The Brief

The Brief: Investments in adaptation and resilience get better as climate change gets worse

ImpactAlpha · December 2, 2024

Greetings Agents of Impact!

In today’s Brief:

Accelerating the adaptation bonds agenda
Financing female entrepreneurs in Uzbekistan
Sustainable aquaculture in Vietnam
Tom Steyer is looking to move real estate from grey to green

Featured: Climate Adaptation

Adaptation and resilience bonds come to the fore as prospects for global climate action dim. The election of Donald Trump in the US, along with the too-modest ambitions of global climate negotiators at last month’s COP29 summit in Azerbaijan, have dimmed prospects for concerted action to limit global warming to 1.5 degrees Celsius above historical levels. That makes adaptation to the accelerating climate shocks even more urgent – and potentially more bankable, reports Louie Woodall for ImpactAlpha. Transition risks related to regulatory, legal and market changes in the transition to a lower carbon economy have been “reduced or extended, while the physical risk may actually increase,” CalPERs’ Peter Cashion told the pension fund’s board last month. “Although this may be unfortunate, it does create investment opportunities in the area of resilience,” such as heat-resistant crops, power generators, air conditioning and fire suppression. With a similar thesis, Invesco is looking to raise $500 million for its Climate Adaptation Action Fund for adaptation-themed projects in climate-vulnerable emerging economies. At a climate bonds conference in London in October, Invesco’s Gerald Evely said the $1.7 trillion asset manager has been “blown away” by investor interest. Still, the UN’s own Adaptation Fund attracted just $133 million in new funding pledges at COP29 – one-third of what promoters had targeted.

Climate bonds. Adaptation bonds are emerging as a spin on popular sustainable and green bonds, with proceeds funding projects that protect or prepare communities against physical climate risks. Climate Bonds Initiative will establish two adaptation bond readiness “hubs” – one in a “least-developed” country and one in a middle-income country – to nurture fledgling projects into a pipeline of investments able to absorb adaptation bond financing. CBI’s Adaptation and Resilience Bonds Accelerator is supported by the Global Environment Facility’s Challenge Program for Adaptation Innovation, which announced $20 million in grants at COP29. Other winners included The Lightsmith Group’s one-stop shop for debt, equity and technical assistance for adaptation-focused startups. “We need scale, especially if we’re talking about private investors in the capital markets,” says Ujala Qadir of Climate Bonds Initiative. “You need large ticket sizes. And in order to get large ticket sizes, you need pipeline.”
Blended finance. Less-developed countries that have contributed little to the greenhouse gas emissions driving climate change need up to $387 billion a year through the end of the decade, according to the UN’s recent Adaptation Gap report. Derisking strategies are key to attracting the private capital needed. The Invesco Climate Adaptation Action Fund’s riskier, junior tranches are targeted at development finance institutions, while pension and insurance funds may take the safer, senior tranches. Gawa Capital’s $300 million adaptation fund for rural communities in Latin America has secured commitments from institutional investors by leveraging concessional capital from the Green Climate Fund and the Spanish government (see, “When it comes to moving capital to climate-vulnerable nations, impact investors have the models”). Blended finance will be needed to raise the creditworthiness of climate bonds so they meet investor’s criteria, says Robin Ivory of Convergence. Another challenge: finding deal sponsors that “understand how to actually structure the core of a transaction and then adapt it to the local circumstances,” Ivory adds. Climate Bonds Initiative hopes to “bring together actors with varying incentives and motivations to collaborate,” says Qadir.

Keep reading, “Adaptation and resilience bonds come to the fore as prospects for global climate action dim,” by Louie Woodall on ImpactAlpha.

Dealflow: Gender Smart

Global Gender-Smart Fund invests to support female entrepreneurs in Uzbekistan. TBC Bank UZ offers lending, payments and other banking services via mobile phone in the Central Asian country of Uzbekistan. Global Gender-Smart Fund provided TBC UZ with a $10 million loan to boost its lending to women-led businesses to help them expand into more lucrative sectors. The $500 million gender-focused debt fund, launched earlier this year, offers local currency loans to financial institutions for on-lending. One of the largest gender-lens investment funds, the GGSF is the follow-on to the Microfinance Enhancement Facility, which after 15 years shifted its focus to address the $1.7 trillion gender financing gap. Investors in the fund include International Finance Corp., the Austrian Development Bank OeEB, Germany’s BMZ, KfW Development Bank and private institutions. The loan to TBC UZ will come via Dutch impact investor Triple Jump, one of GGSF’s portfolio managers.

Digital banking. Microfinance is scarce in Uzbekistan, contributing to a massive credit access gap for small businesses. TBC UZ’s mobile-only strategy caters to Uzbekistan’s young population (60% are under age 30) and takes aim at the low penetration of mainstream banking services (just 44% of the population has a formal bank account). TBC UZ, which has 17 million users, wants to make an impact by expanding financial inclusion and “ensuring that easy-to-use, digital banking products are available to all,” the bank’s Nika Kurdiani said. The deal follows a $38.2 million equity investment in July by TBC’s UZ’s parent company TBC Bank Group, the European Bank for Reconstruction and Development and others. A $10 million credit line from responsAbility and $25 million loan from BlueOrchard brings TBC UZ’s total funding this year to $105 million.
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Tom Steyer’s Galvanize Climate Solutions seeks to move real estate from grey to green. Taking control of high-emitting assets in order to reduce their carbon footprint has long been seen as an important investment strategy, but few such “grey-to-green” plays have come to market. Galvanize Climate Solutions, founded by veteran alternatives investor and one-time presidential candidate Tom Steyer, aims to acquire and decarbonize properties in the industrial and residential sectors. The strategy has inked its third deal, acquiring a 608,000 square foot industrial property in New Jersey, with plans to dramatically reduce on-site emissions. The targeted $500 million Galvanize Real Estate fund will link 30% of its carried interest to meeting impact goals.

Value-add. Galvanize treats decarbonization as another way to raise asset values. The property’s more than 600,000 square feet of rooftop space can provide tenants with renewable power, according to Galvanize’s Nicolette Jaze. “It also takes advantage of a rich community solar program to distribute renewable energy to the local utility.” The firm also plans to convert the property’s fossil fuel energy systems to electric heat pumps for heating and cooling.
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In Vietnam, bonds for sustainable aquaculture and loans for organic farming. Vietnam made strides in sustainable agriculture with two deals: a bond issuance to support eco-friendly fish farming, and an impact-linked loan to help rice farmers adopt organic farming practices. The International Development and Investment Corp., a leading Vietnamese processor and exporter of catfish, issued one of the first green bonds by a non-financial institution in Asia’s aquaculture sector. The bond was oversubscribed and drew investment from insurance providers Manulife Vietnam and AIA Vietnam. The proceeds will help IDI expand eco-friendly breeding and its hatchery and processing facilities in response to high demand for the Vietnamese pangasius fish.

Catalytic capital. GuarantCo, which mobilizes private funding for infrastructure projects in Africa and Asia, is providing a one trillion Vietnamese dong ($40 million) guarantee for the bond. “As Vietnam aims to establish itself as the world’s leading seafood processing center, securing access to green finance is essential for the necessary upgrades to its sustainable infrastructure,” said Helena McLeod with Global Green Growth Institute, which collaborated with GuarantCo on the transaction. GuarantCo’s parent company Private Infrastructure Development Group will provide International Development and Investment with technical assistance grants.

Organic premium. Separately, California-based Beneficial Returns made its first loan in Vietnam to Hoa Nang Organic, a female-founded rice producer and exporter to Japan, the US and Europe. Hoa Nang works with farmers in Vietnam’s Mekong Delta region, where most of the country’s rice is grown, to transition to organic farming. Hoa Nang’s “shrimp-rice” model helps farmers integrate farming and aquaculture, using organic waste from shrimp as rice fertilizer and creating dual income streams. Hoa Nang says farmers can fetch a 15% to 20% premium above non-organic rice prices. Beneficial Returns’ investment will help Hoa Nang pay farmers after harvest and help them purchase inputs at the start of the season. Hoa Nang also is a portfolio company of the gender-lens investment fund Beacon Fund.
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Dealflow overflow. Investment news crossing our desks:

Swedish early-stage impact investor Norrsken VC led a €13 million ($13.6 million) Series A round in Munich-based Predium, to provide ESG management in finance and real estate. (Fintech Global)

Acumen’s Hardest to Reach fund invested $5 million in Brighter Life, a project of solar company d.light and African Frontier Capital. The multi-country receivables financing facility is meant to help d.light access working capital and reduce its exposure to currency risk. (Acumen)

Kenyan hydro mini-grid developer Hydrobox secured $9 million in debt financing from Dutch development bank FMO to develop eight mini-grid projects. (Waya)

Senegalese electric two and three-wheeler maker Solarbox Africa raised $1 million from the Digital Energy Facility, Teranga Capital and others to expand its production and market footprint. (Innovation Village)

Agents of Impact: Follow the Talent

Quinbrook Infrastructure Partners taps Hilkka Komulainen, previously with Aegon UK, as global head of sustainability and impact. The firm also adds Cathy Jones, previously with CVC Capital Partners, as chief people officer, Predrag Dukic, previously with DC Placement Advisors, as capital formation and investor engagement senior director, Nick Baker, previously with Buckeye Partners, as US investment senior director, and Liv Miller, previously with Statkraft, as UK investment director.

Environmental Defense Fund has an opening for a senior financial analyst focusing on the energy transition… Quince is looking for a head of ESG… responsAbility seeks a climate finance investment officer in Peru… Waverly Street Foundation is on the hunt for an impact investing director in San Francisco… Accion Venture Lab is recruiting an investment officer in India… Impact Shakers is accepting applications for its accelerator, a six-month program for diverse impact venture founders in Europe.