The Brief | December 4, 2023

The Brief: Chilling corporate climate cooperation, petro-billions for the green transition, California’s forest resilience bond, funds for local-capital funds

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Featured: COP Watch 

The antitrust theories are weak, but the effects can be chilling on corporate collaboration for climate action. The Glasgow Financial Alliance for Net Zero, or GFANZ, launched with fanfare at COP26 by Brookfield Asset Management’s Mark Carney and Bloomberg’s Michael Bloomberg, aimed to align banks, asset managers and financial institutions with a combined $130 trillion in assets under management with the goal of keeping global warming below 1.5 degrees Celsius. Two years later, as COP28 gets underway in Dubai, many of those financial institutions have dropped out, gone quiet and otherwise gotten cold feet. Behind the chill: a coordinated attack by Republican politicians in the US on efforts to fight climate change. In recent letters and subpoenas, the Republican-led House Judiciary Committee charged that financial industry alliances like GFANZ “appear to facilitate collusion that may violate U.S. antitrust law,” and represent “ESG cartels” (see, “With subpoenas, Rep. Jim Jordan seeks to chill shareholder action on climate”). The antitrust claims have little legal basis and “should be evaluated in the context of the deep anti-climate interests of the campaign’s funders,” argue Cynthia Hanawalt of the Sabin Center for Climate Change Law and Denise Hearn of the Columbia Center on Sustainable Investment. Their guest post on ImpactAlpha breaks down the legal issues.

  • Consumer protection. The antitrust claims seek to “weaponize consumer protection laws to resist efforts to address the financial risks of climate change,” write Hanawalt and Hearn. GFANZ, Climate Action 100+, and other climate alliances operate within well-established guidelines for knowledge-sharing and voluntary standards for industry trade groups – like the American Petroleum Institute – which “have long been permissible under US antitrust laws,” the authors write. Competition regulators in other nations have recognized “the potential benefits of sustainability cooperation,” reports the International Chamber of Commerce. “Antitrust law, among other purposes, is meant to efficiently allocate resources to serve consumers,” say Hanawalt and Hearn. “And consumers have an interest in a livable climate.”
  • Big chill. The year-long counterattack has taken a toll on GFANZ and its eight sector-specific alliances. Vanguard withdrew from the Net Zero Asset Managers Initiative a year ago (see, “Political backlash and legal threats sap shareholder support for climate action and ESG”). After insurers received a warning letter from more than 20 Republican attorneys general, the Net Zero Insurance Alliance lost nearly half of its members. The chief executive of Munich Re, a founding member of the NZIA, cited “material antitrust risks” when the reinsurance giant quit the group in March. 
  • Keep reading, “The antitrust theories are weak, but the effects can be chilling on corporate collaboration for climate action,” by Cynthia Hanawalt and Denise Hearn on ImpactAlpha.

Hosting COP28, United Arab Emirates commits $30 billion to catalyze climate investment – and deflect criticism. The United Arab Emirates is funneling $30 billion in oil wealth to a new fund that aims to mobilize up to $250 billion for climate investments in the Global South, representing a step-change in size over the growing number of multi-billion dollar private climate funds. The megafund, dubbed Altérra, was created in partnership with BlackRock, Brookfield Asset Management and TPG and is managed by Abu Dhabi-based Lunate. The UAE is facing skepticism that its leadership of COP28 is greenwashing its expanded oil and gas production; leaked memos suggested it intended to use its position as COP28 host to strike oil and gas deals. In a testy exchange with Mary Robinson, former president of Ireland and chair of The Elders, the UAE’s Sultan Al-Jaber, president of COP28, argued, “There is no science out there, or no scenario out there, that says that the phase-out of fossil fuel is what’s going to achieve 1.5 degrees Celsius.” 

  • Crowding in. The fund’s two-tiered structure is designed to de-risk investments and crowd in private capital. Some $5 billion is earmarked for Altérra Transformation Fund, which will leverage concessional capital to address risk factors that hinder private investment in low-income countries. The bulk of the capital is for Altérra Acceleration, which targets “climate investments at scale” by investing directly into climate ventures and funds. Its first investments: $2 billion for Brookfield’s second Global Transition Fund, and another $1 billion for a new Catalytic Transition Fund launched by Altérra and Brookfield.
  • Blended finance. Also at COP, the IFC, Soros Economic Development Fund, Three Cairns Group and Bezos Earth Fund were among the initial backers of Allied Climate Partners, which is looking to draw in $11 billion in private capital. The blended-finance facility seeks to de-risk climate projects in the Global South. It assumes a more than 40% portfolio failure rate. “In the absence of sufficient flows from North to South, getting leverage out of the pockets of blended finance is really vital,” IFC’s Jamie Fergusson told Reuters.
  • Dive in

Dealflow: Pay for Performance

Investors earn a return on a ‘forest resilience bond’ in California. Nonprofit Blue Forest partnered with World Resources Institute, the US Forest Service, and the National Forest Foundation five years ago to pilot a financing mechanism for proven techniques to protect forests from devastating wildfires and other climate risks. The “forest resilience bond” raised $4 million from investors to restore and protect 15,000 acres in the Yuba watershed in the Tahoe National Forest. Blue Forest says the intervention, completed more than five years ahead of schedule, provided an “adequate” return to investors “in line with expectations.” Investors were repaid by the Yuba Water Agency, the US Forest Service, and California’s Climate Investment Program. The project “exemplifies how investments in nature can successfully accelerate solutions, benefit public lands and return capital,” Blue Forest said in a statement.

  • Scaling conservation. Among the impacts cited by Blue Forest: reduced risk of catastrophic wildfires; protection of 51,600 acre-feet of water; 56,000 tons of CO2-equivalent gas emissions avoided; generation of 70,000 megawatt-hours of energy from biomass and hydro-sources; and support for 70 jobs. Blue Forest expanded restoration and conservation work in the watershed with the North Yuba Forest Partnership in 2019. The nonprofit has helped mobilize $150 million for the work, including a second resilience bond directing $25 million to a 50,000-acre zone in the watershed. A broader Forest Resilience Bond Catalyst Facility, a revolving loan fund, finances projects in Oregon’s Rogue Valley and other forests in the western US.
  • Catalytic capital. The forest resilience bond was developed by Blue Forest to provide mechanisms through which private investors could support restoration and protection of public forestlands. The Gordon and Betty Moore Foundation and the Zero Gap Fund, an initiative of the Rockefeller and MacArthur foundations, committed concessionary capital to catalyze commercial investments from CSAA Insurance Group and Calvert Impact Capital.
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Dealflow overflow. Other investment news crossing our desks:

  • UK-based Bethnal Green Ventures, a B Corp venture capital firm, reached a £33 million ($41.8 million) first close with commitments from Big Society Capital and others to back startups developing “tech for good.” Half of its investments will be women-led ventures. (TechEU)
  • Kenya’s Amini raised $4 million from Salesforce Ventures, climate tech VC fund Satgana, Female Founders Fund and others to provide farm and land-level data from satellites to help corporations green their supply chains. (TechCrunch)
  • Women-led Clayful scored $7 million from Google’s Latino Founders Fund and other investors for a chat-based mental health app for children and teenagers. (Founders Today)

Impact Voices: Emerging Fund Managers

Funds of funds provide more than capital for local investors in small and growing businesses. Impact funds that invest in other aligned funds are common in private equity and microfinance. Funds of funds are now emerging in the global small business finance sector as a means of mobilizing the roughly $5 trillion a year needed by small and growing businesses, writes Susan de Witt of the Collaborative for Frontier Finance, which hosted annual gathering of small business-focused fund managers and investors last week in Cape Town. Funds of funds like the Dutch Good Growth Fund, Mastercard Foundation’s Africa Growth Fund and Kuramo Capital are proving to be a critical early supply of capital for fund managers in Africa and the Middle East, according to a new survey from CFF. “All employ a range of strategies to evaluate local fund managers’ risk,” such as creative risk assessments, anchor capital and back-office services, de Witt says. Such support, she adds, is “helping fund managers transition from raising from angel and high-net worth investors, family offices and foundations to institutional investors.”

  • Team dynamics. For funds of funds, portfolio funds’ investment teams are the biggest determinant of performance—and risk. “Generally, fund managers fail not because they’ve done bad deals but because the dynamics within the team causes a partner to split,” says Justin James of Thuso Incubation Partners. “For people to allocate, there needs to be a level of trust, and trust is built up over a long period of time. The guys who have built that up in other organizations seem to be able to attract money more easily than somebody just walking in the door.”
  • Pipeline power. Many prospective deals can be lost in the years it often takes new fund managers to reach a first close. One way funds of funds are supporting managers’ pipeline opportunities is by supplying deal-warehousing capital. “As a fund of funds usually takes 100% risk on warehoused assets, they have a direct line of sight into the investment process, enabling them to scrutinize management teams in advance of follow-on investments,” de Witt writes. “Some go to the extent of due-diligencing pipeline companies to test veracity and strategy alignment.”
  • Read her full post

Agents of Impact: Follow the Talent

Cornelius Lee, ex- of Promise54, joins Equitable Facilities Fund as vice president of talent… Overdeck Family Foundation appoints Katelyn Fletcher, ex- of the Brookings Institution, as portfolio associate… Impact Capital Managers seeks a talent and diversity director in New York… Also in New York, Blue Meridian Partners seeks two directors… Pollination has an opening for a nature and agriculture executive director in Washington, DC.

American Heart Association is looking for a social impact associate portfolio manager in Dallas… ImpactAssets is on the hunt for a remote investment product manager… Save the Children Global Ventures is recruiting an innovative finance associate in the UK… Join TAS Impact’s Kate Murray, Jeremy Keele of Catalyst Opportunity Funds, and Sorenson Impact’s Alan Lo on Thursday, Dec. 7 for a webinar on bridging the affordable housing gap with impact real estate. 

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

Thank you for your impact!

– Dec. 4, 2023