The Brief | September 30, 2024

The Brief: Catalyzing institutional capital for climate

ImpactAlpha
Credit: GoodSAM
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ImpactAlpha

Greetings Agents of Impact!

In today’s Brief:

  • BII seeks to blend capital like the SDG Loan Fund
  • Regenerative sourcing in Latin America and Kenya
  • An edge for Africa’s e-mobility startups

BII aims to catalyze European institutional capital for climate investments in emerging markets. Halfway through its latest five-year strategy, British International Investment has launched the second of its Kinetic catalytic capital facilities, ImpactAlpha has learned. The UK’s development finance institution is accelerating its effort to mobilize private capital for sustainable development. Quasi-public development finance institutions like BII, which often operate like commercial investors, are under increasing pressure to play a more catalytic role in mobilizing private capital. The new facility will invest in utility-scale renewable energy generation and transmission; water, waste-to-energy, and battery storage; and lending to climate-focused businesses through banks and specialist finance companies in emerging markets. 

BII’s Mobilization Facility aims to attract hundreds of millions of dollars from “deep and long-term pools of capital,” such as pension fund managers and life insurers. Its role model: the $1.1 billion SDG Loan Fund from German insurer Allianz. The SDG Loan Fund is an example of the rising ambitions of blended finance. It’s buffered by multiple layers of concessional capital, including a $111 million first-loss layer from Dutch development bank FMO and a $25 million unfunded guarantee from the MacArthur Foundation (go deeper: “Blending billions: Lessons in catalyzing capital at scale for climate and development”). “The SDG Loan Fund was catalyzed by that $25 million first-loss guarantee,” BII’s Matt Robinson tells ImpactAlpha. “The scale of the capital needed to mobilize quite large amounts of commercial capital is not as big as one might assume. That’s the kind of role this facility will allow us to play.”

  • Institutional roadblocks. Trillions of dollars in additional investment is needed to support emerging markets’ sustainable development and climate resilience. Europe’s institutional investors manage about $26 trillion in assets. Of that, just $250 billion gets invested in emerging markets. Regulatory and operational restrictions around risk make it difficult for even the largest insurance companies or pension funds to invest in emerging markets. What they do invest in: “Highly concentrated in publicly listed, investment-grade assets in large emerging markets, with little to no investment in developing economies,” according to a paper by Samantha Attridge, Bianca Getzel and Neil Gregory at ODI, a UK-based global development think tank.
  • Kinetic energy. BII’s Mobilization Facility aims to de-risk institutional capital in funds as well as in social or green bond issuances. The facility will let BII use a variety of mechanisms, including first-loss capital or guarantees, to match the risk/return profile of a deal to the requirements of institutional investors, Robinson says (see, “How commercial investors are streamlining blended fund structures”). “The idea of facilities like this is to be transitory for maybe five to 10 years, and then we hope that they won’t be needed anymore.”
  • Catalytic series. Funding for the Mobilization Facility comes from the UK government’s Foreign, Commonwealth and Development Office. FCDO provided £240 million ($330 million) for BII’s Climate Innovation Facility, the first in BII’s Kinetic strategy for investing in and managing deals in emerging markets that require concessional capital to attract commercial investors. The two facilities have different purposes. “Climate Innovation is taking high business-model and technology risk,” Robinson explains. “Mobilization is trying to bridge a risk/return gap on more mature assets.” BII, which plans to roll out additional Kinetic investment strategies, has not disclosed the amount FCDO committed to the new facility.
  • Keep reading, “BII aims to catalyze European institutional capital for climate investments in emerging markets,” by Jessica Pothering on ImpactAlpha. 

Dealflow: Regenerative Agriculture

ALIVE Ventures backs GoodSAM to support regenerative farms in Latin America, Kenya. Connecticut-based GoodSAM launched in 2019 to help smallholder farmers committed to responsible growing practices reach the US market. The woman-led B Corp sources from 1,600 farmers in Colombia, Mexico, Peru and Kenya. It produces nearly three dozen products, including coffee, nuts, chocolate and fruit chips, that are sold in US grocers like Whole Foods and Sprouts Farmers Market. GoodSAM inked a first close on its Series A equity round with support from Acumen Latam Impact Ventures, as well as Desert Bloom, Connecticut Innovations and other investors, ImpactAlpha has learned. The company did not disclose the size of the raise.

  • Sustainable sourcing. “Our mission is to directly combat the broken food system,” said GoodSAM’s Heather Terry, and promote “a more sustainable and delicious future where food is beneficial for consumers and farmers alike.” GoodSAM audits its suppliers to ensure that farmers meet specified regenerative agriculture and social responsibility standards, including soil health, water conservation, worker safety and fair wages. It trades with farmers directly rather than through intermediaries, which allows farmers to earn two to four-times as much for their goods, added GoodSAM’s Greg Krupa. By enabling higher incomes and land regeneration, noted ALIVE Ventures’ Virgilio Barco, GoodSAM is “driving prosperity and climate resilience in rural areas.”
  • Read on. 

Dealflow overflow. Investment news crossing our desks:

  • The US International Development Finance Corp. and Citi provided $320 million to CRDB Bank to improve access to finance for small businesses in Tanzania and Burundi. A portion is earmarked for women-led businesses. (DFC)
  • Resolution Project folded Enactus Global into its operations, creating one of the largest nonprofits focused on socially responsible youth leadership and entrepreneurship. Resolution injected $2 million into Enactus and said it would “recapitalize” the organization’s staff and assets while it continues as its own brand.
  • Munich-based Marvel Fusion raised $70 million from Germany’s HV Capital and other investors to support its advanced laser-based fusion technology. (TechCrunch)

Signals: Electrify Everything

Policy incentives give an edge to Africa’s e-mobility startups. Ethiopia made headlines in February by becoming the first country in the world to ban imports of fossil fuel-powered cars. The capital city of Addis Ababa followed with an outright ban on gas-powered motorcycles. Soon after, Ethiopian EV startup Dodai raised $4 million. “The regulatory environment is incredibly supportive for e-mobility startups like ours,” says Dodai’s Yuma Sasaki, who spoke to ImpactAlpha at Africa E-Mobility Week in Nairobi. Coupled with foreign exchange liberalization, the policies have created a competitive advantage for EVs in Africa’s second most populous country. Sasaki earlier founded West African solar company PEG Africa (acquired by Bboxx in 2022). Dodai entered the Ethiopian market in 2021 to assemble and distribute electric two-wheelers. Some 90% of the country’s energy supply comes from hydropower, providing an abundance of cheap electricity for consumers and businesses. “The operating costs for Dodai’s e-bikes are 95% cheaper than those of fuel bikes,” says Sasaki.

  • Policy nudge. EV adoption could help African countries cut their dependence on oil imports. Local manufacturing and assembly could spur job creation opportunities. The continent could also supply crucial raw materials such as lithium as the EV sector picks up. In March, Kenya introduced a draft e-mobility policy that, if approved, will provide incentives for EV adoption and infrastructure buildout and support local manufacturing and assembly of EVs. Rwanda, which has spearheaded several clean transport initiatives, has abolished import taxes for EVs, spare parts, batteries and charging station equipment. Ghana, Angola and Tunisia have reduced import levies for EVs. In Ethiopia, reality is still catching up with the country’s EV ambitions. Cities, for example, are not yet set up to issue e-bike license plates. Says Sasaki, “The speed of adoption of the product is faster than the speed of regulations.”

Agents of Impact: Follow the Talent

Don’t miss these upcoming ImpactAlpha partner events:

Blume Equity adds four new members to its team: Raxita Kapashi, previously with Playfair, becomes as chief financial officer; Kirby Lam, previously with KKR, joins as director; Tejas Choudhary, formerly with Verdane, joins as principal; and Francesco Orlando, previously with the European Investment Bank, joins as an analyst.

Sustainable infrastructure investor and operator Generate Capital appointed Nancy Tsang, formerly of Morgan Stanley, as chief risk officer. Jonah Goldman was promoted to head of external affairs and impact… Boann Social Impact seeks an impact measurement and management specialist and a communications and reporting manager… LOCUS is recruiting an impact investment services senior analyst… The Nature Conservancy is hiring an impact investments director to lead deal flow. 

Calvert Impact is looking for an institutional relations director… Angel City Advisors has an opening for an impact fund operations associate… ReHealth Collaborative is on the hunt for a president… The Colorado Health Foundation will host “The power of employee ownership: A Colorado and national conversation,” Wednesday, Oct. 23 in Denver.

👉 View (or post) impact investing jobs on ImpactAlpha’s Career Hub.

Thank you for your impact!

– Sept. 30, 2024