Greetings, Agents of Impact!
👋 Agents of Impact Call: Finding hidden impact and risk in municipal bonds. Opportunities to invest in muni bonds that contribute to racial justice, health equity and other positive community impacts go beyond ESG, social and other “labeled” bonds. Labels also can mask market inefficiencies caused by the rampant mispricing of racial and climate risks. On the next Call in ImpactAlpha’s Muni Impact series, supported by the Robert Wood Johnson Foundation, learn how advisors and researchers are leveraging data, analytics and other tools to help investors spot overlooked opportunities in the $4 trillion municipal bond markets. Join R. Paul Herman of HIP Investor, Kestrel’s Monica Reid, Activest’s Homero Radway and other Agents of Impact, Wednesday, Dec. 13 at 10am PT / 1pm ET / 6pm London. RSVP today.
Featured: Catalytic Capital
Allianz’s SDG Loan Fund leverages a $25 million guarantee to catalyze $1.1 billion. A novel financing mechanism has stacked a small guarantee and a larger first-loss reserve to raise $1 billion from the German insurance giant Allianz and Swedish bank Skandia. The purpose: expand financing for small and growing businesses, resilient agriculture and climate solutions in emerging markets. The new SDG Loan Fund, one of the largest “blended finance” funds to date, could serve as a model for efforts to put private capital to work for the Sustainable Development Goals. “It has proven very difficult to create the vehicles that work for that mobilization, so this one was created to show it could be done, and it could be done at scale,” says Debra Schwartz of the MacArthur Foundation, who worked with Allianz and the Dutch development bank FMO to structure the fund (disclosure: MacArthur Foundation leads the Catalytic Capital Consortium, which supports ImpactAlpha’s coverage of catalytic capital). Blending finance to mobilize private capital for climate action will be high on the COP28 global climate summit agenda getting underway this week in Dubai.
- Risk mitigation. The multi-layered fund took more than three years to put together. Munich-based Allianz, which manages more than €516 million through its asset management arm, faced obstacles shared by large global investors that pledged to finance the SDGs or other sustainability frameworks. Such investors must write large checks, with acceptable expectations of risk-adjusted returns. FMO agreed to put up a first-loss reserve of $111 million, or 10% of the committed private capital. MacArthur Foundation, with its AAA rating, committed an unfunded guarantee of $25 million to protect FMO against downstream investment losses. The guarantee unlocked private investment dollars at a ratio of 40:1, Schwartz says. “That’s a pretty efficient use of our impact investment, we think.”
- Borrower pipeline. FMO will select suitable investments in its pipeline and effectively sell them to the loan fund, retaining on its own balance sheet stakes of $10 million or 20% percent, whichever is higher. “This requirement creates alignment of interest, with FMO having direct exposure to each loan on its balance sheet and also via the fund through its position as first-loss provider,” according to a summary of the structure. The fund targets investments that contribute to achieving Sustainable Development Goals Nos. 8, 10 and 13, targeting full and productive employment, the reduction of inequality within and between countries and “urgent action” on climate change. FMO estimates that the loan fund will support 60,000 jobs per year and help avert 450,000 tons of greenhouse gases annually.
- Keep reading, “Allianz’ SDG Loan Fund leverages a $25 million guarantee to catalyze $1.1 billion,” by David Bank on ImpactAlpha.
Dealflow: The Transition
French nuclear startup NAAREA raises €60 million to build modular reactors. NAAREA, short for Nuclear Abundant Affordable Resourceful Energy for All, is looking to raise €150 million to build a nuclear reactor about the size of a bus that can be operated independently from electrical grids. The vision is to have reactors that “produce power and heat as close as possible to industrial customers to relieve the grid,” said NAAREA’s Jean-Luc Alexandre. The initial funding includes €50 million ($55 million) from French family offices and €10 million from the French government. NARREA is looking to build a full-scale prototype to produce 40 megawatts of electricity, enough to power a car factory or large desalination plant, by 2028.
- New nukes. Interest is growing in small, modern reactors that promise safer, cheaper nuclear energy. Finland’s Steady Energy scored €2 million in seed funding in July to build modular reactors for low-carbon heating by 2030. There have also been setbacks. Last month, NuScale Power Corp., the first nuclear company in the US to get approval from the government for small modular design, cited mounting costs when it canceled plans to build the first of six reactors in Utah.
- Micro fusion. Like their fission kin, fusion energy companies are aiming small to reduce costs and increase the safety and mobility of fusion reactor installations. Israel’s nT-Tao snagged $22 million in August to develop and test a compact fusion reactor. Seattle-based Avalanche Energy raised $40 million in April to build modular fusion micro-reactors small enough to fit on a desk, at a cost of tens of millions, not billions, of dollars.
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Toniic members help CRDC Global raise $3.3 million for a concrete solution to plastic waste. The Costa Rica-based Center for Regenerative Design and Collaboration has patented a process that converts hard-to-recycle plastic into a low-carbon additive for asphalt, cement and concrete (see, “New incentives spur building industry to take concrete steps to decarbonize cement”). The potential for a “viable commercial product that reduces the carbon footprint of the building industry was something I felt compelled to support,” said Meg Arnold, one of seven members of the investing network Toniic that participated in a $1 million special purpose vehicle, or SPV, to back CRDC’s $3.3 million seed round.
- Crowd investors. The SPV was created using a low-cost structure, said Toniic’s Jeff Sobel. That allowed the group’s investor community of high-net-worth individuals, family offices and foundations to invest in CRDC at ticket sizes below the required minimum. CRDC has sold its RESIN8 additive to concrete manufacturers in Costa Rica, South Africa, Australia and the US. CRDC’s flagship plant in Costa Rica produces 20 tons of RESIN8 per week.
- Check it out.
Dealflow overflow. Other investment news crossing our desks:
- Temasek Trust is acquiring Singapore-based digital financial advisor MoneyOwl to reposition the company to provide financial services to essential workers, gig workers and youth. (Temasek)
- Finland-based One Click LCA secured €40 million ($44 million) to develop carbon reporting and management solutions for construction and manufacturing. (One Click LCA)
- White Box Enterprises, an Australian social impact incubator, clinched $12 million to create jobs for people in disadvantaged communities within local enterprises. (Startupdaily)
- Singapore financial services firm DBS and H&M Group launched a loan program to decarbonize the operations of H&M’s suppliers. (ESGtoday)
Signals: Climate Finance
From ‘carve-outs’ to ‘aligners,’ five family-office archetypes for climate investing. Wealthy families are feeling the pull of climate investing. In a new report, the nonprofit CREO, which works with family offices and foundations to help them invest in climate solutions, identifies five archetypes to guide families wherever they are on their journey. From “Carve-outs” to “Aligners,” there is no one path. “Many [families] investing in climate for the first time are coming to CREO with more ambitious climate aspirations,” says CREO’s Regine Clement. Many don’t know where to begin, or how to optimize their investments for impact. “All families can see themselves in at least one of the archetypes, in whole or part, whatever the stage or experience of their climate investing or philanthropic activities.”
- Keep it tight. “Carve-outs” allocate a portion of their assets to climate-related activities with clear impact and investing goals. “Specialists” focus their allocation on a specific sector or asset class – for example, venture investments in sustainable food companies – and often supplement the focus with philanthropic or concessionary capital. These are the most common archetypes and provide a wide range of return opportunities.
- Raised ambitions. “Innovators” find that they can have more impact by creating their own products and aggregating capital, such as a long-short public equity fund for climate-committed companies, or a blended capital fund for high impact emissions-reduction projects. “Aligners” look to dovetail all of their investing activities with their climate goals.
- Decarbonizers. Many wealthy families operate or control their own companies, offering an opportunity to green their businesses and increase value. CREO reports “rapidly growing interest” from family-owned businesses committing to net zero plans. Bonus: “Decarbonizers” can create synergies by leveraging investment portfolios to support decarbonization goals.
- Dig in.
Agents of Impact: Follow the Talent
The Climate Investment Funds names Tariye Gbadegesin of ARM-Harith Infrastructure Investments as CEO, effective in March. The first African to lead the multilateral lender, she replaces Mafalda Duarte, who left in July to lead the Green Climate Fund… AI Collaborative, a new initiative of Omidyar Group, appoints Martin Tisné, ex- of Luminate, as chief executive officer.
Ellen Maginnis, ex- of Volery Capital Partners, joins Predistribution Initiative as interim director of standards. Predistribution Initiative’s Victoria de Castro joins the UNDP’s Sustainable Finance Hub… Pacific Community Ventures is hiring a director of applied research in Oakland, Calif… Locus is recruiting a senior analyst of impact investment services.
The Rockefeller Foundation sets a net-zero by 2050 target for its endowment, the largest private US foundation to do so… The Impact Disclosure Taskforce, led by JPMorgan and France’s Natixis CIB, launches to help corporate and sovereign entities, especially in emerging economies, report on their contribution towards the SDGs… IBM launches the IBM SkillsBuild Sustainability Roadmap, a series of free sustainable courses, to address the green economy skills gap.
Thank you for your impact!
– Nov. 29, 2023