Greetings, ImpactAlpha readers!
#Featured: Impact Voices
Blending finance to crowd in private capital for climate action and the global agenda. There’s more than just the future of the climate at stake in the global talks underway in Bonn, Germany. All of the global goals for 2030, from the end of poverty to the regeneration of land and sea, will fail if the 2015 Paris climate agreement fails first. So let’s imagine a world in which private capital is indeed flowing in the trillions of dollars to keep global warming under 2° C of warming and to meet the 2030 SDG deadlines at the same time.
What we need now are ‘pull strategies’ that “allow the private sector to bet massively on the sustainable development challenge and to bring its capital, creativity and skills to the fore,” say Joan Larrea, CEO of Convergence, and Chiara Trabacchi, a climate finance specialist at IDB Invest, the private sector arm of the Inter-American Development Bank Group.
Blending public and philanthropic funding can reduce risks and boost returns for private investors, Larrea and Trabacchi write on ImpactAlpha. That can “pull private investment into geographies and markets otherwise deemed too risky, costly or not business-relevant.”
Keep reading “Blending finance to crowd in private capital for climate action and the global agenda” by Joan Larrea and and Chiara Trabacchi on ImpactAlpha:
#Dealflow: Follow the Money
Demand for gender-equality bond shows potential for “women-themed” investing. Australia’s QBE Insurance Group’s “gender equality” bond drew A$8.25 billion in interest from investors — over-subscribing the A$400 million ($303 million) issue by more than 20x. Half the investors were based in Asia; Europe and the Middle East accounted for 37% and the U.S. for 12%. QBE announced the bond in March. It backs companies that have strong workplace equality policies in place, such as the U.N.’s Women’s Empowerment principles. “When you search Morningstar, there are very few securities that include ‘women’ as a focus,” HiP Investor’s Paul Herman, which rates bonds on both impact and financial performance, told ImpactAlpha. Gender equality across board, management and staff leads to stronger, more resilient investments, Herman says. The gender equality bond “serves the investors, families, foundations, endowments and pensions seeking to support women in the workplace, as innovators, leaders, managers, staff, suppliers, and stakeholders.”
Lateral Capital joins Capria Network. Capria, which launched its acceleration program for new impact fund managers in 2015, has added two more funds to its network. Lateral Capital, a New York-based fund, is raising $50 million to make debt and equity investments across sub-Saharan Africa. An unnamed Latin American fund manager is looking to raise $21 million to invest in high-impact tech startups in Chile. With the two additions from its fourth fund manager training and selection process, Capria has seeded 11 fund managers collectively raising and deploying $400 million over the next five years. Applications are open for Capria Network’s fifth investment cycle. All applicants will get feedback on investment structure and strategy.
Eight winners of the Fish 2.0 business competition snag startup cash and a network. #FinancingFish. This year’s winners include: EnerGaia, which is rooftop farming spirulina algae in Bangkok, and Sustainable Fishery Trade, which is cultivating fair and sustainable trade among South America’s artisanal fisheries and working to make octopus processing more inclusive of women. The Fish 2.0 competition, now completing its third cycle, connects sustainable seafood ventures with investors. Eight winners from six regional and two globals tracks took home $5,000 each in cash. Thirty-nine startups were selected to present to judges and investors after a seven-month online program to help them hone their business plans.
#Signals: Ahead of the Curve
U.N. secretary-general issues call for “rapid action” on climate. António Guterres, the secretary-general of the United Nations, gives it to you straight. In his speech at the global climate conference underway in Bonn, Guterres called for more ambition in five specific action areas: Emissions, adaptation, finance, partnerships and leadership. Here’s Guterres’ call to finance action:
- Mobilize the $100 billion dollars — per year — that developed countries pledge to developing countries to finance their adaptation and low-carbon transitions.
- End $825 billion in annual investments in fossil fossil fuels and high-emissions sectors. “We must stop making bets on an unsustainable future that will place savings and societies at risk.”
- Adopt the simple rule: If big infrastructure projects aren’t green, they don’t get the green light. “Otherwise we will be locked into bad choices for decades to come.”
- Put a price on carbon. Last year, carbon pricing initiatives generated $22 billion dollars. Markets are emerging in North America, Europe and China, but don’t yet cover half the world economy. We need, Guterres said “a higher price on carbon to drive large-scale climate action.”
“Climate change is the defining threat of our time,” Guterres said. Two developments to watch: French President Emmanual Macron’s “One Planet summit” in Paris next month, and Denmark’s proposed clean energy investment coalition. Denmark will host the “clean energy ministerial” next May.
The pocket guide to impact investing financial performance. Like you, we get a pile of white papers on impact investing. Unlike you, we try to read them. So we’re grateful to the Global Impact Investing Network for a handy cheat sheet of the last couple years of research on impact investing financial performance. A few entries:
- A Wharton Social Impact Initiative study, evaluated the performance of 32 private equity impact investing funds with $1.7 billion in assets and found gross internal rates of return of 9.2%.
- A McKinsey report on 48 exits from private equity impact funds in India found investments achieved a weighted average return of 11%.
- Symbiotics looked at 44 microfinance vehicles; the debt funds experienced a pooled average yield of 6.9%.
- An Impact Investing Australia report looked at financial performance data on 54 private debt investments in Australia and found a weighted average of gross returns of 7.9% per year since inception.
- A Cambridge/GIIN study on real assets found that timber impact investing funds produced a pooled net IRR of 5.9% compared to 3.3% within a comparative conventional timber funds.
The GIIN’s pocket guide also features deep dives into the portfolio performance of funds who have made their data public, including Christian Super, Grassroots Capital Management, Gray Ghost Microfinance Fund, KL Felicitas Foundation and Triodos microfinance and renewables funds. Want to share your performance data? Get in touch at [email protected].
Low-cost green buildings will be lit by LEDs well before 2030. Low-energy light-emitting diodes, or LEDs, have already captured the bulk of new lighting installations and could grab three-quarters of the market in the next decade. With costs continuing to fall, the LED advantage continues to grow. “Given the very short replacement cycles of legacy lamps, LEDs are likely to have replaced the installed lighting base well before 2030, making it potentially one of the fastest technology shifts in human history,” a Goldman Sachs reportfound last year.
Now comes the International Energy Agency, which estimates that only 1% of the potential for energy savings have been achieved in lighting, meaning there are huge potential efficiencies ahead. There were still seven billion incandescent lights in use in 2016, according to the UN Environment Program. All told, the energy efficiency of buildings could be improved by up to nearly 70% by enhancing building envelopes and using high-performance equipment, according to the International Finance Corp.’s “Creating Markets for Climate Business” report. Traditional buildings generate 19% of energy-related greenhouse-gas emissions and use 40% of electricity globally.
The IFC estimates building green represents upwards of a $3.4 trillion investment opportunity through 2025. Energy-efficient heating, ventilation, and air conditioning are a $76 billion annual market. “Building envelopes” — i.e. the physical barrier between the interior and exterior of the building — make up the largest share of investments in green buildings. Green building offers obvious and immediate benefits: cutting emissions at low cost and locking in energy and water savings for decades. That has attracted energy service companies, or ESCOs, which invest in energy-efficient technologies for commercial buildings and earn royalties on the energy savings, without owning the property itself. In China alone, ESCO revenues are about $13 billion a year. Green construction bonds, green mortgages, and green mortgage-backed securities are financing low-carbon building. So are affordable housing investors: International Housing Solutions blends catalytic and commercial capital for low-cost green homes in South Africa.
Onward! Please send news and comments to [email protected].