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#Double Feature: ImpactAlpha Originals
We’ll always have Paris, but is that enough to avert climate catastrophe?Global capital continued its lumbering rotation toward climate action at the One Planet summit. This week’s summit, perhaps the most ambitious effort yet to mobilize private capital for climate action, closed with an array of finance-related announcements, but fell far short of the decisive shift in the financial system experts say is required to prevent the worst effects of climate change.
Still, the World Bank said it would stop financing oil and gas projects starting in 2019. Some 16 countries, including Brazil and Norway, promised to become carbon-neutral by 2050. Some 225 institutional investors managing more than $26 trillion, signed the Climate Action 100+ pledge to pressure companies they invest in to more aggressively adopt climate-friendly policies. China is readying what would be the world’s largest carbon trading market, and Mexico is joining with Canada, Chile, Colombia, Peru — and California — to create a carbon market for the Americas.
“What happened here will not solve the climate finance problems we have,” said Climate Action Network International’s Wael Hmaidan. “But perhaps it can be a trigger.”
Read Eric J. Lyman’s full report from the One Planet summit in Paris, on ImpactAlpha.
The announcements and pronouncements in Paris may leave the impression that coal is dead. French insurance giant AXA, Dutch banker ING and insurer Lloyd’s all continued their march away from coal. But it’s too early to count the King out just yet.
Read “Last Gasps: Coal is taking its lumps but isn’t dead yet” by Eric J. Lyman in Paris
#Dealflow: Follow the Money
TPG’s Rise Fund invests $20 million in Latin American education venture.Buenos Aires-based Digital House runs schools that teach digital skills like web development and data science and analytics to about 2,500 Latin American students. Preparing primary-school students for the jobs of the future, particularly in science and technology, is one of the Rise Fund’s main investment themes. Omidyar Network and Endeavor Catalyst joined TPG in the investment in Digital House. The Argentina government is making a push to encourage more global impact investors to invest in the country’s social enterprises.
Beyond Meat takes a hearty helping of growth capital. Investors have a growing appetite for “alternative proteins” as a healthier, more environmentally sustainable food source. The California-based Beyond Meat, known for its plant burgers, raised $55 million from former McDonald’s CEO Don Thompson’s Cleveland Avenue, a food-and-beverage venture firm, with backing from poultry giant Tyson Foods’ venture fund. The funding comes after Beyond Meat’s deal to sell its vegetarian burgers in the casual dining chain TGI Friday’s. Alternative protein was a $4.2 billion market worldwide last year; it’s expected to grow by as much as 25% by 2022. In August, Impossible Foods raised $75 million for its meatless burgers.
Scottish Communities Finance to launch social-enterprise loan fund.Community bonds can support local job creation, community regeneration and improve local services. Edinburgh-based Scottish Communities Finance wants average investors to participate. The organization is partnering with Scotland’s Social Enterprise Networks to develop a fund to issue community bonds that individuals can buy for as little as £50 ($67). Proceeds will finance loans for local enterprises. “We believe that encouraging ordinary people to reinvest back into their communities… can help make communities more sustainable,” says Scottish Communities’ Pauline Hinchion.
#Signals: Ahead of the Curve
Why measure impact? Because of its business value. A survey from the Global Impact Investing Network finds that more than 60 percent of 168 impact investors queried say they measure impact because of its business value. The report on impact measurement and management suggests that impact investors are ahead of the curve in using impact data to identify and validate business opportunities (see “Racial equity is a growth market,” or “Tapping the inclusive-growth business opportunity”). Most investors measure impact to better understand, manage and report to stakeholders the effect of their investments. As benchmarks to measure their progress, 42% of the investors in the GIIN survey say they look to the U.N.’s 17 Sustainable Development Goals. In developed countries, there’s more focus on sustainable cities and communities (SDG №11), responsible consumption and production (SDG №12) and climate action (SDG №13). In emerging-market countries, investors are more likely to emphasize “no poverty” (SDG. №1), decent work and economic growth (SDG №8), good health and well-being (SDG №3) and quality education (SDG №4).
#2030 Finance: Long-termism
Accelerating green finance through securitization. The practice of pooling mortgages and other loans into asset-backed securities got a bad rep in the 2008 financial crisis. Now, writes Oxford University’s Michael Sheren, the securitization of green bonds and other green loans is needed to finance the transition to a low-carbon future and fuel sustainable economic growth. Such securities could tap a larger share of the $100 trillion held by pension funds, insurance companies and other institutional investors. Last year, only about $5 billion of the $95 billion in green bonds issued were asset-backed securities.
Over the next 15 years, green infrastructure alone is expected to require investment of up to $90 trillion. That’s far more than can be provided by the commercial banks that typically finance electric cars, solar installations and infrastructure projects. Most sustainable investments require longer loan terms that don’t match the profile of short-term bank lending products. The solution, Sheren writes on Thomson Reuters’ sustainability blog, is to pool those loans into securities that better meet the needs of institutional investors, freeing banks’ balance sheets and enabling them to make additional loans. “To release balance sheet capacity for new sustainable companies and assets, says Sheren, “illiquid bank loans must be repackaged into a liquid format that appeals to long-term investors.”
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