The Brief: Emerging-markets fund rebound, building trust in healthcare, investing in Appalachia, ESG emergency in Oklahoma

Greetings, Agents of Impact! 

👋 Join Agents of Impact Call No. 48. Greater Share’s Dana Bezerra will drop in to ImpactAlpha’s call this week to explore “Investable opportunities in high-impact municipal finance,” with Ryan Bowers of Activest, Diane Manuel of Adasina Social Capital, Eric Glass of Justice Capital and other Agents of Impact, Wednesday, Feb. 1 at 10am PT, 1pm ET / 6pm London. RSVP today.

Featured: Growth Markets

What 672 private debt and equity funds show about impact investing in emerging markets. After a pandemic-related pause, institutional investors are again moving money into private impact funds in emerging markets. But only a small fraction of those funds are managed locally. In its latest market snapshot. The Swiss impact investing specialist Tameo identified a whopping 672 fixed income and equity funds, run by 346 fund managers, which collectively manage $84 billion in assets focused on emerging and frontier markets (representing about 7% of assets in the $1.2 trillion impact investing market). U.S.-based firms manage 25% of the total; another 43% of assets is managed out of Switzerland, the Netherlands, the U.K. and Germany (for context, see, “To drive more capital to small businesses, invest in local fund managers as entrepreneurs”). Ten investment firms manage roughly one-third of private impact assets in emerging markets. Still, Tameo’s Ram Narayanan tells ImpactAlpha, “There are more and more smaller fund managers emerging in developing countries.”

• Pandemic rebound. In a survey of a subset of 198 funds (managed by 94 managers), Tameo found total assets grew 16.9% in 2021, a year after the pandemic nearly halted asset growth to 1.6%. Fund managers surveyed expected a modest but positive growth of 6% in 2022 (Tameo’s 2022 data will be available later this year). Among the managers surveyed: Aavishkaar Capital, Deetken Impact, Elevar Equity, responsAbility and Vox Capital. The spread of sovereign debt and currency crises present a major challenge; about two-third of all debt investments are denominated in hard currency (see, “How to get more international money flowing in local currency”). 

• Impact themes. Microfinance remains the biggest investment sector. Among new strategies, multi-sector funds that invest across the Sustainable Development Goals made up the largest number (31). Tameo also found 18 new climate and energy funds and a dozen funds focused on small-and mid-sized business development (see our lookahead, “2023 emerging market opportunities are locally-rooted, gender-smart and climate-friendly”). Equity impact funds have caught up and surpassed fixed-income funds in number (357 equity vs. 218 fixed income) as well as assets ($42 billion vs. $32 billion). “You can now invest for impact in many ways,” says Narayanan. “What excites me is the diversity in the market.” 

• Impact and accountability. Women make up roughly half of managers’ teams, though only about a third of leadership positions (see, for example, “How women-led funds in South Africa are unlocking capital for women and small businesses”). To be included in the universe of impact funds, Tameo screened for funds with a stated social or environmental impact intent at the core of their strategies, as well as processes for measuring it. Among those surveyed, nearly all monitor impact at least once a year and 92% report impact performance to their investors. “There’s a lot of accountability,” says Narayanan. “This is really what differentiates our market from traditional finance.”
  
• Keep reading, “What 672 private debt and equity funds show about impact investing in emerging markets,” by Dennis Price on ImpactAlpha. Catch up on all of our coverage of Frontier and Growth Markets. 

Sponsored by J&J Impact Ventures

Trust, not technology, bonds patients and providers. Trust is based on a set of expectations that healthcare providers will do the best for the patient. It is central to well-functioning, equitable health systems, “but it is not guaranteed,” writes Johnson & Johnson’s Sarah Mullane. J&J Impact Ventures, a fund within the Johnson & Johnson Foundation, invests in people building trust into their market-driven technologies, services and delivery mechanisms. “By investing in trust as a core priority and criteria for investment,” Mullane says, “we can help ensure we are not led astray by the benefits of technology, but effectively enhance them.” 

• Lived experience. J&J Impact Ventures backs enterprises like Penda Health, one of the largest outpatient health care providers in East Africa and a signatory of the Ethical Principles in Health Care. It also partners with organizations like Village Capital, which supports emerging innovators and health entrepreneurs close to the challenges they are addressing. Says Mullane, “Health entrepreneurs with lived experiences reflecting those of their communities and patients are often uniquely suited to provide culturally competent care.”
  
• Keep reading, “Trust, not technology, bonds patients and providers,” by Johnson & Johnson’s Sarah Mullane. Catch up on all of ImpactAlpha’s coverage of Investing in Health, sponsored by J&J Impact Ventures. 

Dealflow: Catalytic Capital

Invest Appalachia secures $19 million to bridge investment gaps in Appalachia. Central Appalachia’s forests and ecosystems are some of the most biodiverse in the world, and its mountains among the oldest on Earth. The majority-white region is also home to a significant Indigenous population, as well as Black, Latino and Asian descendants of the region’s former coal mine workers. Invest Appalachia, a new community-based impact fund, is taking a catalytic capital approach to advance economic inclusion, health equity, climate resilience and place-based impact in Central Appalachia. “Appalachia’s natural resources and people have fueled the development of America’s economy for generations, and the region has suffered extraction and disinvestment in return,” said Invest Appalachia’s Andrew Crosson. The fund, which is targeting $40 million, secured a $10 million anchor investment from UnitedHealth Group. Other investors include Sugarbush Valley Impact Investments and the Laughing Gull Foundation. LOCUS Capital manages the fund.

• Absorbing risks. Through a catalytic capital pool, Invest Appalachia raised an additional $2.7 million in “risk-absorbing philanthropic dollars” from the Robert Wood Johnson Foundation, the Appalachian Regional Commission, the Dogwood Health Trust and Catalytic Capital Consortium, or C3. The $100,000 grant from C3 helped Invest Appalachia develop its blended-capital structure, which includes community accountability mechanisms such as a Community Advisory Council. Invest Appalachia is aiming to raise $17 million in grant capital over the next seven years to build an inclusive pipeline of projects, de-risk deals and increase investment readiness in the region, Crosson told ImpactAlpha.
  
• Dive in. 

Dealflow overflow. Other investment news crossing our desks:

• New York’s Pearl Health raised $75 million to help independent physicians switch from pay-per-service care to value-based care.

• Omidyar Network India invested $1 million in seed funding in data privacy venture PrivaSapien.

• The Philippines-based Mayani raised $1.7 million to connect local fisheries to buyers in order to boost income predictability and curb food waste. 

• Enterprise Community Partners and the D.C. Green Bank invested $12.4 million to outfit four affordable housing buildings in Washington, D.C. with solar panels.

Impact Voices: ESG Wars

Is ESG an emergency from which the public needs protection? Oklahoma legislators ride to the rescue. Don’t say ESG, at least in Oklahoma. A group of state senators are seeking to quash the use of environmental, social and governance practices not just by state agencies, but by companies, citizens and even visitors to the state. To drive home the point, lawmakers want to declare a state of emergency around ESG. “Imagine that,” as Oklahoma’s official tagline suggests. The bill, SB 974, states: “No governmental entity including but not limited to this state, any state agency, political subdivision, any trust, committee, or commission of any political subdivision of this state, and business operating in this state, or any citizen of this state or individual within the boundaries of this state, shall use, promote, enforce, provide data for use in, or otherwise participate in the creation or use of ESG or ETI policies related to hiring, firing and evaluation of employees.” (ETI, for “economically targeted investments,” is Labor Department terminology for socially responsible, or ESG, investing.) The bill is unlikely to become law, but if it did, Ryon Harms of Manifest Social writes in a guest post on ImpactAlpha, “it would impact many of the state’s largest employers and could cause irreparable harm to its economy.”

• Economic fallout. Oklahoma’s second largest employer, Walmart, employs 35,000 people and last year contributed nearly $100 million in state taxes, or 2% of the state’s revenue. The retailer is also one of the nation’s most outspoken proponents of ESG (Walmart’s Brendan Morrissey discussed the company’s ESG approach on Agents of Impact Call No. 39). “Would Walmart need to revamp operations at home and abroad to meet the demands of Oklahoma’s state legislature?” asks Harms. Another proposed bill in Oklahoma would prohibit state agencies from doing business with any entity that “boycotts” gun makers. The anti-ESG bills in Oklahoma and elsewhere “shoot the state’s overall economy in the foot to appease minority industries” like fossil fuels and guns, writes Harms. Oklahoma’s gun industry employs less than 3,000 people and generated $415 million in total economic output in 2021. 

• New front. The Oklahoma bill and similar ones under consideration in other states signal a shift in the ESG wars to fight perceived “discrimination” against individuals or companies. Attorneys general from 25 Republican-led states have filed suit to block the Department of Labor’s new ESG rule from going into effect this week (for background, see, “For pension fund managers, Department of Labor puts ESG back on the table – again”). The widely anticipated suit, led by Texas and Utah and joined by oil and gas interests, argues the Labor Department is overstepping its authority. 

• Keep reading, “Is ESG an emergency from which the public needs protection? Oklahoma legislators ride to the rescue,” by Ryon Harms on ImpactAlpha. 

Agents of Impact: Follow the Talent

Enterprise Community Partners is recruiting a chief executive officer in New York… Upstart Co-Lab seeks an impact investing coordinator for its inclusive creative economy strategy…  The Bill & Melinda Gates Foundation is looking for a program officer for digital learning research and development in Seattle… Quantified Ventures has an opening for a health and human services associate director and senior associate in the Washington, D.C. area. 

Morgan Lewis seeks an impact investing principal in Chicago… The Community Foundation for Greater Atlanta is recruiting an affordable housing funds manager… South Pole is looking for a managing consultant for sustainable finance in San Francisco… Also in San Francisco, New Forests seeks an associate director for timberland and forest carbon investments… Climate Ingenuity is recruiting a remote policy intern. 

Venture For ClimateTech’s venture studio and accelerator program is accepting applications until March 10 for its third cohort. With support from ClimateWorks Foundation, Venture For ClimateTech will offer $10,000 fellowships to two Black and/or Latinx founders. 

Thank you for your impact.

– Jan. 30, 2023