Climate Finance | September 30, 2021

Innovative mechanisms aim to crack the tough nuts of climate finance

Amy Cortese and Roodgally Senatus
ImpactAlpha Editor

Amy Cortese

ImpactAlpha Editor

Roodgally Senatus

ImpactAlpha, Sept. 30 – At this point, solar power, electric vehicles and optimization software are the low-hanging fruits. More difficult: funding sustainable infrastructure and climate adaptation and resilience in emerging markets. A half-dozen new financing mechanisms selected for the Global Innovation Lab for Climate Finance’s latest cohort use offtake agreements, artificial intelligence, blended capital and other mechanisms to derisk opportunities and attract private capital to sustainable projects in Africa and Brazil.

“We need investors to embrace these ambitious climate impact opportunities and bring them to market,” said Barbara Buchner, Global Managing Director of Climate Policy Initiative, which runs the lab.

At least some institutional investors appear to be ready. Climate solutions are “going to be an alpha generator for the next 30 or 40 years,” Christopher Ailman of the $318 billion California State Teachers’ Retirement System, or CalSTRS, said at a CNBC conference.

Brazilian cosmetics giant Natura and Mauá Capital are filling a financing gap for producers of forest-compatible products in the Amazon. Their Amazonia Sustainable Supply Chains Mechanism leverages receivables payments, offtake agreements and support for sustainable forest producers and their communities. An initial pilot will stand up a $50 million fund to finance up to 34 cooperatives and preserve 3 million hectares of Amazon forest by 2030. 

In Africa, One Acre Fund is developing a Smallholder Resilience Fund to support farmers producing high-value, climate-resilient crops. It will provide equity, working capital and debt funding for small and midsized supermarkets, exporters, processing companies and input providers who supply and buy from smallholder farmers, while a venture studio will incubate such businesses to fill gaps. It’s first pilot will support Rwanda’s avocado value chain.

Other cohort members include The ACT Fund, which aims to facilitate large-scale sustainable infrastructure investment in West Africa, the Guarantee Fund for Biogas, which supports smaller biogas project developers with short-term collateral to unlock loans, Data-Driven Energy Access for Africa, which uses artificial intelligence to assess customer repayment risk, and the Peace Renewable Energy Credit Aggregation Fund, which creates new revenue streams for renewable energy projects in fragile states. 

The lab has launched 55 financial instruments that have collectively mobilized over $2.5 billion for emerging markets since it launched in 2014.

It’s the climate, mate

Sydney-based early stage investor Investible is launching a $100 million climate tech fund. The fund will back seed rounds of Australian and other companies developing climate solutions in energy, transport, industry, buildings and cities, food and agriculture, and forests and land use. Investible is also creating a climate tech startup hub called Greenhouse with the city of Sydney. 

In other fund news, Chicago-based Energize Ventures raised $330 million for its second energy transition fund to invest in digital tech companies in renewable energy, mobility, cybersecurity, battery storage, critical infrastructure and climate resiliency. Investors include Invenergy, CDPQ, SE Ventures, GE Renewable Energy and Hannon Armstrong as well as energy companies Xcel Energy, American Electric Power and Equinor Ventures. 

Clean Energy Systems secures $15 million in a Series A investment round led by Carbon Direct Capital to develop a carbon negative waste-to-power plant in California. And Generation Investment Management is buying a $600 million stake in U.K.-based renewable energy supplier Octopus Energy Group.