The Brief: AI in impact finance

The team at

ImpactAlpha

Greetings Agents of Impact! 

Today is AI day at IA. Dig into stories of how leaders at Village Capital, RSF Social Finance, LISC and other impact investors are thinking about artificial intelligence, and join the conversation on our next Plugged In call. How is AI accelerating your impact? Drop us a note or just hit ‘reply.’ – David Bank

In today’s Brief:

  • AI in impact finance
  • Battery of big battery deals
  • De-risking climate ventures in Southeast Asia
  • Q&A with LISC’s Michael Pugh 

🔌 Plugged In: Training AI in Black and Brown history. Oral histories. Local archives. Library collections from historically Black colleges and universities. Training large language models on diverse datasets of Black and Brown history can help redress racial biases that already have infiltrated many artificial intelligence applications. Latimer.ai’s John Pasmore will join Plugged In host Sherrell Dorsey to explore how thoughtful design and intentional strategies can combat what OpenAI’s Sam Altman calls “shortcomings around bias.” Latimer is readying its launch in partnership with HBCUs and experts in African American studies; early investors include Esther Dyson and Kevin Doyle Jones. 

  • Join the conversation on LinkedIn Live, Wednesday, Jan. 31 at 8am PT / 11am ET / 4pm London. RSVP today.

Featured: Impact Tech

Realizing the promise and avoiding the perils of AI in impact finance. Query ChatGPT for ‘How will AI influence impact investing?’ and you’ll get a sunny list of uncomplicated benefits including enhanced data analysis, automated impact assessment and portfolio optimization. Humans Allie Burns of Village Capital and Jasper van Brakel of RSF Social Finance flesh out the promise and the perils of the new tools already permeating every aspect of finance. “We would love to see researchers focus on how AI could help us build an economic system that produces shared prosperity and regenerates resources,” they write. “We could ask it to apply the principles of regenerative natural systems to finance.”

  • Underwriting risk. Some larger banks already provide credit lines without applications, based on AI analysis of spending patterns and income. “AI will make it easier to make cookie-cutter decisions, but we’ve already seen that if an AI tool is learning from datasets based on the assumptions of humans past and present, it will perpetuate existing inequities,” the authors write. Many equity investors, for example, already rely too heavily on pattern recognition, “which is how the preference for a white guy in a hoodie who dropped out of a top-tier university emerged.” Village Capital reduces its own selection bias based on a controlled study across eight accelerators. One idea: “Turning that into an AI tool and collecting data from its use across hundreds of funds.”
  • AI coaching. AI’s sheer data-crunching capacity could make it more valuable than human advisers in some situations. “Research suggests that an AI business coach could help entrepreneurs deal with everyday frustrations – but wouldn’t be able to help them fix fundamental issues,” the authors write. A larger concern: Creating a technology access gap that affects the same entrepreneurs who are already burdened by a lack of access to capital.
  • Modeling systemic change. AI could articulate and evaluate system-scale ideas, write Burns and van Brakel. “AI tools could enable investors to support more high-impact companies more efficiently and give the whole impact ecosystem a deeper, clearer picture of how our companies and investments are affecting the world.” But the utility of AI for evaluating new ideas is still limited by what has “worked” in the past, the authors say. Materializing the positive impact of AI “will require people with roots and expertise in the impact ecosystem to play an active role in shaping AI tools.”
  • Keep reading, “Realizing the promise and avoiding the perils of AI in impact finance,” by Allie Burns and Jasper van Brakel on ImpactAlpha.

Dealflow: Cleantech

Battery of big battery deals includes Instagrid and Recurrent Energy. Instagrid, a Stuttgart maker of portable batteries to replace traditional diesel-powered generators, snagged $95 million to help it expand into North America. The Series C round was led by Teachers’ Venture Growth, part of the Ontario Teachers’ Pension Plan and included Morgan Stanley and climate private equity firm 1GT (see also, “Battery innovation speeds the energy transition). Separately, Recurrent Energy, a subsidiary of Canadian Solar, got a $500 million injection of equity to continue its shift from a developer to an owner-operator of solar and battery energy storage projects. BlackRock provided the financing via its Global Renewable Power Fund IV, which is looking to raise up to $7 billion. 

  • Oil money. Led by Shell and BP, Big Oil drove cleantech M&A in 2023. Last week, France’s TotalEnergies agreed to acquire Kyon Energy, a developer of battery storage systems aiming to boost the resilience of Germany’s grid.
  • More

Clime Capital blends finance to raise $127 million for Asia-focused green fund. TheSingapore-based firm launched in 2020 to de-risk early stage clean energy ventures in Southeast Asia. It has secured $127 million in a first close for its Southeast Asia Clean Energy Fund II, ablended fund that will invest in renewable energy, grid solutions, energy efficiency and e-mobility solutions in Vietnam, India, Indonesia, the Philippines and Singapore. First-loss equity came from catalytic investors, including Allied Climate PartnersAustralian Development Investments, the Global Energy Alliance for People and Planet and ImpactAssets. Other investors include Dutch Entrepreneurial Development Bank (FMO), British International Investment, the International Finance Corporation, and REI Co-op, which manufactures in the region. 

  • Low carbon transition. Clime aims to catalyze $2.5 billion in private investment in the energy transition in South-East Asia. SEACEF I, incubated by the European Climate Foundation and capitalized by a handful of global foundations, has supported a dozen low-carbon transition companies. The portfolio includes commercial solar developer Skye Renewables, wind and solar provider Levanta Renewables and EV charging solutions provider Oyika. Clime says its investments have attracted 27X in follow-on capital. “We have demonstrated that small amounts can be leveraged to produce significant impacts,” said Clime’s Joshua Kramer. “Now is the time to double down on this approach.”
  • Share.

Dealflow overflow. Investment news crossing our screens:

  • Capricorn Investment Group, through its Sustainable Investors Fund, made a strategic investment in SER Capital Partners, a minority- and woman-owned firm that invests in sustainable middle-market businesses. (SERS Capital Partners)
  • California’s XGS Energy snagged $9.7 million, led by Constellation Technology Ventures, to build a heat-harvesting system for generating low-cost geothermal energy. (XGS Energy)
  • The Roberts Enterprise Development Fund, or REDF, awarded $3.6 million in grants to 12 “high-impact” social enterprises providing training and good jobs to refugees, formerly homeless, people involved with the criminal justice system and other underserved groups. (REDF)
  • London-based Metris has raised £2 million in a pre-seed funding from Octopus Ventures and Aenu VC to launch an AI-powered platform to help commercial property owners shift to solar.

Signals: Community Finance

LISC’s Michael Pugh on navigating legal challenges to community development finance (Q&A). Climate resilience, affordable housing, boosting small businesses and leveraging AI to expand access to credit have topped Michael Pugh’s agenda since he became CEO of the Local Initiatives Support Corp, or LISC, last August. For example, many entrepreneurs without traditional credit scores can’t get loans to grow their businesses. “AI is a potential source of credit solutions and alternative scoring that could open doors and tap the incredible economic engine of small businesses,” Pugh told ImpactAlpha in a Q&A. Pugh previously headed Carver Bancorp, the holding company for the largest African American and Caribbean American-managed banks in the US, with roughly $700 million in assets.

  • Green banker. LISC, the largest community development financial institution in the country, is competing for a mandate to manage a portion of the $14 billion National Clean Investment Fund, part of the national “green bank” created under the Inflation Reduction Act. The nonprofit created Power Forward Communities, with partners including United Way and Habitat for Humanity, to manage $9.5 billion (see, “‘Green bank’ partnerships center affordable housing in climate action”). “The capacity building is underway to be able to get to a fast start,” Pugh says.
  • Racial equity. LISC is not backing down in the face of the legal attack on affirmative action and racial preferences. “We understand that there are groups of people that have been historically underserved,” says Pugh. “In addition to inclusion for all, we’re saying we’ve got to do some work to help some of those that have been left behind, because that’s a drag on the economy for everybody.” Among LISC’s initiatives is Project 10X, which has raised close to $900 million to address racial gaps in health, wealth and opportunity. The initiative’s Black Economic Development Fund invests in banks, businesses and anchor institutions. LISC’s $100 million Entrepreneurs of Color Loan Fund buys loans off the books of community lenders to free up their capital for more lending to minority entrepreneurs.
  • Keep reading, “LISC’s Michael Pugh on navigating legal challenges to community development finance (Q&A),” by Roodgally Senatus on ImpactAlpha. 

Agents of Impact: Follow the Talent

Lucas Turner-Owens, a former senior advisor at Possibility Labs, joins Building Ventures as principal (Turner-Owens is a co-host of the Impact(ed) podcast)… Ford Foundation’s Roy Swan joins Freddie Mac’s board of directors… Milton Speid, formerly with The ImPact, joins VC Include as executive director… Reinvestment Fund names Tiffany Canady, previously with PDIC in Philadelphia, as chief financial officer… Impact Ventures is hiring a director of operations in Dallas… New Majority Capital has an opening for a business advisor in Washington, DC.

The Global Impact Investing Network invites impact investors to help size the impact investing market by participating in its 2024 Global Impact Investor Survey by Feb. 16… B Lab is looking for feedback on draft standards for B Corp certification by March 26… West Potomac Capital and Ampersand launch WPC Impact$ to facilitate cash deposits to minority depository institutions, credit unions, CDFIs and other mission-driven financial institutions.

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

Thank you for your impact!

– Jan. 24, 2024


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