The Brief | May 15, 2023

The Brief: Assessing risk to impact, ESG data to measure outcomes, greening the digital economy, supporting caregivers, fusion ambitions

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Greetings, Agents of Impact!

Featured: Impact Management

How investors can better assess risk to impact. Investors routinely examine the risk of not achieving their financial objectives. But how do impact investors consider the risk of undershooting their environmental and social impact targets? The Operating Principles for Impact Management, for example, require signatories to “assess the likelihood of achieving an investment’s expected impact.” Just half have a process in place to do so. In a guest post on ImpactAlpha, Neil Gregory, ex- of the International Finance Corp. and now a lecturer at Johns Hopkins University, shares insights from impact investors and DFIs about how investors can do a better job assessing impact risk.

  • To be credible and useful, “impact assessment needs to be clear-eyed about the risks to impact,” says Gregory. The best way to do this: consider impact risk as a separate parameter in asset selection, build an empirical basis for assessing impact risk, and leverage the due diligence process. If the expected impacts can only be achieved in favorable economic or credit scenarios, for example, they’re too optimistic.
  • Balanced portfolios. Financial portfolios are assessed on their overall risk-return profile, with some low-risk, low-return assets balancing high-risk, high-return assets. Impact investment portfolios can be balanced in a similar way, through “careful portfolio construction so that even if some risky bets fail, the overall portfolio achieves a satisfactory positive impact,” says Gregory.
  • Credible assessment. An investee’s business objectives should align with the investment’s expected impact, Gregory writes. LeapFrog Investments, for example, considers the ability of investees to implement a viable business model as part of its impact assessment. Another idea: learn from prior investment experiences. Blue Orchard draws on learnings from previous investments where impact was achieved.

Sustainability data shifts to outcomes and revenue materiality. What gets measured gets managed. But the maxim assumes the availability of data. For investors looking to manage their environmental and social impacts, “the good news is that there has been an explosion of non-financial data in recent years, driven by digitization, regulatory requirements and stakeholder engagement,” writes Balfousia Panagiota of Zurich-based Kieger in a guest post. A notable trend: firms’ shifting focus from operations to the social and environmental outcomes of those operations. 

  • Managing impact. Making sure what gets measured get managed (and not just reported) requires context. Goals such as climate neutrality, water resource sufficiency, or employee health and safety provide a broader framework for using ESG data to assess impact. The cubic meters of fresh water withdrawn by a company, for example, can be compared to water sufficiency data in local communities.
  • Revenue materiality. With the increase in data has come a proliferation of analytics providers, including ratings groups with an emphasis on outcomes. The outcomes are often proxied via  revenue streams that map to sustainability themes, like the Sustainable Development Goals. Some providers, says Panagiota, are developing more forward-looking metrics, such as capital or operational expenditure.
  • Keep reading, “Leveraging ESG data for impact investing,” by Kieger’s Balfousia Panagiota.

Dealflow: Green Infrastructure

CAI backs Switch as part of a $300 million initiative to green the digital economy. Computers, data centers and other assets supporting the world’s growing digital appetite consume 10% of electricity worldwide. Sustainable investment firm Climate Adaptive Infrastructure has earmarked $300 million from its recent fundraise for a strategy to shift the digital economy to net-zero carbon emissions. CAI is partnering on the effort with DigitalBridge, a digital infrastructure investor looking to green its $69 billion portfolio of cell towers, data centers, fiber networks and other tech assets. 

  • Sustainable edge. CAI’s first investment is in Switch, a Nevada-based data center operator that uses renewable energy to power its more than five million square feet of facility space. “We believe our ability to offer 100% green energy compared to our peers provides a unique competitive advantage for Switch,” the company said in its most recent ESG report. Switch is part-owned by DigitalBridge, which took the company private through an $11 billion acquisition last year. 
  • Check it out.

Wellthy secures $25.5 million to provide caregiving support as an employee benefit. Roughly 90 million Americans provide some kind of care for an elderly, disabled or ill family member. New York-based Wellthy offers a “caregiving concierge” service as an employee benefit to Fortune 500 companies like Hilton, Cisco and Meta. The health tech venture hires care advisors and coordinators, most of whom are licensed social workers, to help caregivers find health providers, schedule doctor appointments and contest insurance bills. “Anyone who has been a caregiver for a loved one will likely tell you it’s one of the toughest jobs they’ve ever had,” said Ryan Alam of Citi Impact Fund, which invested alongside ReThink Impact, Cercano Management and other investors. “People are dropping out of the workforce at alarming rates because they struggle with the challenges of caregiving at home.”

  • Lived experience. The investment will enable Wellthy to offer additional services for teenagers and their families, as well as end-of-life planning, via its acquisition of public benefit corp. Lantern. Before founding Wellthy in 2015, Lindsay Jurist-Rosney spent 28 years as the primary caregiver for her mother, who was diagnosed with multiple sclerosis, while managing a full-time job at Microsoft. “Care is so massively expensive and opaque — and access is an issue,” she said. Wellthy’s goal is to make caregivers’ lives “better and easier, but also to save money.”
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Dealflow overflow. Other news crossing our desks:

  • Egypt’s Balad raised a pre-seed round for its prepaid cards that allow migrants to send payments to their families. (Disrupt Africa)
  • Microsoft’s Climate Innovation Fund backed Denver-based AMP Robotics, which makes a robotic system that sorts recyclable materials. (TechCrunch)
  • British utility National Grid invested in, a maker of software to optimize EV charging, and Modern Hydrogen, which is greening natural gas and producing green hydrogen. (Axios)

Signals: Energy Transition

Microsoft’s off-take agreement with Helion signals fusion energy is within reach. The timeline for commercially-viable fusion energy took a leap forward with a commitment by Helion Energy to deliver fusion power to Microsoft in 2028. The power purchase agreement – the first such agreement for fusion energy – would deliver 50 megawatts of grid-connected electricity to Microsoft to power its data centers (for context, see Dealflow, above). Fusion is a potentially revolutionary source of clean, abundant energy that has been decades in the making. “This collaboration represents a significant milestone for Helion and the fusion industry as a whole,” Helion’s David Kirtley wrote. The agreement is binding and carries financial penalties if Helion fails to deliver, he told The Verge.

  • Fusion race. More than two-dozen startups backed by billions of venture dollars are racing to commercialize fusion using tokamaks, stellarators, lasers and high-powered magnets to superheat plasma and release energy (for background, see “Long coming but slow to arrive, fusion energy approaches a milestone on path to commercial deployment”). Avalanche Energy is pursuing modular fusion micro-reactors. Last year, Lawrence Livermore National Lab’s laser-based system achieved the technical milestone of net-energy, where more energy is generated than it takes to create a fusion reaction.
  • Energy efficient. Helion uses a pulsed non-ignition fusion system to fuse deuterium and Helium-3, a form of helium found on the Moon that Helion makes using its plasma accelerators. The Redmond, Wash.-based company is developing its seventh prototype and says it’s smaller and more energy-efficient than other systems. Helion raised $500 million in 2021 from tech investors including Sam Altman and Reid Hoffman, as well as Capricorn Investment Group
  • Purchasing power. Corporations such as Microsoft have played an enormous role in commercializing renewable energy and driving down cost curves. Corporations spent $125 billion on clean energy and climate tech in 2020, dwarfing venture capital investments. Advance purchase agreements de-risk renewable energy projects while locking companies into attractive rates and long term supplies of green power. Corporations have also committed to advance purchases of carbon removal technology and other emerging climate-tech solutions via collaborations such as the Frontier coalition and the First Movers Coalition (for background, see “Global corporations commit to carbon removal tech buys in South Pole-led initiative).
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Agents of Impact: Follow the Talent

LeapFrog Investments promotes Michael Jelinske to director of investments and Rebecca Kwee to impact officer… Calvert Impact seeks an investor relations officer in Maryland… SDG Capital is on the hunt for an investment manager in Amsterdam… South Pole has an opening for a sustainable finance managing consultant in Singapore… Also in Singapore, IIX is looking for a credit analyst.

Acumen is recruiting a East Africa-focused senior investment associate in Nairobi… Also in Nairobi, the Rockefeller Foundation is looking for a food initiative team coordinator… Investisseurs & Partenaires seeks an investment officer for the Mastercard Foundation Africa Growth Fund, based in Accra… Global Partnerships is recruiting a Latin America portfolio impact officer in Bogota.

The Ford Foundation joins members of Indonesia’s government and business community to launch the Indonesia Impact Alliance… Today is the last day to apply for the Climate-Resilient Employees for a Sustainable Tomorrow, a grant-funded initiative by the Ares Charitable Foundation aiming to prepare people for climate-resilient jobs in the US and India. 

Thank you for your impact.

– May 15, 2023