The Brief | January 26, 2023

The Brief: Carbon credit crossroads, solar irrigation in India, smart thermostats in Europe, financing employee ownership, disability disclosure

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Greetings, Agents of Impact! 

Featured: Carbon Markets

Voluntary carbon markets face a reckoning over credit quality and environmental impact. Are carbon markets a key pillar of climate finance, or an empty exercise in double-counting and greenwashing? After soaring in 2021, voluntary markets for carbon credits slumped last year as a series of reports took aim at the quality and integrity of the projects underlying the credits. Demand for such credits, which at least purport to represent a ton of carbon emissions avoided or removed, dropped by 4%, according to BloombergNEF. Credits for avoided deforestation plunged by 40%. The downturn has spurred debate over whether the purpose of the credits is solely to help companies meet their net-zero goals, or also drive revenues for projects that, for example, restore mangroves and peat bogs, preserve forest land and local livelihoods, retrofit housing in low-income communities, and deliver other social and environmental co-benefits. “Carbon markets often provide incentives and financing for the most downtrodden and the first responders to climate change,” Sandeep Roy Choudhury of VNV Advisory in India wrote in response to critics. Annual market demand now stands at around $2 billion; the We Mean Business Coalition estimates that if 1,700 of the world’s highest-emitting companies used credits to offset just 10% of their emissions, $1 trillion could be mobilized by 2030.

  • Credit integrity. The criticisms are contributing to a wholesale erosion of faith in carbon markets, says BloombergNEF’s Kyle Harrison, the lead author of the firm’s carbon market outlook. “Buyers need transparency, clear definitions around quality, and easy access to premium supply.” Several groups are working to weed out low-quality credits. “Carbon credits are part of the solution,” Rockefeller Foundation’s Maria Kozloski tells ImpactAlpha. Rockefeller is teaming up with U.S. climate envoy John Kerry and the Bezos Earth Fund to create a framework to generate high-quality credits by retiring fossil fuel plants in emerging markets. The LEAF Coalition is working with Ecuador and other governments to develop high integrity REDD+ credits that LEAF’s corporate partners can buy to offset their emissions. Even private equity giants like TPG Rise see a carbon market play.
  • Premium prices. If companies are allowed to continue purchasing low-quality carbon offsets to achieve their net-zero goals, the oversupply would depress prices to an average of $18 per ton through 2050, the BNEF report estimates. If only credits that measurably remove carbon from the atmosphere are allowed, whether nature- or technology-based, offset prices could soar above $250 per ton with the annual market reaching nearly $1 trillion by midcentury. That would incentivize companies to invest not in offsets, but in actual decarbonization of their own operations. 

Dealflow: Climate Tech

Climate tech venture Ecozen raises $25 million, giving early investors a partial exit. Ecozen, in Pune, India, launched a decade ago to provide affordable, clean energy-fueled products for India’s smallholder farmers. The company makes solar-powered irrigation pumps and refrigerators that support more than 100,000 farmers’ livelihoods and help them weather climate-related impacts. Ecozen says its products also curb food waste and help offset the four billion liters of diesel fuel and 85 million tons of coal used for irrigation in India. The company raised a mix of debt and equity from Nuveen, Dare Ventures, the Export-Import Bank of India, Hivos-Triodos Fonds, Northern Arc and others. The financing provides a partial exit to early investors Omnivore and IFA.

  • Hardware bones. Agri-focused impact investor Omnivore was one of Ecozen’s earliest investors, backing the company from its first fund in 2015 and helping Ecozen navigate product development and market-fit challenges that often dog hardware ventures. “It hasn’t been a straight line, but they’ve doubled and tripled down on product development in multiple climate-related areas,” Omnivore’s Mark Kahn told ImpactAlpha. Other hardware ventures have pivoted into software and services. Ecozen has grown into a “meaningful, very profitable” climate-hardware company, Kahn says. “At their heart and soul, they’re a manufacturing company and they’re incredibly well-positioned for the future.”
  • Read on.

Tado raises €43 million for energy-efficient thermostats. Europe’s energy crisis, ignited by the Russian invasion of Ukraine, has led to skyrocketing home energy costs. Many consumers have seen their energy bills double at least. Munich-based Tado last year doubled sales of its smart home thermostat, which provides heat only when and where it’s needed in the home. The company says it saves customers an average of 22% on heating costs.

  • Load-shifting. Tado is integrating “energy load-shifting” to help its thermostats switch on when demand for energy from the grid is lower and less expensive. Tado previously acquired aWATTar, a company that specializes in so-called “time of use” energy tariffs. Such tariffs, along with algorithmic trading “benefit not only heating but also electric vehicle charging and photovoltaic applications,” Tado’s Christian Deilmann explained. The company’s financing round was backed by impact investor Trill Impact Ventures, climate tech investor Kiko Ventures, Bayern Kapital and Swisscanto.
  • Check it out

Dealflow overflow. Other investment news crossing our desks:

  • Vermont-based Wasted raised $7.5 million from the Collaborative Fund, Divergent Capital, Gratitude Railroad and other investors for portable eco-toilets that convert waste into fertilizer.
  • Indonesia’s Imajin secured seed funding to connect and finance small, local manufacturers that contract with large companies. 

Six Short Signals: What We’re Reading

♿ ESG and disability data. People with disabilities and their families control over $13 trillion in disposable income per year, yet only 4% of businesses are expanding their offerings to include people with disabilities. The Valuable 500, a collective of 500 CEOs and their companies, is calling on its members to increase disability disclosures, including reporting on workforce representation, inclusion goals, training, employee resource groups and digital accessibility. (The Valuable 500)

🙌 Inclusive crowdfunding. Online startup investing is more inclusive than traditional venture capital funding options. Startups with minority founders received 25.4% of dollars invested in regulation crowdfunding equity deals in 2022 (vs. as little as 2% of total VC dollars). (Kingscrowd)

⚡🚗 U.S. investors 4x EV investments. Automakers and battery manufacturers plan to invest up to $210 billion in electric vehicles in the U.S., more than four times what was planned in 2020. (E&E News)

Private asset impact funds. Total assets among debt and equity impact funds that are focused on emerging and frontier markets grew 6% in 2022, following 16.9% growth in 2021, according to Tameo. The Swiss impact investing specialist surveyed funds representing 34% of the $84 billion emerging market private asset impact fund universe. (Tameo)

⛏️ Low-carbon energy-mineral mining. Mining quantities for low-carbon energy (solar panels, wind energy, geothermal, concentrating solar power, hydropower, nuclear, electric vehicles, battery storage, and changes to electricity grids) are just a fraction of what we mine for fossil fuels. (Sustainability by numbers)

🌱 Returns on engagement. Companies asked by investors to disclose their environmental impacts were twice as likely to do so as those that weren’t directly asked. (The Wall Street Journal)

Agents of Impact: Follow the Talent

Christine Chow, ex- of HSBC Asset Management, joins Credit Suisse Asset Management as managing director and head of active ownership… The Center for Sustainable Finance and Private Wealth North America is looking for a remote managing director… The San Francisco Foundation has an opening for an associate initiative officer… Uber is hiring a sustainability product marketing manager in San Francisco… The New York State Energy Research and Development Authority, or NYSERDA, seeks a CEO and chief of staff to the president in New York… 2X Global is recruiting a remote global associate.

Omidyar Network is looking for a strategic communications senior manager… Galvanize Climate Solutions seeks a vice president of impact measurement in San Francisco or New York… The Great Lakes Protection Fund is hiring a knowledge management fellow in Evanston, Ill… Chemonics International has an opening for a remote director of climate finance learning and impact… Decolonizing Wealth Project is hosting a one-day virtual summit for donor advisors focused on communities of color, Thursday, Feb. 23.

👋 Join Agents of Impact Call No. 48: “Investable opportunities in high-impact municipal finance,” with Ryan Bowers of Activest, Diane Manuel of Adasina Social Capital, Eric Glass of Justice Capital and other Agents of Impact, Wednesday, Feb. 1 at 10am PT, 1pm ET / 6pm London. RSVP today.

Thank you for your impact.

– Jan. 26, 2023