The Brief | March 9, 2023

The Brief: Catalytic capital for systems-change in Africa, resilient smallholder farmers, accessible virtual power plants, 8 ways to transform asset management

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Greetings, Agents of Impact!

Impact Voices: Catalytic Capital

Leveraging catalytic capital to transform economic systems in Africa. The Small Foundation has seen too many strong pilot projects in Africa fail to scale or grow sustainably. “These observations helped to develop our thesis that a commercially-viable business ecosystem is necessary to sustainably improve opportunities and livelihoods,” writes Small’s Karina Wong in ImpactAlpha’sSustaining Impact” series with the Catalytic Capital Consortium. To help build an ecosystem for micro, small and medium businesses, the Dublin-based foundation invested catalytic capital across a range of tools, from grants to equity investments in intermediaries such as AgDevCo and IPDEV2. It backed research and ecosystem-building initiatives, such as the Council of Smallholder Agricultural Finance. And it elevated the voices of partners by disseminating books by Aunnie Patton Power and David Ehrlichman. In her post, Wong shares lessons for deploying catalytic capital from Small’s “systems change” approach. Among them:

  • Shift from a transactional mindset. The foundation doesn’t look at single investments in isolation. Instead, Wong says, “We look at where an investment sits in the ecosystem, how it relates to our portfolio and the rest of the market, and how we see it contributing to a change in the business ecosystem.”
  • Collaboration at the heart. The foundation engages key stakeholders in the ecosystem to find ways to bring about collective change. This means actively engaging with other catalytic investors. “We use our respective strengths to bring the right amount of capital at the right time to ensure that it has the best chance for success” as an investment matures, Wong says.
  • Long-term perspective. Systems change doesn’t happen overnight, or even during the typical lifecycle of a fund. “It requires enough runway to allow change to happen, which means shifting timelines for impact from a few years to a decade or more,” says Wong. “It also means being comfortable with leaving our capital in an investment longer than other investors.”
  • Keep reading, “Leveraging catalytic capital to transform economic systems in Africa,” by Small Foundation’s Karina Wong. Check out all of ImpactAlpha’s catalytic capital coverage, sponsored by the Catalytic Capital Consortium.

Dealflow: Gender + Climate 

MCE secures $19.5 million to boost smallholder farmers’ climate resilience. The nonprofit impact investor provides loans to small businesses and financial services firms in emerging markets that are supporting climate adaptation and sustainable livelihoods, particularly for women. MCE’s Empowering Sustainable Agriculture fund, or MESA, will make impact-first debt investments in agri-businesses and rural financial services providers in Africa, Latin America and Asia (see, “Frontline communities hold the keys to inclusive gender and climate finance“). It’s backed by the U.S. International Development Finance Corp., family office Ceniarth and ImpactAssets. Dutch development bank FMO is slated to contribute an additional $10 million. USAID supported the fund’s design. 

  • Farmer finance. MCE has a 15-year track record providing loans to underserved communities and businesses in emerging markets by derisking capital from accredited investors with donor funds from foundations and individuals. It has supported nearly 10 million borrowers, 73% of whom are women. The organization launched its agriculture-specific MESA fund to help bridge the glaring capital gap for smallholder farmers “faster and more intentionally than we could with our current model alone,” the organization said.
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Shifted Energy scores $4.3 million to deploy low-cost energy products to low-income households. The Honolulu-based company creates “virtual power plants” out of single- and multi-family homes by connecting electrical appliances to the cloud, then manages and monitors their energy usage. Shifted will use the seed capital to deploy its smart energy products, such as electric water heaters, solar inverters and EV charging stations, for improved energy efficiency in low-income households in the U.S., Canada and Australia. Kapor Capital and EPIC Ventures led the round. Buoyant Ventures, Startup Capital Ventures x SBI Fund and Hunt Development participated.

  • Clean and climate tech. Shifted is a portfolio company of Hawaii-based climate tech investor and accelerator Elemental Excelerator. The company is a spin out of nonprofit Kanu Hawaii, an organization focused on environmental sustainability and community development in the state. “Our platform was built as a way to engage with hard-to-reach communities who typically don’t have access to rooftop solar or EV charging,” said Shifted’s Forest Frizzell. Utilities benefit from better grid stability by more accurately matching energy supply and demand.
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Dealflow overflow. Other investment news crossing our desks:

  • Australia’s Minderoo Foundation invested in the Global Fund for Coral Reefs, a fund managed by Pegasus Capital Advisors to prevent damage and restore coral reefs and coastal ecosystems.
  • ViridiCO2 in London snagged £3 million ($3.6 million) to recycle CO2 from the chemicals industry into new products, like laundry detergent.
  • New York-based venture capital firm Muus Climate Partners raised $50 million for its second early-stage climate tech fund.
  • Brooklyn-based itselectric secured $2.2 million to install curbside electric vehicle charging stations.
  • RBC Global Asset Management raised $50 million from Cadence Design Systems to invest in affordable housing, homeownership and small business opportunities for historically-excluded communities in places where Cadence has operations.

Signals: Asset Management 

Eight practices to transform assets under management into resources for an inclusive and sustainable economy. The consolidation of impact investing advisory firms and fund managers has generally looked like this: an impact firm gets absorbed by a “mainstream,” often larger, firm looking to bolster its impact credibility and product offerings. Another model: purpose-built impact firms combining forces to achieve critical mass. “If we want to achieve the scale we need to move more money while still keeping a high bar for impact, let us build the scale by bringing together impact firms,” Impact Engine’s Priya Parrish said at last week’s Sorenson Impact Summit in Utah (see, “Skiing is believing”). Other takeaways from the panel, “Transformative Asset Management”:

  • From ESG to impact. Public markets can be the most efficient source of capital for scaling impact, so public-markets strategies must be optimized for impact, said Courtney Birnbaum of Corbin Capital Partners. That means scoring companies on the “revenue materiality” of their climate and social goals – or, to what extent are such solutions driving their actual business results? Hedge funds’ toolkit also includes shorting companies thwarting long-term sustainability goals, Atlas Impact Partners’ Rob Brown pointed out (see, “Using ESG and impact to sort leaders from laggards in 2023”).
  • Keep customers in mind. Elevar Equity invests only in businesses that raise incomes or lower costs for low-income customers, said CEO Amie Patel. When that kind of “customer flywheel” also drives a business flywheel of positive returns to scale, you have a sustainable business, she explained. That’s how Elevar keeps its focus on the lower end of the customer market, where demand is strong for affordable, quality goods and services. “Focus should be on strong sustainable performance with the end customer in mind,” Patel said.
  • Redefine fiduciary duty. The flap over the Department of Labor’s guidance to pension fund managers around environmental, social and governance, or ESG investing, points to a broader issue: the guidance didn’t go far enough in clarifying fiduciaries’ duty to protect investors from direct material risks in the portfolio and broader systemic risks like climate change and income inequality. “Inherent in this duty of care is the obligation to make informed decisions, and from a legal perspective, it is clear that this includes and incorporates an obligation to carefully consider all relevant factors that will impact the fiduciary’s decision,” said Chintan Panchal of the law firm RPCK Rastegar Panchal. “There is an affirmative duty to incorporate ESG into thinking and planning.”
  • Keep reading, “Eight practices to transform assets under management into resources for an inclusive and sustainable economy,” by David Bank on ImpactAlpha.

Agents of Impact: Follow the Talent

In London, BlackRock has an opening for a sustainable governance and regulatory initiatives director, and Net Purpose is recruiting an environmental impact analyst, Bates Well is looking for an impact finance associate… Kiva has an opening for an impact investment manager, an impact data manager and an impact content manager in Bogota. 

Sagana Capital is hiring a remote investment manager in Spain… New Story is hiring an impact investment director in Mexico City… Alterna Impact seeks an impact fellow in Guatemala… Allianz Investment Management seeks an intern for ESG and sustainable investments in Munich… Low Carbon is recruiting an investments manager in San Francisco.

LGT is looking for 20 or more global impact fellows… Recast Capital launches Recast Accelerate with backing from Melinda Gates’ Pivotal Ventures to provide working capital to early-stage, women-led venture funds… The Google for Startups Black Founders Fund is accepting applications from founders in Africa for non-dilutive funding and other support. 

Thank you for your impact.

– March 9, 2023