The Brief

The Brief: The pro-business case for regulating deforestation in corporate supply chains

ImpactAlpha · November 19, 2024
Credit: Spouts

Greetings, Agents of Impact! Thanks to all of you for the rich and lively discussion on yesterday’s Call, “New realities, new narratives.” We’ll have a recap in Friday’s Brief (here’s the setup). The conversation continues with today’s discussion of the new policy landscape for mission-aligned investing with Kellogg Foundation’s Cynthia Muller, Fran Seegull of the US Impact Investing Alliance, Urban Institute’s Brett Theodos, and Dafina Williams of Opportunity Finance Network, hosted by Mission Investors Exchange. Also today, Impax Asset Management is co-hosting, “Investment strategies under a Trump administration,” with a focus on environmental and social policy and real estate – David Bank

In today’s Brief:

  • EU’s missed opportunity on deforestation 
  • Clean water in East Africa 
  • Remittances as a gateway to financial inclusion
  • Podcast: Jim Sorenson on inclusive wealth building in the Trump era

Here’s a regulation that business leaders support: Scrubbing supply chains of deforestation. Businesses don’t necessarily dislike regulation. This month, more than 50 major food and confectionery companies urged the European Union to advance a landmark law aimed at preventing deforestation in commodity supply chains. What executives dislike is lack of clarity. Set to go into effect at the end of the year, the European Parliament instead delayed the European Union Deforestation Regulation, or EUDR. “The EUDR was poised to be a turning point for forests, climate action, and sustainable markets,” says Nicole Rycroft of the nonprofit Canopy, which works with companies to end deforestation in their supply chains. The EU’s move added new uncertainty for businesses, on top of ongoing climate disruptions and geopolitical headwinds. Policy delays and uncertainty “doesn’t mean we pause. It’s a reminder to accelerate,” Rycroft writes in a guest post on ImpactAlpha. “Companies that invest now in low-risk, traceable supply chains know that they will be better positioned to navigate tightening global regulations and shifting market demands.”

  • Policy stability. Global climate action is facing immense uncertainty – most notably because of expected changes in US climate policy. ExxonMobil, a longtime climate laggard and unabashed proponent for oil and gas, has encouraged the incoming Trump administration not to withdraw from the Paris Agreement or roll back key climate legislation and new methane rules. “We need a global system for managing global emissions,” Exxon CEO Darren Woods told The New York Times. Likewise, the EUDR “promised to position Europe with a competitive advantage in the global economy,” Rycroft said, especially in relation to China. 
  • Circular strategies. Even in advance of the EUDR, Europe’s fashion and packaging industries are looking at circular strategies, like reuse and new materials, in search of “tree-free ways to ensure compliance, build climate-resilient supply chains and help them meet sustainability targets,” says Rycroft. Many of Canopy’s more than 1,000 partners have been preparing for the new rules. Agriculture ministers and exporters had complained that EUDR compliance was costly, particularly for smallholder farmers. But many smallholder farmers support the regulation and have worked with their buyers to adopt digital farm mapping and monitoring tools. Companies recognize that “the EUDR isn’t just about climate action – it’s good business,” Rycroft writes.

Dealflow: Investing in Water

Incofin’s water fund backs clean water solutions in East Africa. The Belgium-based impact investor invested €3 million ($3.2 million) in Spouts International, which distributes ceramic filters to enhance clean water access in East Africa. The funding came from Incofin’s Water Access Acceleration Fund, or W2AF, which raised €36 million ($38 million) in March. Since its 2011 launch, Spouts has served over 740,000 people, including 10,000 students, via its Filters for Schools program. It has installed more than 1,500 filters in refugee camps in South Sudan and Uganda.

  • Climate + gender. More than two billion people worldwide lack access to safe drinking water. “Water access is at the nexus of gender equality and climate action,” said W2AF’s Aparna Pittie. Spouts’ filters purify water without the need to boil water using wood or charcoal. It sells carbon credits based on the avoided emissions, which it says amount to one million tons of carbon emissions to date. The funding will enable Spouts to expand its carbon credit initiative and double its reach in the next five years.
  • Water access. W2AF supports growth-stage companies with clean water solutions in Africa and Asia. Investors in the blended finance fund include French food giant Danone, Dutch nonprofit Aqua for All, BNP Paribas. USAID provided a first-loss tranche. The fund last month invested €7.5 million in India’s Rite Water Solutions to install water purification systems in rural and urban centers. 

Tumoni lands $2.3 million to bank Central American migrants and their families back home. Transfer services for remittances, a major source of income for many emerging market households, often exploit underbanked and unbanked individuals. Remittance flows between the US and Central America amount to $45 billion a year. “At the current rate of innovation, it will take two decades to reach the UN’s goal of reducing the cost of remittances to less than 3% in this corridor,” said Tumoni’s Paolo Delaunay, which aims to make remittances free for both senders and receivers. The transfers, says Tumoni, create a gateway to financial inclusion. The San Francisco-based-based fintech venture offers digital bank accounts to facilitate cross-border transfers, mobile top-ups and bill payments. Tumoni has a waitlist of more than 50,000 potential customers.

  • Cross-border services. The seed round, led by Slauson & Co. and Counterview Capital, will support Tumoni’s launch in Nicaragua and the US, where many migrants face barriers to opening bank accounts due to their immigration status. Next up: Guatemala, El Salvador and Honduras, where Tumoni hopes to bridge the digital financial services gap. “By creating a closed-loop system, they’re not just trimming fees – they’re fundamentally restructuring how money moves across borders,” said Charlie Graham-Brown of Seedstars International Ventures, which joined the round alongside NuMundo Ventures, Hatcher, Plug and Play and angel investors.
  • Check it out.

Dealflow overflow. Investment news crossing our desks:

  • Vaulted Deep raised $32 million in Series A equity to sequester carbon from organic waste, such as paper sludge and manure, in underground storage facilities. (ESG Today)
  • LISC secured an $18 million grant from the city of Cleveland, and a $20 million commitment from KeyBank, for its Cleveland Housing Investment Fund, which will invest in affordable housing in the city. (LISC)
  • Amsterdam-based impact investment firm Pymwymic raised €71.5 million ($75.8 million) for its second Healthy Food Systems Impact Fund with backing from seven institutional investors and more than 250 private investors. (Silicon Canals)

Podcast: Finding Alpha

For Jim Sorenson and impact investing, the best is yet to come (podcast). This fall, the Sorenson Impact Institute moved into its new home at the University of Utah’s Impact and Prosperity Epicenter. The hub for social impact, community engagement and entrepreneurship also houses nearly 800 students. For the first in his series of Finding Alpha podcast conversations, ImpactAlpha contributing editor Robert Brown spoke with founder Jim Sorenson about building an impact investing ecosystem. In addition to the institute, the Sorenson Impact Group includes a foundation and an investment advisory and asset management group. Over a period of three years, the foundation moved to align its approximately $142 million in assets with its impact objectives (see the foundation’s 2023 impact report). “And since that time, we’ve beaten the benchmarks by about 130 basis points,” Sorenson tells Brown (disclosure: Sorenson Impact Foundation is an investor in ImpactAlpha). 

  • Impact allocations. “What we hope to give our listeners in the series are insights into the real-world decisionmaking process behind all those allocations,” says Brown, formerly with Just Capital and a cofounder of Atlas Impact Partners. Sorenson, for example, says that newer and younger fund managers are outperforming those with more experience, “and they’re more authentic.” Backing such emerging managers could be considered risky. “We found that to be the brighter part of the performance in our portfolio and, in fact, [is] outperforming some of the named funds that you and I know.” What’s he looking for? “We love to see investments where every dollar generated from the business is correlated to furthering impact.” Sorenson tells Brown that he lives by his father’s advice, “‘The best is yet to come.’ That has served me well as I’ve encountered problems and challenges but also opportunities.”
  • Trump-era playbook. In a post-election follow-up, Sorenson said he is “cautiously optimistic” about opportunities to advance market-based solutions for inclusive wealth building and economic mobility in the Trump era. Impact investors will need a new playbook. “Wherever you can align an issue or a theme with what Trump has won or championed or promised, there’s opportunity,” Sorenson tells ImpactAlpha. “He’s made a lot of promises, and he needs to deliver now.” Sorenson points to progress in Trump’s first term on Opportunity Zones and the Build Act. Opportunities exist now to enact policies like the Employee Equity Investment Act to expand financing for businesses that extend ownership to employees. What are the risks? “I believe that investors should have the freedom to invest where they want to invest,” he says. “Anything that would restrict that freedom, obviously, would be of concern to me.”
  • Keep reading and listen to, “For Jim Sorenson and impact investing, the best is yet to come (podcast),” on ImpactAlpha. Subscribe to ImpactAlpha podcasts wherever you listen, and catch up on all of the shows on the ImpactAlpha Podcast Network.

Agents of Impact: Follow the Talent

Overture welcomes Allison Hinckley, formerly with F-Prime Capital, as senior principal… Kresge Foundation has an opening for an associate investment director in Troy, Mich… Gary Community Ventures is recruiting a portfolio operations and impact investing director in Denver… The Lemelson Foundation is hiring a climate action program officer in Portland, Ore… Generate Capital seeks a fundraising senior analyst in San Francisco. 

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

Thank you for your impact!

– Nov. 19, 2024