The Brief | November 14, 2022

The Brief: Call preview: Racial equity in muni markets, catalytic capital for energy transitions, climate cost savings, blockchain for nuclear threat reduction

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Greetings, Agents of Impact! 

🎮 Impact: The video game. ImpactAlpha has partnered with E-Line Media and the Ford Foundation to explore the potential of a mobile social game aimed at Millennial and Gen Z retail investors, now in their teens, 20s and 30s. Help us flesh out the intriguing possibilities in this brief survey.

Featured: Muni Impact

Managing social risks and addressing racial inequities in the muni bond market. “Elevate and rise” bonds in Denver. ESG-labeled bonds in Chicago. Social bonds in New York. Cities that issue hundreds of billions of dollars in municipal bonds each year are trying to identify how the proceeds can address longstanding racial inequities. It reflects the growing sophistication of bond issuers in managing social risks and reducing their cost of capital. There’s at least anecdotal evidence that markets are rewarding efforts to build more affordable housing, stimulate equitable post-pandemic growth, and fund greater access to healthcare. Case in point: New York City in September attracted more than $1.8 billion in investor interest for the city’s first bond with a “social” label, a $400 million issue for affordable housing. The demand “allowed us to tighten the spreads,” says Marjorie Henning, NYC’s deputy comptroller for public finance. In other words, investor interest in social issues allowed the city to drive a lower interest rate. The city was also able to “expand its base” of investors, Henning tells ImpactAlpha. “We were very happy with the results.”

  • The issuers. Issuers are interested in highlighting the racial and equity impacts of their investments, Matt Stitt of PFM, one of the country’s largest advisors to muni bond issuers, tells ImpactAlpha. But they “need to ensure they are making fiscally responsible and sustainable decisions,” he says. That could mean increased interest in their issues, “or increased clarity on what types of information is most valuable to investors” and other stakeholders, he adds.
  • The impact opportunity. Impact-oriented investors are looking at the $4 trillion municipal bond market as an opportunity for systemic change and on-the-ground impact in historically disadvantaged areas. “When we started looking around for what were the big veins, the big pools of capital, that weren’t fully optimized for investing in health, the municipal finance market really showed up very strong,” Kimberlee Cornett of the Robert Wood Johnson Foundation said on ImpactAlpha’s Agents of Impact podcast.
  • The market shapers. Many issuers “remain uncertain as to how to properly leverage capital markets to ensure civic resiliency and equitable outcomes for their residents,” Lourdes Germán of Public Finance Initiative stated in Leveraging Municipal Bond Markets to Disrupt Systemic Inequalities.” Germán will preview a framework on Wednesday’s Agents of Impact Call to help bond issuers and other stakeholders elevate racial equity.
  • Better data. ESG and impact investors want more than a label. “Investors are starting to demand better data,” says Caitlin MacLean of the Milken Institute, which released Integrating ESG Data to Improve Risk Management and Municipal Resilience.” The report recommends municipality risk and impact statements, recognition of efforts of ESG best practices, and platforms to centralize inter-agency data. “Connecting impact and credit quality is something we think a lot about,” says Rob Fernandez of Breckinridge Capital Advisors. Better tools and data would help the firm better spot racial bias and mispriced social risks in bond markets while meeting increasing investor demand for racial equity.
  • Answer the Call. Join Henning, Cornett, Germán and Fernandez on ImpactAlpha’s Agents of Impact Call, “Optimizing muni bonds for racial justice,” this Wednesday, Nov. 16 at 10am PT / 1pm ET / 6pm London. RSVP today.
  • Keep reading, “Managing social risks and addressing racial inequities in the muni bond market,” by Dennis Price on ImpactAlpha. Follow all of our Muni Impact coverage, made possible with support from the Robert Wood Johnson Foundation.

Dealflow: Equitable Transition

Philanthropic organizations commit $500 million for energy transition in emerging markets. A three-year commitment by nine philanthropies will support energy transition projects in low- and middle-income countries. Many of these countries have raised their climate ambitions even as they grapple with climate-related disasters. But they need catalytic capital to bring in private investors. With wealthy nations falling short on their pledges of support, other actors are looking to help fill the gap. The new funds “will strengthen southern leadership and localization of solutions, especially in Africa where the gap of funding is the biggest,” said Saliem Fakir of the African Climate Foundation.

  • Climate philanthropy. Other organizations in the coalition include Ballmer Group, Sequoia Climate Foundation, Growald Climate Fund, Children’s Investment Fund Foundation and Bloomberg Philanthropies. Earlier this year, Bloomberg Philanthropies committed $242 million in philanthropic capital to support clean energy efforts in developing countries in Latin America, Africa and Asia. It recently backed the Asian Development Bank’s Climate Innovation and Development Fund, a blended-finance fund that last week made its first two investments in electric mobility in India and Vietnam.
  • Onward.

VoLo Earth raises $90 million for early-stage climate tech. Colorado-based VoLo Earth Ventures launched in 2020 to invest in climate solutions that also save money. “We believe that leading with economics is the best way and the fastest way to decarbonize,” VoLo Earth’s Kareem Dabbagh told ImpactAlpha in an interview last summer. Brisk demand from investors, including Credit Suisse’s Climate Innovation Fund, enabled the firm to blow past its initial $50 million fundraising target. “The combination of policy, capital and entrepreneurial talent is accelerating the new energy economy,” said VoLo’s Joseph Goodman.

  • Portfolio companies. The firm has made more than two dozen investments, deploying about half of its committed capital. Portfolio companies include air conditioning startup Blue Frontier, solid state battery maker Ion Storage Systems, predictive software maker Gaiascope, and project finance platform Banyan Infrastructure. VoLo Earth works with RMI’s Third Derivative climate tech accelerator and has invested in several of the program’s startups.
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Dealflow overflow. Other investment news crossing our desks:

  • San Francisco-based Kyte, an operator of on-demand, shared electric vehicles, raised $60 million from Urban Innovation Fund, Citi Ventures and other investors.
  • Blnk raised $32 million in equity and debt funding to help Egypt’s small merchants offer point-of-sale consumer credit.
  • Brazil’s Agrolend scored $27 million in Series B funding to provide access to credit and equipment to smallholder farmers in Brazil.
  • Bank of America made an undisclosed investment in an Arctaris Impact Investors’ Opportunity Zone fund, which is targeting $25 million to invest in communities and racial equity in Connecticut.

Signals: Blockchain Impact 

Can blockchain verification re-energize nuclear disarmament? (Q&A) Nuclear disarmament can happen only with effective verification. Current monitoring and verification systems are antiquated and ineffective. Instead: Deploy a global army of citizen scientists using off-the-shelf tech. Track nuclear signals and feed them to a blockchain. Suddenly, you have a fast, cheap – and profitable – global nuclear verification system. “Along the way, you’d create a permanent peace economy,” says Lyndon Burford of Path Collective and fellow with N-Square, a nonprofit network of innovators working on nuclear threat-reduction. ImpactAlpha caught up with Burford to talk nukes and Web3.

  • Trust but verify. The explosion of civilian satellites opens the way for distributed verification schemes. “Governments could negotiate treaties about certain kinds of reductions, and then they could outsource the monitoring of those treaties, in ways that don’t impinge on their national security interests, to private sector actors,” Burford says. “We could create an entirely new industry: the nuclear verification industry.” Burford is proposing “a global nuclear monitoring system made up of a distributed network of devices owned and operated by citizen scientists.”
  • Crypto economics. Micropayments “would enable citizens to actually make money by helping to verify the absence of nuclear weapons,” Burford says. Blended finance from venture and impact investors, along with global crypto crowdfunding, could provide the incentives. “Ukraine showed us that it is now possible to globally crypto-crowdfund a war,” he says. “So why are we not globally crypto-crowdfunding peace?”
  • Keep reading, “Can blockchain verification re-energize nuclear disarmament?,” Lyndon Burford’s Q&A with ImpactAlpha’s Dan Keeler.

Agents of Impact: Follow the Talent

CalSTRS seeks an associate portfolio manager for sustainable investments… Generation Investment Management is looking for an associate for its growth equity portfolio, based in London or San Francisco… Bain Capital is recruiting an ESG and sustainability manager in Boston… Pacific Community Ventures is hiring a policy counsel or manager in Oakland.

US SIF is recruiting for a CEO in Washington, D.C… Also in D.C., Jobs for the Future is looking for a workforce policy and advocacy director… Cisco seeks a climate impact portfolio associate in San Jose, Calif… WaterEquity is looking for a remote impact analyst… NESsT is recruiting a content marketing associate for Latin America.

Thank you for your impact!

– Nov. 14, 2022