The Brief: A carbon market for financing sustainable development

Greetings Agents of Impact!

In today’s Brief:

• A carbon market for sustainable development
• Catalyzing billions for climate in emerging markets
• Empowering young impact professionals

Featured: Climate Week NYC

Carbon markets fall short as a climate solution, but go far in financing sustainable development. The voluntary market for carbon credits has been haunted by low-quality projects and greenwashing. Prices for the credits, which enable companies to offset their own carbon emissions, have plummeted as buyers hit pause. Such credits are an imperfect solution for reducing greenhouse gasses, but are becoming a vital source of funding for sustainable development. Generating revenue from credits, innovative startups are lowering prices for clean cookstoves, solar-powered irrigation pumps and other products that improve lives in emerging markets. The credits are helping smallholder farmers adopt regenerative agriculture practices, increase yields and boost livelihoods. “Our starting point is the impact that these solutions are having to people in poverty, the impact that clean cooking solutions are having to low-income communities, the ability for them to save more money so that they can invest it in education or in their community development,” said Amrita Bhandari of Acumen, which hosted a discussion on using carbon markets to finance social impact as part of Climate Week NYC. 

• Bridging uncertainties. The panel, moderated by ImpactAlpha’s Amy Cortese, highlighted the need for stronger carbon crediting standards and transparency. To unlock carbon finance for impact, panelists suggested reducing registry costs for startups and projects, providing technical assistance and mobilizing philanthropic support to stabilize carbon credit prices. “There’s a real role for philanthropic capital to come in and bridge some of those uncertainties,” said Jonathan Cedar of the clean cookstove maker BioLite. Read the full story. 

Scaling climate adaptation. When Jay Koh raised $186 million for a venture fund dedicated to climate adaptation and resilience two years ago, it was one of the few such funds anywhere. Today, more entrepreneurs and investors are seeing the “unavoidable opportunity” in climate resilience (see, A market map of tech solutions for climate adaptation and resilience”). To keep up with the growing field, Koh’s Lightsmith Group is building a strategy to deliver equity, credit and technical assistance through what Koh calls a “one stop shop,” or “virtual green bank” for adaptation finance across asset classes. The new program, called Systemic Capital for Adaptation Localization and Expansion, or SCALE, would offer origination, impact measurement, risk management and government engagement. “There’s over $600 million of investments we can do in credit right now,” Koh told ImpactAlpha. USAID’s Climate Finance for Development Accelerator is supporting the development of SCALE with a $500,000 grant. More.

Resilience resources. Koh will join SJF Ventures’ Dave Kirkpatrick, Amy Barnes of Marsh McClennan, Matt Stein of Salient Predictions, and Mishal Thadani of Rhizome today for “Made to Last: Adapting to a Changing Climate” at Climate Week NYC.

Dealflow: Catalytic Capital

Anchored by Altérra, TPG and Brookfield raise billions for climate opportunities in emerging markets. The United Arab Emirates’ $30 billion Altérra climate fund, launched at last year’s COP28, included a $5 billion in catalytic capital to incentivize institutional investment into climate opportunities in underserved markets. The $5 billion Transformation Fund moved quickly, investing $500 million as “return enhancement” for TPG Rise Climate’s Global South Initiative. In June, Altérra’s catalytic arm put $1 billion into Brookfield’s Catalytic Transition Fund, a strategy earmarked for clean energy and transition assets in emerging economies. To sweeten the pot for private investors, the Altérra fund includes a cap that limits its returns. This week, both TPG and Brookfield announced they have attracted billions from institutional investors from across Asia and North America. “Our catalytic capital is proving instrumental in incentivizing investment to underserved markets,” Altérra’s Majid Al Suwaidi said in a statement. 

• Institutional capital. TPG raised an additional $750 million for GSI, bringing total commitments to $1.25 billion for high-growth climate investments in Africa, south and southeast Asia and Latin America. TPG Rise Climate II, backed by the commercial arm of Altérra, committed capital to the strategy. “We are encouraged by the initial pace of activity and client engagement around a first-of-its-kind strategy for our industry,” said TPG’s Jim Coulter. The private equity firm expects additional commitments in the next six months. Separately, Brookfield raised a fresh $1.4 billion for its Catalytic Transition Fund, including from Canadian pension fund CDPQ, Singapore sovereign wealth fund GIC, Prudential and Temasek. Brookfield will deploy the capital in clean energy projects in South and Central America, south and Southeast Asia, the Middle East, and Eastern Europe.
  
• Blending billions. The billion-dollar strategies from TPG and Brookfield are among a spate of recent funds leveraging first-loss reserves, guarantees and other catalytic mechanisms to attract institutional capital to higher-risk climate opportunities in emerging markets (for background see, “Blending billions: Lessons in catalyzing capital at scale for climate and development” and “How commercial investors are streamlining blended fund structures”).
  
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ImpactA secures $5 million from Prosper Africa for sustainable infrastructure. UK-based investment firm ImpactA Global provides debt capital for sustainable infrastructure projects in emerging markets, including for renewable energy, green mobility, health care access, clean water and sanitation. The firm targets infrastructure projects of less than $300 million, where it can contribute roughly $15 million to $30 million per project. The $5 million commitment from Prosper Africa, a US government-backed initiative managed by USAID, follows Legal & General’s $100 million investment in ImpactA last October. 

• Catalyzed capital. Women-led ImpactA invests alongside export credit agencies and development finance institutions, whose mandates are to invest in markets and sectors underserved by private capital. The firm comes in as a market-rate investor behind credit guarantees, or first-loss or subsidized capital. “Investors must be allocating capital to sustainable infrastructure in these regions,” said Legal & General’s Hannah Gore-Randall. “Innovative financing structures are reducing risk and driving the asset class’s reputation as a compelling investment opportunity that offers the potential for positive financial, social, and environmental returns.”
  
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Evocabank lands $10 million to capitalize Armenia’s small businesses. Armenia’s small businesses account for nearly 70% of jobs in the country. As in many other countries, they struggle to obtain credit because of stringent requirements, including credit histories and collateral. Digital bank Evocabank secured $10 million from the OPEC Fund for International Development to on-lend to small businesses, focusing on women-led enterprises and businesses in the renewable energy sector.

• Impact debt. Evocabank earlier this year landed €12 million ($13.3 million) from EIB Global, the European Investment Bank’s development arm, to capitalize 100 small businesses, one-fifth of which will be run by women. Swiss impact investment firm responsAbility recently lent Evocabank another $4 million, on top of its $7 million loan last year. International Finance Corp. provided $30 million in debt to Evocabank to help Armenia’s small businesses recover from the pandemic.
  
• Oil for impact. Evocabank’s latest backer is a development finance fund backed by a dozen current and former members of the Organization of the Petroleum Exporting Countries. The nearly 40-year-old fund has disbursed $27 billion in funding to 4,000 businesses and projects in 125 countries. The largest contributor to the fund is Saudi Arabia, followed by Iran and Venezuela. Half of the fund’s capital goes to projects and organizations providing financial services, like Evocabank; just over one-quarter goes to energy projects. It has invested nearly $300 million in Armenia in the past 20 years.
  
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Dealflow overflow. Investment news crossing our desks:

• Cyclic Materials raised $53 million, with backing from Climate Investment, to build recycling plants for rare earth minerals in the US and Europe. (Cyclic Materials)
  
• Off-grid solar provider Yellow Malawi secured $2 million in a mixed-currency loan from Acumen’s Hardest to Reach fund. (Acumen)
  
• Dandelion Energy raised $40 million from GV, Collaborative Fund, Breakthrough Energy Ventures and other investors to provide geothermal heating at scale through partnerships with home builders and multifamily developers. (Dandelion Energy)
  
• Obvious Ventures led a $40 million Series B equity round for Pyka, which makes electric drones for use in crop spraying and cargo delivery. (Obvious Ventures)
  
• Zeno raised $9.5 million from Lowercarbon Capital, Toyota Ventures and other investors to make and sell electric motorbikes for the East African market. (Techpoint)

Signals: Impact Careers

Empowering young impact professionals to advance their careers and their impact. When junior employees join SustainVC, they are schooled in the professional and personal skills required to advance to partner. Impact Engine gives young impact professionals a career advancement framework that includes expectations from managers, the skill sets they’ll need, and access to executive leadership. HCAP Partners helps junior staff design career roadmaps. A new report from Impact Capital Managers found the firms offer models for other impact organizations on how to foster the next generation of impact leaders. “By sharing the experiences and reflections of established leaders, we hope to create a stronger pipeline that helps to attract more talent to the industry,” says Salesforce Venture Impact Fund’s Adrianna Alterman.

• Charting an impact career. Entry-level and junior impact professionals have a difficult time carving out roles in the relatively young field of impact finance. “Paths to Partner: Empowering emerging leaders for firm-wide success” found that quality mentorship is a key challenge, especially in smaller investing teams and for young professionals from underrepresented backgrounds. New partners often struggle to come up with the capital needed to make general partner commitments.
  
• Career mentorship. Emerging leaders told ICM they want “to have proactive and honest discussions with their managers about the steps and skills needed to progress to the partner-level throughout their careers.” The report says Rethink Education partner Amy Nelson dedicates time to mentor junior impact professionals and encourages them to prioritize learning and building credibility. Elizabeth Chou, a partner at North Carolina-based Leeds Illuminate, is especially focused on helping other women trust their instincts. Nelson and Chou serve as mentors in ICM’s annual Mosaic Fellowship program, which provides top-performing graduate students from underrepresented backgrounds with fund management experience. The new research, says ICM’s Marieke Spence, “illustrates the variety of career paths that can lead to a partner or managing director role at a fund; it’s not always linear.”
  
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Agents of Impact: Follow the Talent

The US Environmental Protection Agency and AmeriCorps launch the Environmental Justice Climate Corps. The partnership will create opportunities for people to serve in careers that benefit low-income communities as part of the Biden Administration’s American Climate Corps.

Employee Ownership Canada adds Social Capital Partners’ Jon Shell as a board member… Evrim Kirimkan, previously with Pontificia Universidad Católica del Perú, joins MCE Social Capital as head of credit risk… Kresge Foundation’s Joe Evans will join Opportunity Finance Network as climate finance senior executive fellow. The move is part of a new partnership between Kresge and OFN focused on ensuring Justice40 communities maximize funding coming from the Inflation Reduction Act.

Capricorn Investment Group is recruiting an investment analyst… Employee Ownership Canada is on the hunt for chief executive officer… AlTi has an opening for an investment vice president… Heifer Foundation is recruiting a president… Impact Bridge Asset Management is looking for a regulatory compliance manager in Madrid… IMPACT Partners seeks an analyst intern in Milan.

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

Thank you for your impact!

– Sept. 26, 2024