ImpactAlpha, Dec. 10 – Nobody is as smart as everybody, as the sage Kevin Kelly likes to say.
ImpactAlpha looked ahead to 2024 in our roundups of ownership and inclusion, investing in emerging markets, climate finance and impact and ESG. To help all of us navigate this consequential year, we’ve collected predictions and trendspotting from Agents of Impact across the landscape.
The push and pull of impact investing
Investors want it. Regulators want more of it. And next-gen investors are lining up to deliver it. Capital markets will continue to rotate around impact in 2024. Some bright spots to watch:
- Regulatory push for transparency. The coming year will bring “a push to enhance the consistency, accuracy, and transparency in sustainability and ESG reporting,” writes Plan A’s Lubomila Jordanova. Among the EU-based regulations to watch: Streamlined energy and carbon reporting in the UK and the German Supply Chain Due Diligence Act. On tap in the US: long-awaited Securities and Exchange Commission rules for corporate climate risk disclosure and human capital management.
- Impact investing talent pipeline is robust. “I believe that the success of impact investing as a movement will be largely driven by the talent behind it, and the quality I’ve seen come into our field this year gives me confidence in our future,” writes Priya Parrish of Impact Engine in “12 reasons we’re optimistic about 2024.” Parrish teaches impact investing at the University of Chicago Booth School of Business (hear our podcast conversation with Priya, “Scaling purpose-built impact”). “The demand for impact investments continues to grow even in a tough fundraising year, yet the real story is the supply side of investors.”
- Upping your sustainability skills. New year, new professional resolutions. For journalists, Oxford is offering a Masterclass in Sustainable Finance. Zyad Hatquai, a sustainability manager at German healthcare company Fresenius Kabi, has curated “12 free sustainability courses” to help expand your understanding of sustainable practices, including “Principles of Sustainable Finance” from Erasmus University Rotterdam. Bonus: Cathy Clark’s “Impact Measurement and Management for the SDGs,” developed by CASE at Duke and the U.N. Development Program.
- Capital innovation for communities. In the US, a flood of federal funding is transforming the economy. “The capital moment requires a commensurate, intentional focus on capital innovation,” say Bruce Katz and Bryan Fike of Drexel University’s Nowak Metro Finance Lab in “Will 2024 be a Year of Financial Innovation?” They call for government, corporations, finance and philanthropy to define new capital products, practices and partnerships. “The New Deal created the Federal Housing Administration and the 30-year mortgage. What will persist from this era?”
- Food waste funding. As in other sectors, food waste startups struggled to raise capital in 2023. That may change in the coming year, according to a survey of members in the ReFED Food Waste Funder Circle, which shows they expect to deploy more funding to food waste solutions in the coming year. “Investors that focus on impact will play a critical role in partnering with businesses that might have longer, steadier growth trajectories in an environment where market dynamics would typically favor only the fastest growing start-ups,” writes the team at ReFED.
- Risk-taking development finance Institutions. Development finance institutions willing to take greater risk in the new year can deliver outsized development impact, while managing risk and delivering sustainable returns, argues Dalberg’s Kusi Hornberger in “Ten project insights offering reason for optimism as we enter the new year.” Hornberger points to a leading bilateral DFI whose specialized financing window “enabled it to take unusual risk in first time fund managers, innovative financing structures and truly inclusive business models.”
AI applications come into focus
From carbon accounting to battery chemistry design, risk analysis to elections, artificial intelligence will accelerate (and challenge) social and climate innovation. For example:
- AI and elections. AI-generated election disinformation has complicated elections in Argentina and Slovakia, and threatens the outcomes in elections in the US and dozens of other countries in 2024. “The coming year will be pivotal for those fighting against the proliferation of such content,” writes Melissa Heikkilä in “What’s next for AI in 2024” for MIT Technology Review. Watermarks, such as Google DeepMind’s SynthID, are not yet foolproof, says Heikkilä. “Get ready for a massive real-time experiment in busting AI-generated fake news.”
- AI and food waste. AI is poised for wider deployment in solutions for food waste reduction. “AI is currently being used to track waste and streamline processes, but advancements in image recognition and customizable user experiences – something that the larger food industry is already making use of – could be game-changing for food waste across the entire supply chain,” nonprofit Refed writes in “Forecasting Food Waste Reduction Progress in 2024.”
- AI and nature tech. With AI-supported sensing technology, genomics, and public datasets on nature, “we have never had a more data-rich training set for nature-related machine learning,” writes the team at biodiversity VC Superorganism in “Five nature tech trends to watch in 2024.” Other areas they’re excited about: genomics and species ID, legal compliance and demystifying regulation, and improving insights from next-gen imaging.
- AI and inclusive healthcare. In health care, systemic racial biases shape experiences of Black, Latinx, and Indigenous populations. AI chatbots, so far, have been shown to perpetuate racism. When looking for AI and other tech solutions that target these biases in the medical space, “it is necessary to understand whether fund managers are prioritizing race and gender disparities in their decisions and how capital is being moved to solutions that are improving patient outcomes,” writes Daryn Dodson of Illumen Capital in “How to address medical AI bias to innovate health equity for all.”
Climate action gets real
In what could be another year of record-high global temperatures, the focus is on turning climate innovation into real-world deployment. After some headwinds in 2023, will climate tech get back on track? Some predictions:
- Large-scale projects. The transition is on. “Now that interest rates are expected to come down, rules around policy incentives and regulation are emerging, and international competition has become a driving force in climate tech, 2024 is looking to be a critical year for the next phase of climate tech evolving from innovation to real-world deployment,” Sightline Climate’s Kim Zou tells ImpactAlpha. “The cautious approach that marked 2023 could be ending, as rules are emerging for policies like the IRA (e.g. hydrogen tax credit, tax credit transferability) in the US or CBAM in Europe. This could mean green lights for large-scale projects in 2024.”
- The Inflation Reduction Act will start hitting the economy. Money and incentives from the Inflation Reduction Act will accelerate green transition, says Tim Weiss of Optera. “Much of the money set aside in the IRA is oriented at scaling proven climate solutions like solar, wind and storage,” Weiss tells ImpactAlpha. “We will witness significant effects of this legislation in 2024.”
- Decarbonizing fertilizer and livestock. “Nothing says ‘next-level carbon transition’ quite like agriculture,” writes Andrew Beebe of Obvious Ventures in “Four Climate Predictions for 2024.” “This space looks to me like mobility did five years ago: early, target rich, and very impactful. Companies like Kula, Pivot Bio, and Nitricity are leading the way in decarbonizing and upleveling fertilizer. In livestock, it’s early days, but companies like Alga, Blue Ocean Barns, and Volta Greentech are showing what’s possible.”
- New energy stacks. “The energy transition is being powered by innovation in energy generation (renewables, nuclear, etc), energy storage (batteries, storage networks, etc), and smarter energy distribution. In the process of rebuilding the infrastructure and systems by which we power this planet, we are also modernizing the energy stack and making it decentralized, modular, and programmable,” writes Fred Wilson of Union Square Ventures in “What Will Happen In 2024.” “The new energy stack has been coming together for the last decade but slowly and very much under the radar. I believe that 2024 will be a coming out party for the new energy stack and I am excited to be investing in this area and helping to make it happen.”
- Decarbonization vs. energy security. Some 200 nations at COP28 agreed to “transition away” from fossil fuels. That has added new uncertainty to the outlook for gas, and will act as a brake on investment decisions in gas and LNG for many companies, says Wood Mackenzie’s Kristy Kramer. “As the most widely accepted ‘transitional fuel,’ it will still have a role to play in providing energy security for some time. [But] companies and governments will need to reconsider investments against this evolving backdrop. Industry participants will need to realign their portfolios and strategies to navigate the contradictions and the range of possible outcomes for gas demand.”
