A Win for Climate Policy and Diversity

The U.S. presidential election was historically significant in a number of aspects, with notable wins for climate policy and diversity. Climate change mitigation policies have been a cornerstone of the Biden-Harris campaign. The Biden Plan sets out detailed goals for climate action and commits to investing $2 trillion into a number of climate initiatives that ultimately culminate in a zero net emissions target for 2050. The plan also outlines specific commitments to investments in clean infrastructure including:

• Transforming the power sector to be carbon pollution free by 2035

• Upgrading four million buildings to be more energy efficient and weatherizing two million homes over four years

• Providing all Americans in municipalities of more than 100,000 people with quality public transportation by 2030 and building only zero-emissions buses by 2030

• Supporting the transition to EVs through infrastructure investments, including 500,000 electric vehicle charging stations and investments in battery technology

These represent meaningful commitments for our neighbour to the south and exciting opportunities for several of our portfolio companies. With the Biden Plan, experts predict that the goal of limiting global warming to 1.5 degrees Celsius set out in the Paris Climate Accord will finally be “within striking distance”. We have a long way to go, but the result of this election demonstrates that climate policy and the fight against climate change are important issues to a growing number of voters.

The U.S. election was also a milestone for diversity in politics. Kamala Harris is the first female, first Black and first Asian American Vice President elect. A record number of women will be serving in the next congress and a number of states have elected their first gender and ethnically diverse representatives. While this election was only one step towards equal representation in political institutions, we are excited to see that the members of political bodies are starting to resemble the constituents they are serving more and more. As a B Corp we celebrate diversity and always look to support women and people of colour in their entrepreneurial journeys. As Kamala Harris once said: “Our unity is our strength, our diversity is our power.”

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Behavior Change at Scale

The Covid-19 pandemic has been a significant shift for so many of us. Our workplaces shifted from offices to our living rooms. Our interactions shifted from personal to digital. Our travels have shifted to staycations. All of this collective behavior change has yielded an 8.8% drop in global CO2 emissions in the first half of 2020 compared to the first half of 2019.  Experts agree that this drop in emissions is temporary in nature and that emissions will rebound as the economy recovers without broader consumer commitment. Encouragingly, we’re starting to see evidence that consumer outlook and values are shifting.

In a recent BCG survey, 90% of consumers responded that they were equally or more concerned about environmental sustainability after the COVID-19 pandemic, and almost 95% of consumers believe that their personal actions could help reduce waste, tackle climate change and protect wildlife and biodiversity. Between a quarter and a third of consumers noted that their belief that their actions have a direct impact on environmental sustainability has strengthened during the pandemic. As a result, consumers have started voting with their wallets. Consumer pressure on environmental sustainability has already yielded meaningful results. Large CPG companies including P&G, Mondelez and Nestle have doubled down on commitments to make all packaging recyclable or reusable within the next decade, Walmart committed to reducing emissions to zero across its global operations by 2040, and Apple announced that by 2030 every device sold will have net neutral impact on climate.

It's often hard to see the results of our individual actions as it relates to moving to environmental sustainability. 2020 has shown us that consistent and collective action by consumers can create ripple effects and cause corporations and governments to move. As the great Margaret Mead once said “Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has.”

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Green Throne

In our last newsletter, we highlighted some of the big sustainability commitments large corporations have been making. Over the course of the past weeks, governments around the globe have followed suit. Most strikingly, China has announced that it aims to become carbon neutral by 2060, potentially mitigating a rise in global temperatures of 0.2 to 0.4 C. In last week’s Speech from the Throne, Canada’s federal government committed to making climate action a central part of Canada’s COVID-19 recovery strategy, demonstrating Canada’s leadership in rebuilding a more sustainable global economy. The strong commitments made were influenced by the final report produced by the Taskforce for a Resilient Recovery. The Taskforce was comprised of 15 leaders in clean energy and investments, including a few friends of our fund!  These commitments are indicative of strong government and regulatory tailwinds that we can expect will accelerate in the future, to the benefit of our portfolio companies. Private and public markets have already started rewarding companies with small carbon footprints with higher valuations. Our job is to make sure that dollars go to the right solutions that improve environmental sustainability, scale profitably and utilize these tailwinds to increase velocity. 

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Build Back Better

We’re living in a world of exceptional uncertainty. An increasing divide between the fundamentals of the economy and the performance of the market, legitimate fear and evidence of a second wave of Covid-19 cases, and a pivotal election on the horizon have made the months ahead feel as unclear as any in recent memory. Through the pandemic, we’ve heard a consistent refrain to “Build Back Better”. In Canada, two thirds of voters backed parties with a strong climate platform in last year’s elections showing public appetite for action. Despite this, Canada’s Conservative Party recently stated they will “fight the carbon tax with every last breath”. On both sides of the border, the issue of addressing climate change continues to be a partisan fight. Despite the uncertainty we’re living through, political momentum for climate technology is greater than we've seen in our lifetime. Two weeks ago, Husky Energy announced it will be linking GHG reduction to employee compensation; a pivotal move to align incentives. Last week, Apple’s pressure on members of it’s supply chain led to the largest-ever corporate renewable energy deal; their supplier the Taiwan Semiconductor Manufacturing Company agreed to a 20-year contract to purchase power from a windfarm off the coast of Taiwan to remain in Apple’s good graces. Yesterday, Germany received $39 billion of orders for its first green bond; demand nearly matched a record for its conventional bond sales earlier this year. These events don’t make the future of our world meaningfully more certain, but they point to lasting changes that support the demand for technologies and services that create a healthier planet. 

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Riding the Green Recovery Wave

As nations design their stimulus packages for a post-pandemic world, calls for a resilient “green recovery” persist. Yet of the G20’s $330B public money commitment to the energy sector, almost half is going to the dying fossil fuel industry. #Buildbackbetter is flooding the internet while oil and gas continues its downward trajectory (with 18 North American producer bankruptcies in Q2 alone, and yet more stymieing of pipelines). Seeing the writing on the wall for fossil fuels, global business appears to be using its voice: US blue chip corporations including McDonalds, Unilever, Mars and Pepsi have joined the call this month, as a flock of new studies underscore the strong business case for placing renewables at the heart of the COVID-19 recovery. 

Meanwhile, joining the Big Tech wave of ambitious climate action, Apple announced its new net-zero target this month. As Tim Cook put it, “climate action can be the foundation for a new era of innovative potential, job creation, and durable economic growth…we hope to be a ripple in the pond that creates a much larger change.” At Active Impact Investments, we agree. We founded our firm as a BCorp because of our commitment to quantifiable impact on the most urgent environmental challenges of our time.

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New Cast of Characters

Last week the Collision Conference, one of the largest tech community gatherings in the world with 32,000 attendees, went virtual. Sustainability and climate were front and center: Kate Brandt, the Chief Sustainability Officer at Google, shared that in the 90 days leading up to Earth Day searches for “How to live sustainably” rose 4550%. Christiana Figueres, a Costa Rican diplomat who led the 2015 Paris Accord talks, shared insights on the false dichotomy between sustainability and cost saying “It’s about de-carbonizing the economy, not paralyzing it.” 

Leaders across the world are acknowledging and taking part in the increased focus on sustainability and climate action that has grown from the pandemic. Amazon recently announced a $2B fund to invest in clean energy. The four biggest Private Equity firms in the world now all have ESG vehicles surpassing $1B in AUM. More and more data is demonstrating that businesses and funds with a focus on sustainability are outperforming their peers. One influential paper published by researchers at Harvard Business School, Oxford, and London Business School looked at 90 matched pairs of companies — one “high sustainability” and one “low sustainability” company from the same space. The high-sustainability companies significantly outperformed their counterparts in terms of both financial and stock market performance. 

But while the financial performance is easy to compare, the impact of the companies is more abstract. ESG policies often focus on process, not outcomes. Financial statements are always audited, whereas independent third parties almost never vet ESG filings. The bar for a firm to be considered ESG is low. PWC reported that 91% of respondents to the firm’s annual survey indicated that they either have or are in the process of creating an ESG policy. As we see more money flock to impact investing because of strong performance, it’s pivotal that we hold those using the banner of impact and sustainability accountable to their mandate. 

Active Impact Investments was founded as a BCorp because of our commitment to making a quantifiable difference for our planet. We hope you work alongside us and hold us accountable in our fight to ensure that our portfolio companies and our fund have a substantial and measurable environmental impact for our planet while financially outperforming the market for our investors.

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Leaning In

The global pandemic has caused meaningful shifts in early-stage venture capital. Fund managers that relied on traditional sourcing channels for deals and on-site diligence are struggling to adjust their funnel. Some have pulled back on cheque writing completely and switched to triage mode for their existing portfolios. Those that have never served as operators during times of intense crisis, or led pivots to meet shifting demands are struggling to support their portfolios. However, last month we shared a call to lean in, invest and accelerate the change we collectively hope to see in the world. This unprecedented experience brought on by Covid-19 has yielded an opportunity to reshape our systems and accelerate the adoption of technologies and processes that improve our planet. Market fear and uncertainty is presenting attractive opportunities for investment during a time of need. 

It is against this backdrop that we’ve leveraged our strengths and closed on two competitive deals. We are proud to welcome these new companies to the portfolio, both of whom are making a meaningful impact on our planet and demonstrating their resilience during the pandemic. Both are US-based companies with strong growth metrics and resilient business models. We’ve chosen to be strategically aggressive because we feel confident in our abilities to select and help these companies, even during turbulent times. I'm so proud of how our team leaned in, conducted intensive diligence, leveraged our operating expertise, rallied co-investors and negotiated favorable terms to ensure a strong return potential for our investors. 

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A Matter of Perspective

Remember all the people that used to complain all the time about being too busy? Are they the same ones that are now complaining about being stuck at home? I have come to appreciate the people that are looking for the silver lining during this COVID lockdown. For many of us, our busy lives have slowed and the time that we've gained from not traveling everywhere has been replaced with positive activities like: reaching out to old friends, spending more time with our families, enjoying more home-made meals, getting out daily to appreciate nature on a hike or a bike, cleaning up our homes, doing some gardening, sharpening our skills by taking new courses, listening to podcasts and reading books, lending a helping hand to others and generally reflecting on the things that make us truly happy.

Many of us have tightened our budgets; we’ve stopped buying frivolous items or anything that was designed to impress others. We’ve invested to enable our businesses to work more effectively from home. We're enjoying the silence of no airplanes flying overhead. We've appreciated and thanked our vital healthcare, finance and food support systems. We've watched world conflicts slow and better understand how much we are all in this together. I don't mean to trivialize the very real struggles that many are facing due to lost jobs, lost lives, isolation and lost opportunities but for anyone in the fortunate position to be able to realize some of the upsides, I sure hope you are.

I suspect many aspects of life will never go back to exactly what they were before and in some cases, that may be a good thing. We believe it's our job to have an opinion of the future and what the new normal might look like. We hope that many people are thinking about how to be more intentional about the future we want to create. Can we leave some bad practices behind us permanently? Can we add some new priorities like sustainability and inclusiveness after getting this rare new vantage point? We think so. And we are here, ready to invest in the companies that strive to make this possible. 

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A Rising Tide Lifts All Boats

Despite everyone getting sick of hearing about COVID-19 and all the people that suddenly became part-time epidemiologists and economists, we felt it was important to share some of our thoughts. First and foremost, we hope you and your families have managed to stay healthy. Second, we have a huge amount of empathy for business owners, leaders and employees that have been so harshly impacted financially. And of course, our fund and our portfolio of amazing founders and the companies they lead will not be immune to the trickle down effects: one out of every three people on the planet is now in some form of quarantine.

But, here we switch to a message of pride, hope and optimism. We have never been so proud of our portfolio companies. These small teams with small budgets that are already challenged under normal conditions of growth, had to find it within themselves to reinvent their businesses on the fly while cutting costs. I can say that without exception, every single company in our portfolio planned, innovated and executed on a new plan that increased their odds of surviving this crisis and resuming growth as soon as possible. The level of compassion shown by these leaders will surely be remembered by their teams and customers, leading to further loyalty in the future.

It has been our assertion for several years that impact driven businesses will outperform in a downturn so now is our time to shine. For Active Impact's part, we put the "Active" in our name to the test and increased our support and involvement from weekly to daily. This is not the first economic downturn that I've been through. I was the one managing my own team and P&L last time so I can empathize with what they are going through and I hope I learned a few things that can be passed on. In addition, portfolios provide diversification and we have come to appreciate this even more after seeing some of our portfolio companies negatively impacted, some not impacted and one very positively impacted.

No doubt this will be a tough year for most but long term, we are bullish. We are 100% equipped to work from home at full capacity and we are still looking for great companies to invest in. One final silver lining to this horrible virus that relates to our mission - GHG emissions and pollution went way down last month! Satellite images from space have shown the air clearing over China and some rivers in Europe are running clear for the first time in decades. Now it's time to find ways to continue doing this without having to shut down our entire economy.

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Positive Momentum in a Fractured System?

Last month KKR announced the launch of a new $1.3B VC fund to invest in for-profits tackling climate change and Jeff Bezos committed $10B to a philanthropic fund to reduce climate change. That's a lot of money going to the right place! Our first reaction was excitement that the momentum continues to build. Then selfishly we contemplate how these big funds might create future financing opportunities for the companies that we have invested in early. Then we are reminded of our insignificance and wonder if we can really make a difference with our fund which is dwarfed in comparison. We take a big breath and remind ourselves that we can and will grow larger over time. We are proud to be doing our part, and hope we are inspiring more people to engage in impact investing whether together with us or elsewhere. In the midst of all this reflection I finally finish reading "Winners Take All" (a must-read for those that truly care about impact) and get other important reminders. First, we will not be able to effect the level of change we seek simply through impact investing. It's an exciting category and creates a path for many more to participate because there is no sacrifice required. But for some issues, we can't rely on capitalism alone, we require government and philanthropy which is funny because we have been quoted saying that sentence in exactly the opposite order which is also true. For as much flack as our governments take for their inefficiencies, they play a key role in providing a platform for our companies to succeed. For example, we trust our currency to hold value and be worth earning and saving, we enjoy access to critical infrastructure and we depend on the maintenance of peace and order. We look for increased change to facilitate protection of planet and people alongside profit. The second key takeaway from the book for me was to hold people and companies accountable for how they make their money, not just how they give it away. Jeff Bezos and Amazon could be an example of this because the richest man in the world was minted by shipping items all across the world in an obscene amount of packaging. If he were to simply ignore these factors and then donate $10B to climate change then that wouldn't be enough. In his defense, we have seen a few announcements of late where Amazon is also changing their business practices to reduce impact such as electrification of their fleet and we hope to see more. To sum it all up, the best case scenario is that we coordinate all of the forces of change and stop trying to do this in a silo of just investing or philanthropy or government and that corporations become more accountable for their negative externalities in addition to investing and donating to create the changes they seek. For our part, we will continue to fund companies that create profits together with positive environmental or social impact, while doing what we can to to coordinate, support and leverage impact through philanthropy and government.

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A Year in Review

Happy New Year! With 2019 coming to an end, we immediately set our sights on 2020 but first we wanted to take a moment to reflect on a number of significant milestones over the last year. The following list contains a number of items that would be non-events for many funds but for us they were firsts and felt worthy of celebration. These highlights are also accompanied by feelings of gratitude for all the help and support we received along the way. 

Jan - Investment number four in Inkblot
Feb - First annual report created for our LP's
Mar - Final close for the fund at our $10M cap
Apr - Closed legals, capital call for new LP's and first LPAC meeting
May - Investment number five in Clir
Jun - Launched volunteer program to support founders
Jul - Investment number six in ChopValue
Aug - GoJava follow-on investment, support Greta and climate action movement
Sep - Investment number seven in Sametrica, capital call, Clir investment converts on Series A 
Oct - Attend SFF conference and speak at CAIA conference about impact, capital call
Nov - Investment number eight in Social Nature, official Jaza close, Keela follow-on investment
Dec - Inkblot follow-on investment, Trish Nixon joins as advisor

We already have some lofty goals for 2020 and we're excited about what this year will bring. We hope it's a prosperous and high impact year for all of you!

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Big Banks Commit Big Money to Climate

At Active Impact, our mission is to help facilitate the flow of capital to environmental and social good. We are encouraged to see signs that big financial institutions may be looking to also become more aligned with that mission. A recent article by Bill McKibben of 360.org published in the New Yorker highlighted the fact that the money provided by big banks to finance fossil fuel projects was the "the oxygen on which the fire of global warming burns". The point was that GHG emission reduction requires a commitment from the banks to stop financing big projects that pollute. In September, the Global Alliance on Banking Values announced that over 50 participating financial institutions representing $2.9 trillion in assets had committed to measure and disclose carbon emissions associated with their loans and investments. This is a positive first step to reducing such lending activity. Canadian banks are also promising to commit to environmental sustainability initiatives. For example, CIBC recently promised $150B for environmental and sustainable financing activities by 2027 and BMO committed $400B to sustainable financing activities by 2025, including the intention to create a $250M impact investment fund to find and scale solutions to sustainability problems. Capital diverted from negative to positive use will be a massive catalyst for change!

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