Greetings Agents of Impact!
☎️ The Call: Mapping an impact investing path through the new legal landscape. Impact investors will confront a dramatically changed policy environment no matter the outcome of the upcoming US presidential election. The effects of this summer’s Supreme Court decisions gutting the “administrative state” already are playing out in legal challenges to rules on climate action, labor rights and corporate accountability. On The Call, Better Markets’ Dennis Kelleher, B Lab’s Jorge Fontanez and The Shareholder Commons’ Rick Alexander will join Fran Seegull of the US Impact Investing Alliance and ImpactAlpha’s David Bank to explore how investors can protect critical impact priorities in the shifting policy environment. Spoiler alert: Material risks, systemic stewardship and state-level organizing become even more important as regulatory pathways narrow. Join other Agents of Impact, Wednesday, August 14 at 9am PT / noon ET / 5pm London (please note time change). RSVP.
👋 Meet Agents of Impact – like you. As part of the ImpactAlpha community, you have access to an incredible network of professionals putting finance to work for good. And you can give as well as get, by sharing your valuable insights and experience with other investors, entrepreneurs and advocates. Join us next Tuesday, Aug. 13, for an hour of facilitated introductions to other Agents of Impact who are pushing the boundaries of impact investing. Register today.
In today’s Brief:
- Three Africa-led blended finance models
- Pan-African sustainable infrastructure
- ‘Purpose rounds’ and crowdfunding for solar
- Youth movement powers Yunus’s rise in Bangladesh
Featured: Catalytic Capital
How three Africa-led blended finance models are mobilizing billions for development. Global development finance institutions have a reputation for being unimaginative and risk-averse. The publicly funded banks often end up competing for deals with private investors, rather than catalyzing capital for high-impact deals. In Africa, the times they are a-changin’. Over the last few years, the continent’s development finance institutions and multilateral development banks have blended finance in innovative ways to mobilize appropriately priced private capital. “The ability of African development banks to be in the vanguard of financial innovation makes them arguably the most important and relevant financial institutions to lead the continent’s future growth and economic renaissance,” writes Convergence’s Aakif Merchant, who rounded up models for ImpactAlpha that showcase credit enhancement, investment-grade pathways for private capital and diverse sources of funding.
- Sustainability-linked bonds. The Development Bank of Rwanda leveraged $10 million in concessional funding from the International Development Association’s Private Sector Window (deployed through the World Bank Group) to collateralize a nearly $25 million, seven-year local currency bond linked to sustainability goals. The credit enhancement reduced risk for investors and the cost of borrowing for the bank. As a result, the bond was oversubscribed, with demand from over 100 investors.
- Green+ Class C shares. Two years ago, the Eastern and Southern Africa Trade and Development Bank launched a novel financial instrument, dubbed “Class C shares,” to reduce reliance on donor funding. To avoid diluting existing shareholders, this share class adds a new layer to the bank’s funding structure. The shares brought in $1.5 billion from institutional investors. Building on that success, the development bank issued a new category of Green+ Class C shares at COP27 to increase the flow of climate finance to the continent. The African Development Bank and the Clean Technology Fund (through AfDB) have committed $30 million to date.
- Hybrid capital notes. The experiments represent only a fraction of the development banks’ capital. TheAfrican Development Bank’s hybrid notes, issued earlier this year, are an interest-bearing asset, like a bond, but rank low in repayment seniority, like equity. Their equity-like nature means they can be leveraged to expand lending and provide an alternative to shareholder capital from governments. The issuance, priced at a coupon rate of 5.75%, was oversubscribed by $6 billion. There is room to scale: The issuance is 6% of AfDB shareholders’ equity; S&P Global has said it would be comfortable with hybrid capital issuance of up to one-third of total equity.
- Keep reading, “Three Africa-led blended finance models mobilizing billions for development,” by Convergence’s Aakif Merchant. Catch up on all of ImpactAlpha’s coverage of Catalytic Capital, sponsored by the Catalytic Capital Consortium.
Dealflow: LP / GP
South Africa-based AIIM scoops up nearly $1 billion for sustainable infrastructure. More than two-dozen global investors and development financial institutions have invested a combined $954 million in Cape Town-based African Infrastructure Investment Managers, or AIIM. The sustainable infrastructure investing firm was established in 2000 by Old Mutual Investment Group and the Macquarie Group. Nearly $750 million will be allocated to AIIM’s fourth pan-African infrastructure fund; $206 million will be reserved for co-investments. More than half of the capital came from new investors. “We have seen many new investors seeking to diversify their investment allocations into new markets [that] provide strong long-term growth potential, as well as seeking investments with well-defined sustainability and impact strategies,” said AIIM’s Paul Frankish. “These investors have all sought to enter Africa, as a new market with high-growth and impact potential.”
- Africa’s infrastructure gap. Africa’s infrastructure finance gap is an estimated $100 billion a year. The lack of quality infrastructure on the continent shaves 2% off annual economic growth and reduces economic productivity by up to 40%, according to the World Bank. Institutional investors, led by pension funds, are increasing allocations to the underserved market (see, “How Africa’s pension funds are financing the continent’s infrastructure gap”). AIIM’s investors include pension funds, insurance companies, sovereign wealth funds, asset managers and family offices from around the globe.
- Impact management. AIIM will make green infrastructure investments in South Africa, Morocco, Kenya, Nigeria, Ghana, Senegal and other pan-African markets. It will focus on digital infrastructure, the energy transition, transport, ports and logistics to move goods and people through rapidly-urbanizing cities. And it will track its investments against climate, governance and gender metrics. The fund’s mandate to improve gender diversity across its investment teams and management of portfolio companies qualifies it for the 2X Challenge.
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Solar crowdfunding and ‘purpose rounds’ expand impact options for retail investors. Crowdfunding firm Climatize enables ordinary investors to lend as little as $10 to small-scale solar projects in the US. Since it launched last year, the Santa Cruz, Calif.-based startup has raised $4.6 million from roughly 950 individual and institutional investors to fund solar energy projects in states from Tennessee to Colorado. The company will use its $1.75 million pre-seed round to expand its products, team and partnerships. Investors included Myriad Venture Partners, Climate Capital, Techstars, Responsibly Ventures and family office Temerity Capital. The startup’s sweet spot is small and medium-sized renewable energy projects not large enough for institutional investors but too big for community lenders. “We built the Climatize platform to enable anyone to become an active stakeholder in the energy transition by investing directly in renewable energy projects,” says Climatize co-founder Will Wiseman.
- Purpose rounds. First there were “community rounds” – crowdfunding raises aimed at friends, families and customers (see, “Startups raise ‘community rounds,’ turning customers and fans into investors”). Renew VC in Atlanta is rolling out “purpose rounds,” a twist on the concept aimed at mobilizing values-aligned investors to support impact founders, women and “historically excluded” entrepreneurs. Mela Artisans, a Florida-based seller of home decor by Indian artisans who are paid fair wages, is one of the first companies pursuing a purpose round. “We’re about helping investors align their values with their money,” Mark Hubbard of Renew VC told ImpactAlpha. “The idea that only rich people could do that felt like a justice issue.”
- Read more.
Dealflow overflow. Investment news crossing our desks:
- The US Department of Energy awarded $2.2 billion for eight grid-resilience projects in 18 US states that will add new transmission lines, optimize existing ones and create 5,000 green jobs. (DOE)
- Saudi Arabia’s Public Investment Fund invested another $1.5 billion in troubled EV maker Lucid Motors. The sovereign wealth fund, which has a majority ownership stake in California-based Lucid, has committed to buying 50,000 of the company’s electric vehicles. (TechCrunch)
- Asia Development Bank, International Finance Corp. and Germany’s DEG invested a combined $275 million in Fourth Partner Energy, an Indian clean energy firm that builds and finances solar, wind, hybrid, battery storage and e-mobility projects. (YourStory)
- Maia Capital Partners, based near Johannesburg, secured R1 billion ($54 million) from South African pension funds for its inaugural impact debt fund to drive inclusive economic growth in South Africa. (Maia Capital Partners)
Signals: Youth Dividend
Bangladeshi youth anoint Muhammad Yunus, a symbol of bottom-up empowerment, to chart a new future. An octogenarian has become the face of Bangladesh’s youth movement. Muhammad Yunus, the 84-year-old father of microfinance, personifies the demands for security and opportunity of young protesters in the South Asian country in a way that few other figures could. He’s widely popular in a country that has witnessed years of increasing authoritarianism. He’s secular. And he’s a long-time champion for the poor at a time when poverty and economic insecurity are on the rise. “We will create a new democratic Bangladesh through our promise of security of life, social justice and a new political landscape,” said Nahid Islam, a student leading the protesters who forced Prime Minister Sheikh Hasina to resign and flee the country this week. Yesterday, Yunus was appointed to head an interim government, following calls from Islam and the Students Against Discrimination movement. “In Dr. Yunus, we trust,” said Asif Mahmud, another of SAD’s leaders.
- New leaf. Many in Bangladesh saw Yunus as a victim of Hasina’s increasing authoritarianism (see, “Facing raids and trials, Muhammed Yunus struggles to preserve Grameen’s anti-poverty network in Bangladesh”). Just five months ago, Grameen Telecomm’s offices were raided. Yunus was indicted in June in an embezzlement case involving the company, one of the many in the Grameen empire of businesses and worker-owned cooperatives that have helped slash the country’s poverty rate. Yunus and his supporters believe the case was politically motivated. Hasina “sees me as a political threat,” he told NBC News. The Nobel laureate’s interim appointment, observed Amnesty International’s Smriti Singh, is an opportunity for Bangladesh “to show solidarity with its people, protect the most vulnerable, and not repeat the mistakes of the past.”
- Economic opportunity. Bangladeshi students took to the streets in July to protest a quota system for government workers put forward by Hasina, who has ruled Bangladesh since 2009. The quota was designed to curb political opposition, the latest move by Hasina to consolidate power for her Awami League political party. The rule would have limited young people’s pathways to stable, well-paying jobs in a country where youth unemployment tops 15%, growth has stalled, and inflation is pushing more people into poverty.
- Power to the (young) people. Half of the world’s population is voting in elections this year. Bangladesh is not the only country where young people are making their voices heard on the streets. Youth demonstrators were at the forefront of weeks of violent protests in Kenya, protesting President William Ruto’s handling of the economy, lack of access to basic services, stagnating wages, and widespread corruption (see, “Protests in Kenya present an impact opportunity to invest in Africa’s youth”). Violent protests erupted in Nigeria last week against harsh economic reforms meant to address the country’s record debt levels. On Sunday, President Bola Tinubu, addressed young Nigerians directly. “I have heard you loud and clear. I understand the pain and frustration that drive these protests.”
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Agents of Impact: Follow the Talent
Maya Chorengel of TPG Rise Fund, Nathan Taft of Jonathan Rose Companies, Jacob Haar of Community Investment Management, Radhika Shroff of Nuveen Private Equity Impact Investing, and Aligned Climate Capital’s Peter Davidson join Impact Capital Managers’ board of directors… Amy Weinreich, formerly of Argentinian think tank IDESA, joins Sonen Capital as a research associate.
Ares Management Corp. seeks an ESG associate in New York… New York State Insurance Fund is looking for an ESG and sustainable investments senior lead… Transform Finance is recruiting a remote lead researcher… Mercy Corp Ventures is hiring an East Africa-focused investment principal in Nairobi… Conscious Investment Management becomes a signatory of the Operating Principles for Impact Management.
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