The Brief

The Brief: Corporate foundations as catalytic investors in water solutions

ImpactAlpha · October 7, 2024

Greetings Agents of Impact!

🔌 PluggedIn: Financing resiliency with Natalia Arjomand of SecondMuse. On today’s Plugged In, ImpactAlpha’s Sherrell Dorsey speaks with Natalia Arjomand, head of SecondMuse Capital’s Future Economy Lab, which is designing creative models to finance climate resiliency around the world. Join the LinkedIn Live conversation, today, Oct. 7, at 9am PT / 12pm ET / 5pm London. RSVP and tune in.

In today’s Brief:

  • Blending corporate philanthropy to backstop water innovation 
  • Climate tech exit for Heaten’s heat pumps 
  • Transforming locally led healthcare in Africa
  • How a racial lens can move endowments beyond carveouts

With each bottle sold, UK retailers aim to backstop water entrepreneurs in emerging markets (Q&A). That bottle of water you just bought in London? It might help a startup get the debt and equity it needs to provide drinking water in Uganda, Zambia or the Democratic Republic of Congo. The corporate foundations of a handful of UK-based food and drink retailers, including Co-op Group, Elior UK, Aqua Libra and Britvic, are providing grants that serve as first-loss capital in a nonprofit investment fund for emerging market enterprises expanding access to clean water and sanitation, as well as wastewater treatment and plastic waste recycling. Small businesses often languish in the “missing middle” between microfinance institutions and commercial lenders. Co-op, one of the UK’s largest retailers, contributes 1 pence for every liter of bottled water it sells to the Water Unite Impact fund. Elior UK, a food services company in London, does the same. Bottled water, of course, is itself implicated in privatization, groundwater depletion, plastic waste and other water challenges around the world. “Water is connected to everything we do as a business. It’s vital for food production and essential to our operations,” Elior’s Charlotte Wright tells ImpactAlpha. Clients are seeking evidence of the company’s commitment to addressing climate change, reducing pollution, managing waste and alleviating water stress, she says. “It’s clear that demonstrating our dedication is crucial for strong client relationships.”

  • Catalytic capital. “The difficulty is that no one’s ever cracked the nut. How do you invest in water and make money?” says Neil Sandy of Wellers Impact, an impact investment firm that manages the Water Unite fund. Water Unite Impact has raised $3 million in first-loss capital, qualifying it for a $7.5 million loan from the US International Development Finance Corp. In effect, corporate philanthropy is backstopping risk to bring development finance institutions and other investors in on commercial terms, and to provide technical assistance to boost the investability of early-stage water companies. “There is a shortage of equity and loan capital available to fast-growing [small businesses] in the sector at fair terms,” Sandy says. “We seek to fill that gap.” Sandy discussed the fund’s innovative structure in an in-depth Q&A with ImpactAlpha.
  • Bridging gaps. Water Unite Impact has commitments from several family offices and high net-worth investors. It is aiming for a $30 million first close by year’s end and hoping for a $60 million final close next year. Water Unite Impact’s portfolio includes Hong Kong-based GREE Energy, which works with emerging market food processors to convert industrial wastewater into biogas; Mr. Green Africa, a Kenyan B Corp that works with informal waste workers and microentrepreneurs to collect and recycle plastic waste; and Jibu, a Uganda-based franchiser of water purification services in urban East Africa. Jibu has raised $2.5 million in an ongoing bridge round, backed by Water Unite Impact, to expand in existing and new African countries. “They’ve been critical partners to us and really supported us,” says Jibu’s Randy Welsch.

Dealflow: Energy Transition

A climate tech exit for Heaten returns cash to Azolla Ventures and other investors. Norway-based Heaten was in the early stages of making high-temperature industrial heat pumps when it scored an investment from Azolla Ventures two years ago. Luxembourg-based private equity firm Advent International is now acquiring Heaten for an undisclosed amount via its AI Alpine fund. It’s a rare exit for the climate tech sector, which has been fretting over a lack of liquidity to plow into new deals (see, “Needed: Climate tech exits to keep the ‘circular capital economy’ spinning”). Azolla, launched by the nonprofit Prime Coalition, uses blended finance to accelerate climate tech commercialization. It invested in Heaten to help the company deploy customer pilots, preceding the full launch of Azolla’s $239 million fund. Heaten raised a total of €8 million ($8.8 million) from Azolla, Nysnø Climate Investments, Shell Ventures and family office Valinor.

  • Path to market. Electric-powered heat pumps, which channel ambient or waste heat, “are one of the few tools for decarbonizing industrial-process heat,” Azolla Ventures’ Amy Duffuor told ImpactAlpha in 2022 (learn more, “Bridging climate gaps with catalytic capital“). It’s challenging to design heat pumps for industrial uses, like food, plastic and pulp production, which require temperatures of 165 degrees Celsius or higher. Heaten has been at work on its HeatBooster design for a decade. It expects to bring its systems to market next year.
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Transform Health Fund closes $111 million to invest in better quality, affordable healthcare in Africa. Africa receives less than 2% of global health spending. The Transform Health blended-finance fund, a partnership between AfricInvest and the Health Finance Coalition, makes equity, mezzanine and debt investments to expand locally-led care delivery and digital solutions for vulnerable and underserved patients on the continent. Transform Health Fund surpassed its initial target of $100 million with investments from Royal Philips, Merck & Co., the International Finance Corp., the US and French development finance institutions, FSDAi, Grand Challenges Canada, family office Ceniarth, and many others. The fund, which was launched in 2022, is segmented into a concessional tranche of impact-first investors and a commercial tranche.

  • Eyes, kidneys, bellies. Transform Health Fund’s first three investments include Lapaire Glasses in Abidjan, Côte d’Ivoire. The company provides affordable vision tests and eyeglasses to hundreds of thousands of people through 85 retail shops in Cote d’Ivoire, Togo, Burkina Faso, Mali, Benin, Kenya and Uganda. Dar es Salaam, Tanzania-based Africa Healthcare Network operates a chain of affordable dialysis clinics in East Africa. The company launched its first clinic in Rwanda nine years ago and now runs more than 45 facilities. Nairobi-based Instaproducts manufactures “therapeutic foods” for malnourished children and mothers, which are distributed through aid partners and NGOs. The company sources ingredients, like groundnuts, from local growers to improve farmer livelihoods.
  • Check it out. 

Dealflow overflow. Investment news crossing our desks:

  • The US International Development Finance Corp. earmarked $25 million for Acre Impact Capital to support climate-smart infrastructure in Africa. (Acre Impact Capital)
  • The Department of Energy’s Loan Programs Office approved a loan guarantee of $1 billion for EVgo Swift Borrower to build 1,100 new EV charging stations, with a combined 7,500 ports, in the US. (DOE)
  • New Ventures in Mexico announced seven companies that will participate in its MAR+Invest 2024 Acceleration Program, which supports startups helping to protect and conserve the Mesoamerican Reef. (New Ventures)

Impact Voices: Inclusive Economy

Investing foundation endowments through a racial equity lens.  It’s been four years since Black Lives Matter catalyzed support for racial equity from American foundations. Corporate commitments have waned, including in the face of political pushback. But for many foundations, racial equity is now an even greater focus (see for example, “Philanthropy has the right and responsibility to counter attacks on DEI”). Mission-related investments that use untapped funds in endowments are a flexible tool to create impact on a much larger scale than grants alone, says Andrea Dobson of the Winthrop Rockefeller Foundation. In a conversation with Ian Fuller of Westfuller Advisors, a registered investment advisory firm in New York, Dobson explains that racial equity is becoming a lens through which all investments are seen, rather than a carveout. “The terminology of lens investing has brought about a shift in thinking in the sector,” she says. That has helped investors envision “how gender justice and racial equity can be integrated [across] the full scope of a portfolio.”

  • From carveout to lens. Between 2015 and 2024, the Winthrop Rockefeller Foundation boosted its mission-aligned investments from 14% to 84%. Holdings now include Impact America Funds II and III, which build profitable and purposeful companies that uplift Black and Brown communities; Illumen Capital funds, which address systemic inequity by reducing racial and gender bias in investing; and Trident’s American Dreams fund, which is committed to ensuring that more than 13% of the value it generates accrues to minority and underserved populations and communities. “There is a myth that social equity investing requires sacrificing returns,” Dobson says. The foundation’s portfolio has exceeded its blended benchmark over three years and matched it over five years. “The perception that mission-aligned investing is not fiduciary responsibility needs to be abandoned.”

Agents of Impact: Follow the Talent

Don’t miss these upcoming ImpactAlpha partner events:

  • Oct. 17-18: The REAL Summit (New York)
  • Oct. 21-24: OFN40 (Los Angeles)
  • Oct. 23-24: The GIIN Impact Forum (Amsterdam) – Save 10% off with code “GIINPressImpact”
  • Oct. 28-30: SOCAP24 (San Francisco) – Use code “s24_ImpactAlpha” to save $250

Kellie Valladares, formerly of Attentive, joins Aligned Climate Capital as director of operations… Candide Group is looking for a client services manager… Acumen is hiring an associate director for institutional partnerships in New York… Greenprint Partners seeks a people and culture manager in Chicago.

The McKnight Foundation is hiring a senior program officer for climate and energy in Minneapolis… Opportunity Finance Network seeks a senior associate for Greenhouse Gas Reduction Fund communications in the Washington-Baltimore area.

The Sorenson Impact Institute and Blue Haven Initiative are hosting a virtual discussion about policy-enhanced impact investing, featuring Blue Haven’s Liesel Pritzker Simmons, Community Investment Management’s Jacob Haar, Louis Caditz-Peck of the Responsible Business Lending Coalition, Ryan Werder of Energy Action Fund and Sorenson’s Lindsay Zizumbo on Wednesday, Oct. 9.  

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

Thank you for your impact!

– Oct. 7, 2024