobs just to do good for society,” says Laurent Freixe, the company’s America’s head. “Our business is developing and we have real needs.” Danone recently announced a similar strategy with one of its dairy businesses in West Africa. Nestle’s regional expansion is meant to offset slowing consumer spending in the U.S. The company is expanding in pet food and infant nutrition in Mexico and planning a new factory for Cuba; it didn’t disclose the amount it is investing in the new regional facilities.
Ashoka and C&A Foundation to back impact-focused textile startups. Ashoka, which backs social entrepreneurship, and the foundation, the philanthropic arm of Dutch fashion retailer C&A, are expanding a partnership that promotes sustainable fashion with a new €250,000 ($280,000) Scaling Impact Fund. It may not sound like much money, but it will provide a boost to startups that need a financial push to launch their businesses. The awards will be available to existing Ashoka fellows and split into 11 categories, including a €100,000 “Impact” grant. The fund will also make €30,000 available to a startup tackling gender justice and equality in the fashion and textile industry. Incidents exposing labor conditions and abuses, like the Rana Plaza disaster in 2013, and growing awareness about the water intensity, toxicity and waste in clothing production is spurring slow but evident change in the fashion industry. “Sustainability or responsible innovation is by far the biggest trend in the industry right now,” says Eva Kruse, chief executive of Global Fashion Agenda. “And it’s not a philanthropic quest — this is a business development.”
See all of ImpactAlpha’s recent #dealflow.
#Signals: Ahead of the Curve
“Rules of the road” make sense of the crowded intermediary landscape in impact investing. It’s a good problem to have: The growing network of players is starting to cause traffic jams in impact investing. Increased demand and more capital for impact-investment products and services has resulted in an explosion of consultants and advisors, broker-dealers, investment clubs, online platforms, and membership organizations. These intermediaries are the connective tissue that binds asset owners and investment managers. But there are signs the market is not linking supply and demand as efficiently as possible. Just imagine what highways would be like without lane markings or warning signs — there needs to be some rules of the road. Fran Seegull of the U.S. Impact Investing Alliance and Christina Leijonhufvud of Tideline have some suggestions: Read “Road work ahead: Smoothing the flow of impact investing with lane markers and turn signals,” on ImpactAlpha.
P.S. “Market builders” is a GSG honors category. Nominate yourself or other high-impact market-builders or impact intermediaries for the #GSGHonors by June 16.
How to invest in the circular economy. The “take-make-dispose” linear approach to manufacturing, which bets on infinite amounts of natural resources, is risky, unsustainable and wasteful. The alternative is a system where production methods incorporate renewable energy, reuse of waste products and the sharing of assets and resources — a “circular” economy. A new report from the Investment Integration Project and impact-investor network Toniic, Investing in the New Industrial (R)evolution: Insights for asset owners and managers financing the circular economy, tracks investment opportunities and challenges when growth is decoupled from resource constraints. “That shift will ultimately increase the cost of capital for those whose investment strategies ignore these risks, and lead to outsized returns for the early visionaries,” write Adam Bendell and Lisa and Charly Kleissner of Toniic in an introduction to the report. Investment opportunities in the circular economy could reach $2 trillion annually by 2030 in Europe alone. They include LEED-certified real estate; private-equity funds that target renewables, recycling and energy-saving materials; and fixed income municipal bonds focused on wastewater management. Register for Toniic’s June 28 webinar on the circular economy.
Can Nordic solutions meet the needs of the poor? Earlier this week we reported on Nordic solutions to global challenges, an initiative launched by Norway, Sweden, Denmark, Finland, and Iceland to share with the world their experiences in six areas of development: climate change, energy, sustainable cities, gender equality, welfare, and food policy.
Contrarian Bjorn Lomborg is skeptical. Lomborg is the president of the Copenhagen Consensus Center, a US-based think tank that weighs the costs and benefits of global development efforts. He says that by prioritizing green policies, the Nordic countries risk sending the message that “it’s less important to focus on targets like eliminating tuberculosis and malaria or reducing global maternal mortality, than to advance SDG targets like the development of tools to monitor sustainable tourism, or promoting education for sustainable development and sustainable lifestyles.”
Lomborg says an effective focus would target childhood malnutrition, which produces 40 kroner (or dollars) of long-term benefit every kroner/dollar spent. It would aim to preserve the biodiversity of coral reefs that benefit fishermen and local economies through tourism. It would increase access to contraception and family planning, which could avert hundreds of thousands of maternal and child deaths.
“Encouraging poor nations to ‘transition’ to solar panels when many citizens still lack access to reliable energy is out-of-touch with reality,” he says. Yes, maybe. But as the prices of solar and other renewables fall, and new battery technologies enhances reliability, green energy can become reliable and accessible to the poor much faster than conventional energies.
Onward! Please send any news and comments to [email protected].