The Brief: Private investors drive boom in blended climate finance

Greetings Agents of Impact! 

SOCAP is a wrap. At the time of last year’s conference, investors and founders were on the defensive in the face of attacks on ESG and DEI. Investors, entrepreneurs and other Agents of Impact were singing a new tune in San Francisco this week. “It’s now time for us to play offense, together,” said CapEQ’s Tynesia Boyea-Robinson, who co-founded Freedom Economy with Adasina’s Rachel Robasciotti to defend the rights of justice and sustainability investors. Stay tuned for ImpactAlpha’s full dispatch from SOCAP24. – David Bank

In today’s Brief:

• Boom in blended climate finance
• Banking the poor in India
• Impact investing in Central America and the Caribbean

Featured: Blended Finance

Private investors drive blended climate finance to record $18.3 billion. A blended finance vehicle from the Asian Development Bank is paying to retire coal plants in Indonesia and the Philippines years ahead of schedule. A government-led investment vehicle in Rwanda is leveraging grants, concessional loans and credit guarantees to coax private investors into green projects in the country. A new fund from Gawa Capital is layering first-loss capital, concessional debt and commercial capital to support climate adaptation in rural communities across Latin America. Private investors, responding to aggressive efforts to de-risk deals and strengthen returns, drove a more than 120% year-over-year increase in blended climate finance transactions in emerging markets, reaching $18.3 billion in 2023, according to a new report from Convergence. “We typically see a lot of portfolio reorganization away from [emerging markets] in periods of higher perceived risk,” observes Convergence’s Nic Zelenczuk, co-author of the inaugural “State of blended finance 2024: Climate edition.” “Blended finance is getting uptake with critical private sector investors who would [otherwise] be swayed by greater macroeconomic challenges.”

• Big fish. The upswing comes amid new warnings that global temperatures could rise as much as 3.1 degrees Celsius this century without aggressive climate action. Some $1 trillion a year is needed to stave off such a scenario. Blended climate transactions are attracting more institutional capital as deal sizes grow larger. About 45% of blended climate finance last year went into transactions and funds greater than $1 billion. “The bigger institutional investors who want to use blended finance to diversify and enter new markets can’t really participate in smaller transactions because the transaction costs are too high,” Zelenczuk told ImpactAlpha. The $1.1 billion SDG Loan Fund, led by German insurance giant Allianz using catalytic capital from Dutch development bank FMO and the MacArthur Foundation, has become a model for other investors (see, “How commercial investors are streamlining blended fund structures”).
  
• Scaling up and phasing out. Most blended finance is being designed for climate mitigation. “Adaptation must be where we focus more of our efforts,” says Luca Torre of Gawa Capital. The Spanish impact investor is nearing a first close for its Kuali Fund, a planned $300 million blended vehicle supporting climate resilience for rural livelihoods in Latin America. Mobilizing investment in green industries is critical; so too is phasing out dirty ones. “Just increasing renewable energy isn’t going to change the equation if the coal isn’t decommissioned,” says Convergence’s Ayesha Bery. The Asian Development Bank, via its blended Energy Transition Mechanism, inked an agreement to pay off an energy contract on a coal plant in Indonesia and retired the plant up to 15 years early. For phasing out coal in dependent markets like Indonesia, says Bery, “there’s an opportunity there for blended finance to play a greater role.”
  
• Keep reading, “Private investors drive blended climate finance to record $18.3 billion,” by Jessica Pothering on ImpactAlpha.

Dealflow: Inclusive Finance

India’s Finova lands $135 million amid crackdown on non-banking financial institutions. Jaipur-based Finova Capital offers personal and home loans to India’s urban and rural poor. The firm also provides working capital, equipment and business loans to semi-skilled workers and small businesses that can’t easily get financing from traditional lenders. Instead of conventional credit histories, Finova analyzes an enterprise’s cash flow and overall financial performance. The lender has over 400 branches across 16 Indian states and offers business loans ranging from 200,000 rupees to 2.5 million rupees (about $2,300 to $30,000). 

• Partial exit. Finova raised $135 million in a Series E equity round from Avataar Venture Partners, Sofina and Madison India Capital. Existing investor Norwest Venture Partners, which led Finova’s $65 million Series D in 2022 also participated. The deal secured a partial exit for several investors and brings Finova’s total funding to just over $274 million, according to Crunchbase. Finova’s team has built “a technology-driven platform that is highly profitable and has grown sevenfold in the last four years,” said Avatar’s Anirudh Singh. 

• Borrower protection. Finova’s raise comes in the wake of a lending ban earlier this month by India’s central bank on four non-banking finance institutions, including two microfinance institutions, for usury. The four were Asirvad Microfinance, Arohan Financial Services, DMI Finance and Navi Finserv, founded by Flipkart’s Sachin Bansal. India’s Microfinance Industry Network subsequently announced plans to review its members and cap borrower microfinance debt to 200,000 rupees ($2,300) while limiting each borrower to four lenders. 

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CredibleMind snags $7.5 million to offer personalized mental health to diverse populations. California-based CredibleMind launched in 2018 to expand access to mental and behavioral health services that prioritize prevention and early intervention. It does so in partnership with health plans, hospitals, schools, employers and public agencies that are close to the critical mental health needs of communities. “The majority of communities and health plans nationwide have ranked mental health as a top-three priority, yet few have a cost-effective way to fully address these needs upstream and at scale,” said CredibleMind’s Deryk Van Brunt, who is also president of the Healthy Communities Foundation and a clinical professor at UC Berkeley School of Public Health. Through Blue Shield of California, AppHealthCare and other partners, CredibleMind has delivered digital mental healthcare to over 30 million people, including on Tribal lands. 

• Investing in health. CredibleMind’s digital platform uses an AI-powered data engine to scan, collect and personalize thousands of expert-curated resources on more than 100 mental health topics. Its $7.5 million seed round was led by Horizon Mutual Holdings, a division of the Horizon Foundation for New Jersey, the philanthropic arm of New Jersey insurer Horizon Blue Cross Blue Shield.
  
• Check it out.

Dealflow overflow. Investment news crossing our desks:

• Norway’s Verdane raised €700 million ($760.5 million) to invest in European businesses supporting clean energy, resource efficiency and decarbonization. (Verdane)
  
• MaC Venture Capital, a majority Black-led firm, raised $150 million for its third fund to invest in early stage startups leveraging cultural shifts to expand access to opportunities, address climate challenges and build better products. (Shoppe Black)
  
• Merlin Solar scored $31 million in a Series B round led by Fifth Wall to make silicon-based solar panels that are lighter and more durable than traditional solar panels and can be attached like a sticker on moving vehicles. (TechCrunch)

Signals: Impact in Latin America

Putting Central America, and the Caribbean, on the impact investing map. There wasn’t much to look at in terms of impact activity in Central America back in 2015. That’s when Daniel Buchbinder, founder of Guatemala-based business services company Alterna, approached New Ventures about launching an edition of its Latin American Impact Investment Forum in Antigua. “It started as a 250-person event,” Buchbinder recalls. With so many small countries in the region, it took some convincing to bring investors to the table. “What we’ve been doing ever since is nurturing that grain of sand we put into the ecosystem,” Buchbinder tells ImpactAlpha in a Q&A interview. “It’s been an important event for bringing investors from the world to Central America.” 

• Centroamerica y Caribe. FLII Centroamerica kicks off its ninth edition in Costa Rica next week. A new twist: It has added “y Caribe” to the name to bring entrepreneurs, investors and ecosystem builders from the Caribbean into the fold. Buchbinder wants to replicate the work he has done with Alterna, New Ventures and other partners in putting Central America on the map for impact investing in other small and challenging markets. Haiti will be in the spotlight. “It’s complex, but there are good entrepreneurs and companies,” says Buchbinder. “This is an invitation and challenge to the impact ecosystem at large to put our minds together creatively to support companies making good things happen there.”

• Market growth. Buchbinder is optimistic because of the growth he’s witnessed in impact investing in Central America’s small and sometimes politically challenging markets. “We are seeing more activity from family offices, and more banks talking about green lending and gender lending. We’re also seeing more funds raising,” he observes. “There’s a nice combination of energy and dynamism around impact in Central America right now.”

• Read the full interview. And connect with ImpactAlpha’s Zuleyma Bebell at FLII CA&C in San Jose next week.

Agents of Impact: Follow the Talent

Norsad Capital welcomes Vusi Raseroka, formerly with the Public Investment Corp.’s Rest of Africa Fund, as CEO… Health Forward Foundation is hiring an impact strategist in Kansas City… Capital Impact Partners is looking for a chief strategy and growth officer… The Green and Healthy Homes Initiative is recruiting a Baltimore-based program officer for its Thriving Communities Grantmaker program… American Student Assistance is on the hunt for an impact investing intern in Boston. 

National Community Reinvestment Coalition is hosting an online discussion on how resolving heirs’ property and tangled titles can safeguard homeownership and support wealth-building in underserved communities, Thursday, Nov. 7… Mastercard Foundation is accepting proposals for its Agribusiness Challenge Fund, which will provide between up to $2.5 million to small and mid-sized companies creating good jobs for young people, people with disabilities, and refugees in Africa. 

👉 View (or post) impact investing jobs on ImpactAlpha’s Career Hub.

Thank you for your impact!

– Oct. 31, 2024