ImpactAlpha, Nov. 9 – President Trump may have accelerated the growth of impact and ESG investing – as a counter-response to his administration’s record on environmental and social issues (not to mention governance). The policy plans of President-elect Biden suggest the new administration could accelerate adoption of impact investing.
“It would appear that President Trump’s policy positions on issues central to ESG and impact have raised the stakes and a sense of urgency from investors,” writes CNote’s Yuliya Tarasava. “It’s a safe bet that a Biden administration will accelerate ESG and impact investing through broad support of regulatory and administrative decisions that eliminate roadblocks and incentivize investments.”
On COVID and climate, the economy and healthcare, infrastructure and racial justice – the impact of the new administration could be far reaching. ImpactAlpha invited Agents of Impact to share their “hot takes” and post-election insights into the new operating environment. What’s next for your work – and for you? Send a few lines or a bit more to [email protected] or use this handy form.
Back to basics for impact investing: Asking the right questions
“More enthusiastic than ever to participate in this election, I volunteered to go door-to-door either asking for votes or trying to cure early ballots that had been rejected in the race to the election day finish line,” writes Courageous Capital’s Laurie Spengler. “As I knocked on doors in North Naples in the days leading up to the election, I found myself wondering when the last time either party came knocking.
“What I learned through this experience, is that I was asking the wrong questions…or at least not the right ones.
“As I stood on people’s front porches, masked and ready to make a difference in whatever way I could, I was reminded of the power and energy that comes from trying to understand people’s real needs. It is this power and energy that should sharpen the focus of our impact investing community as well as the next US administration.
“I have lived outside the US for much of my professional life and have voted absentee for every presidential election since my graduate school days. Like many, my life has taken on new dimensions during COVID-19. I am caring for my mother in Florida while attending to my work-life through the daily schedule of zoom meetings and other virtual interactions.
“I embraced this opportunity to participate in the electoral process with vigor. Despite the hyperbole about the unprecedented nature of this election, I fully believed that this was the election of my lifetime. The stakes were so exceedingly high, with decency and democracy at stake alongside the policy responses of government on issues from the pandemic, to income inequality, to climate crisis and systemic racial bias, to international standing and much, much more.
“Going door to door, speaking with voters, I kept feeling that I was asking the wrong question. Rather than asking how the occupant of the house and her family were doing in terms of access to healthcare, quality of education, security of income, and protection against the coronavirus, I was singularly asking whether they supported Joe Biden for President. But the question I should have been asking is: when was the last time someone from the democratic party connected with you and asked about your key issues, your priority concerns, your real needs?
“Naples, Florida is in Collier County, Florida. Registered republicans outnumber registered democrats 2:1 with a rising group of independents. While Naples is an affluent community by national standards with median housing price just above $350,000, like every community, there is a growing gap between those who have benefited from the tax and other economic policies of the past four years and those whose struggle has become more difficult.
“My personal North Star is an inclusive, just, equitable, sustainable and resilient society for all. My professional pursuit is to mobilize financial capital to propel us towards that North Star, appreciating the limitations of financial capital as but one tool needed to arrive at that North Star.
“So what do I take from this election with respect to impact investing? Impact investing needs to demonstrate its relevance that is rooted in meeting people’s real needs. While many of us view impact investing as the ‘new normal’, the only logical means to make investment decisions that have a chance to build a better world, the barriers to change remain real and stubborn. We must resist the temptation to highlight only those most pioneering solutions, the introduction of meatless meat and other extraordinary innovations. Rather, to be relevant, we must celebrate impact solutions that address the basic needs of most people – employment and job quality, personal safety, affordable healthcare, quality education and a chance for building wealth and prosperity for one’s family. And we must do so in a way that conveys respect for one another’s lives.
“What does this mean for me as a member of the impact investing community? I have three fundamental take-aways:
“1) Ensure that the deals I structure and bring to market respond to people’s priority needs and pain points – what pain point is this deal solving?;
“2) Look beyond the deal narrative and probe to understand the lives that are being impacted – or not – by the product or service that is at the core of the transaction; and
“3) Prioritize local providers and operators for it is people on the ground who both understand best the pain points being met and who have a vested interest in strengthening the fabric of the community in which they live and operate.
“Meeting people’s real needs, and particularly people we may not know or see, must become an explicit commitment of the impact investing community. If not, we run the risk of squandering our potential as a community. If our aspiration is to be the default paradigm for investing financial capital, we must be relevant in every community.
“And I will surely show up early for the next election, knocking on doors not simply to ask for votes but to see how people are doing.”
Small-business revival is as bipartisan as it gets
Small businesses, especially in underserved communities, are the lifeblood of our economy, says Small Business Majority’s John Arensmeyer. “We need our elected officials to put aside their partisan differences and get to work on their behalf.” First, he says, even before the new administration, Congress must enact a stimulus package with both short and long-term relief for small businesses. Arensmeyer says more than one-third of small business owners in his organization’s network, including more than 40% of Black and Latino-owned businesses say they will not survive more than three months without additional relief.
“While the pandemic has affected virtually all small businesses, it has not affected all of them equally, disproportionately harming those owned by people of color and women,” Arensmeyer said. Needed: Access to more equitable and responsible capital, affordable healthcare, paid leave, retirement and other benefits that can support the success of both entrepreneurs and their employees. “The frenzy of an election season like no other is finally coming to an end,” he says. “The important job of helping our small businesses recover and rebuild stronger lies ahead.”
Toniic’s Adam Bendell said a Biden-Harris administration could revive something like the Obama administration’s Office of Social Innovation and Civic Participation. “The focus will be different, with the dominant theme being leveraging impact investing to support a just and equitable recovery from the COVID recession.”
The disbursement of Paycheck Protection Program funds has favored large businesses and bypassed historically disadvantaged ones, who lacked the established banking relationships to access the funds, Bendell writes. “Expect any subsequent rounds of stimulus under a Biden administration to have different distribution priorities and mechanisms.” Modernizing the Community Reinvestment Act could include explicit supports for community development financing institutions, or CDFIs.
The Biden campaign has called CDFIs the key to closing the racial wealth gap, CNote’s Tarasava adds. “Biden calls for the doubling of funding to CDFIs; the expansion of low-interest borrowing for state, local, tribal and nonprofit lending programs; and a strengthening of CRA to apply beyond banking institutions.”
The pendulum already is swinging towards “stakeholder capitalism” and away from “shareholder primacy,” Bendell adds. “Expect a Democratic administration to accelerate this shift,” he writes. One way to do so, Bendell says: “Mandatory disclosure of social and environmental performance metrics, at least to the extent financially material (as SASB has advocated for years).”
Climate investing tailwinds
Just as effective climate action seemed out of reach, Biden’s election is kindling hopes for a late-inning rally of effort to stave off catastrophe. A U.S. pledge to net-zero emissions by 2050, matching the EU, Japan and Paris, coupled with China’s pledge of net-zero by 2060, could bring a tipping point in the low-carbon transition, putting the Paris Agreement 1.5 degree limit “within striking distance,” according to Climate Action Tracker (see, “U.S. voters, local leaders and investors to Paris climate agreement: We’ll be back”).
“We now look forward to declaring, ‘We Are Back In’ the Paris Agreement, as one of the first steps the Biden administration plans to take to get us back on track,” said Ceres’ Mindy Lubber. The U.S., the world’s second-largest greenhouse gas emitter, will need to cut emissions nearly in half by 2030 and reach net-zero by 2040, Lubber said, to make up for the lack of federal climate action by the Trump administration over the last four years. “Policymakers at all levels of government must respond and come together to fast track the net-zero emissions transition that is already well underway.”
Lubber pointed to North Carolina’s clean energy plan that aims at carbon neutrality by 2050, Nevada has boosted its renewable portfolio standard to 50% by 2030 and is aiming for 100% carbon-free by 2050. Colorado has adopted standards for low- and zero-emission vehicles. New Jersey requires the state government to consider cumulative impacts on overburdened communities when issuing permits for greenhouse gas emitting projects. This summer, 15 U.S. governors pledged to work together to deploy more zero-emission medium- and heavy-duty vehicles.
Daniel Goldman of Clean Energy Ventures says clean energy jobs remained one of the fastest-growing sectors of the economy, even under the Trump Administration. “Consider the solar industry, which saw an increase in business and jobs in the past quarter, even amid the uncertainty and restrictions of the pandemic. Expect to see millions of additional clean energy jobs created across the auto industry, energy efficiency, smart-grid and renewable infrastructure development,” Goldman writes.
“There is a major opportunity in the Midwest and other U.S. regions for further development of clean technology jobs and clean energy manufacturing, creating more U.S. jobs from U.S. energy innovation. These regions are being hurt badly by the pandemic and the winddown of fossil fuel use, and the advent of lean energy jobs can be higher-paying, safer, and focus on these same regions.”
Clean Energy Ventures invests in climate tech startups and clean energy technologies. By magnifying the federal government’s impact, cleantech investors can help “make up for ground lost over the last four years,” Goldman continues. “Many of the technologies that will solve the challenge of climate change remain at the laboratory stage. New innovations in solar, battery technologies, and carbon capture and sequestration solutions will develop and scale more expeditiously with close collaboration with the private sector.”
“With a divided federal government, state and local government – as well as industry players – will continue to play a critical role in climate action,” writes Elemental Excelerator’s Dawn Lippert. Elemental has awarded $43 million dollars to 117 startups, including in energy, agriculture and water.
“We have already seen thousands of cities, community organizations and corporations commit to ambitious climate plans to create new jobs and economic opportunities while also cutting pollution and emissions. Private equity and the capital markets are continuing to provide capital for new clean products and services, which represent a huge investment opportunity. We don’t see any slowdown on the horizon for the investment in technology innovation or the adoption of clean technology.”
A “more rational, science-based and empathetic response” to COVID-19 will “clear a path forward towards rebuilding our economy,” writes JumpScale’s Josh Knauer. “It is not possible to overstate how much damage has been done to people and the economy as a result of the lack of leadership and federal response to the spread of COVID-19 in the United States.
JumpScale advises the impact investment strategies of investors and philanthropies. Knauer said government investment in green infrastructure research and development, along with improved international relations will provide a boost to impact investors. “Investors will be able to see their investment dollars go further within their portfolios of green infrastructure-related companies,” he said. “It will become easier to find and invest in the innovative impact companies that exist around the planet, yielding global solutions for local (and global) problems.”
The real divide is small vs. big
Joe Biden’s victory in the election “is a welcome return to sanity and empathy for the country,” write Ross Baird of Blueprint Local, a series of geographically focused investment funds (see, “Blueprint Local: Texas fund is a blueprint for investors betting on their hometowns”). “Yet how do we make sense of the fact that 68 million people voted for Trump?” Baird, who earlier led Village Capital, continues:
“As Democrats move into governing, Democrats need to seriously reckon with the fact that red state Americans do not trust blue state Americans to have their best interests at heart. While there are serious structural issues from institutional racism to gerrymandering that are legitimate, Democrats also need to recognize that they are ignoring hard policy problems that are important red state and blue state solutions.
“Democrats won a blue wave in 2018 on very specific things: lowering prescription drug prices, keeping health care – and the Democrats who won re-election in red districts in 2020 hit those head on. Congresswoman Katie Porter became a legend for her ability to hold corrupt corporate leaders accountable, and won by almost 10 in a red district.
“Yet other issues are completely unnoticed – by both parties. The COVID-19 pandemic revealed that our country cannot make basic things like ventilators and personal protective equipment. If we cannot protect ourselves in a pandemic, what is the point of having an economy? Our supply chains, ability to produce, create, make, have quality jobs is in jeopardy. Neither party has good answers.
“In geopolitics, both parties have ignored China. In addition to the utter loss of any manufacturing infrastructure-in which China plays a role-How do American who defend freedom defend ethnic violence against Uighurs in China, or a business environment where NBA official cannot publicly support free speech in Hong Kong without serious repercussions? Red state and blue state Americans both have significant fears about the position the country has in the world, for different reasons. The China issue is a hard policy problem, but ignoring it is not the answer.
“Finally, the 2020 election is potentially a high water mark for the misinformation spread by Facebook and other social media platforms. The growing domination of big tech, where Google and Facebook where have cannibalized the news industry’s content providers and Amazon has vacuumed the profits of small businesses, has been challenged by a few Democrats (the recent report from David Cicilline and Pramila Jayapal is an excellent effort to create a more level playing field) but very few
“Our country has forgotten how to make things; forgotten how to assert our values in the world; and constantly favors and kowtows to the big guy over the little guy (or woman). Red state and Blue state America want a different world, and Democrats will be set up to succeed if they prove they can govern and deliver.”
ImpactAlpha’sDavid Bank said last week’s rapidly changing election results presented a challenge in real-time narrative adjustment. “I was as geared up as anyone for a decisive mandate on climate change and racial justice, hitched to a common purpose around defeating the coronavirus and building back better. Instead, we saw in the U.S. an even deeper divide than many imagined,” Bank wrote in The Brief. “That means there’s more work to be done to bring together communities that have more in common than they may think.”
“Strategies for bottom-up revival – from capital for small businesses and support for entrepreneurship, to sustainable agriculture and green infrastructure and electric everything, to access to quality education and healthcare – work in red states as well as blue, in rural areas and inner cities, in the U.S. and abroad.”
Spread opportunity, not division
The U.S. election “illuminated the fact that rural and urban America have the same problems, but completely different views, creating division instead of commonality,” Sandra Moore of Advantage Capital writes from St. Louis. “We must use impact investing to close the urban-rural divide in America, using capital for good with the same intensity in rural America as we do in other countries.”
What does that mean for our work? Moore asks. “We dig in. We keep stepping up for communities and people who are struggling, and make sure small businesses in distressed locations and rural areas, those owned and led by minorities and other under-represented individuals, aren’t getting shut out. We continue to invest with intentionality in those businesses that support good, quality jobs with critical benefits, wage progression and advancement—all the things that help strengthen households and communities.”
“The election results highlight just how divided our country has become and the roots of those divisions are often more about perception than actual differences,” shared George Ashton of Local Initiatives Support Corp. (see, “Why investing corporate cash to close racial wealth gaps can shore up long-term growth). “The income, wealth, education, and services gaps that we have been fighting for years have made for fertile ground for planting ideas of dissension and hate. So our work becomes that much more critical in spreading opportunity to every corner of this country so that Americans can come together and not be misled and divided so easily.”
Leadership and governance
“No matter the outcome of the presidential election, there is wide open space right now for public companies to show visionary leadership – yes, for their shareholders – and by caring for all Americans, especially those most impacted by racial, economic and environmental inequities,” tweeted Adasina’s Rachel Robasciotti.
“Whatever happens, I’m looking strongly at corporate leaders and institutions,” added The Plug’s Sherrell Dorsey. “How will you stand on the right side of history beyond a moment? How will your policies stand tall in support of representation and economic progress for all?”
Local action and worker power
Nowak Metro Finance Lab’s Bruce Katz had a message for cities: “The federal cavalry is not coming at the scale needed/assumed; even greater imperative to get local act together, declare priorities, unlock capital, collaborate across sectors. In other words, #NewLocalism on steroids.”
Biden ran on a $15 per hour minimum wage, support for unions and expanded healthcare, “and he is getting more votes than any presidential candidate in history,” tweeted the Rev. William Barber II. “Some say we are deeply divided, but if we focus on issues of life and lifting from the bottom, we can be more unified.” (See, “A minister’s call for moral, as well as economic, revival.”)