The Brief | October 26, 2022

The Brief: Creative climate finance, made in Africa, social infrastructure in Europe and North America, Shariah-compliant lending, racial justice in PE

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Greetings, Agents of Impact! 

Featured: Climate Finance

Creative finance is needed to plug gaps in global climate funding – and to rescue COP27. Expectations are low for the 27th annual “conference of the parties,” just two weeks before the COP27 global climate summit kicks off in Sharm El Sheikh, Egypt. With a war in Europe, soaring energy costs and spiraling inflation, governments are hamstrung. Climate talks with China are in limbo. The Glasgow Financial Alliance for Net Zero, a consortium of major banks, is backpedaling. Wealthy nations have not made good on promises to deliver $100 billion a year to nations that have contributed little to global warming but bear its greatest burdens, let alone payments for “loss and damages” from droughts, floods and other extreme weather events. Additional U.S. funding is unlikely if Republicans win one or both houses of Congress in next month’s midterm election. A U.N. agency last month declared, “We are headed in the wrong direction.”

In the face of these challenges, the focus is shifting to creative workarounds. “We developed countries need to make good on the finance goals that we have set, however we can, by whatever creative methods we can, to maximize the impact of our resources,” U.S. special climate envoy John Kerry told the Council on Foreign Relations Tuesday. On the list: pressing the World Bank and other multilateral development banks to increase concessional lending to draw in private investment. Kerry expects progress on public-private initiatives, such as the Agriculture Innovation Mission for Climate, which aims to mobilize capital for climate-smart agriculture, and the First Mover’s Coalition, which includes 50 corporations looking to bring down costs for critical decarbonization solutions with advance purchases at premium prices.

  • Blended shortfall. Concessionary and blended finance, however, are unlikely to bridge the yawning gap in capital needed to help low and middle-income countries transition their energy sources and adapt to a changing climate. Climate-focused blended finance transactions have slumped, from $36.5 billion in the three years 2016-2018, to just $14 billion from 2019-2021, according to a new report from Convergence, the blended-finance data tracker. “There’s been no sea change in the amount of support that fully commercial investors can expect out of a catalytic party,” Convergence’s Joan Larrea tells ImpactAlpha. “All things being equal, [investors will] stay home, hunker down and preserve capital.”
  • Keep reading, “Creative finance is needed to plug gaps in global climate funding – and to rescue COP27,” by Amy Cortese and Dan Keeler on ImpactAlpha.

Dealflow: Made in Africa

Flourish Ventures to invest $12 million in tech startups ‘Made in Africa.’ U.S.-based venture capital firm Flourish Ventures has launched Madica, short for “Made In Africa,” a fund that will invest in and provide business-growth support to founders of mission-driven tech startups in Africa. The program will invest up to $200,000 each in 30 pre-seed-stage startups over three years. “We have reserved an equal amount for hands-on support, extensive resources, access to networks and more,” said Flourish Ventures’ Emmanuel Adegboye. Madica will donate a portion of its financial returns to incubator and accelerator partners to source and support founders. “We intend to develop a cadre of mentors, create world-class programming, crowd-in follow-on capital, and leverage Flourish’s global presence to extend the reach of local networks,” said Flourish Ventures’ Ameya Upadhyay.

  • Returns on inclusion. Madica will prioritize funding and support for local, Africa-educated founders outside of the continent’s large tech hubs. “We hope that Madica can help change the narrative around African startups – lower the perception of risk, attract more capital, inspire more founders, and garner more media attention,” said Upadhyay. Madica will participate in the 2022 AfriLabs Annual Gathering from Oct. 26-28 in Lusaka, Zambia.
  • Deal footprint. Flourish Ventures manages a $500 million-plus portfolio of companies working to improve financial health and prosperity, including Indonesian insurance company Qoala, smallholder farmer agtech venture TaniHub Group, Singapore-based enterprise tech venture Zaapi, Egyptian e-commerce platform MaxAB, and Atlanta-based gig-worker site Steady.
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Dealflow overflow. Other investment news crossing our desks:

  • Nightpeak Energy secured $200 million in equity funding from Energy Spectrum Capital to develop flexible, low-carbon power generation plants in the U.S.
  • Agtech startup Nitricity raised $20 million in Series A funding from Energy Impact Partners, Lowercarbon Capital and other investors to help farmers make their own fertilizer using air, water and electricity.
  • Alami Group scored an undisclosed amount of pre-Series B financing to offer Shariah-compliant loans to small enterprises and consumers in Indonesia.
  • Antin Infrastructure Partners raised over $5 billion to invest in energy, telecom, transport and social infrastructure in Europe and North America.

Impact Voices: Returns on Inclusion

Three ways to move your private equity firm closer to racial justice and create value. As for many people, the summer following the murder of George Floyd in 2020 was a time of personal and professional reckoning for David Reuter of private equity firm LLR Partners. Private equity firms manage about $7.5 trillion in assets and own companies that employ around 11 million American workers. Yet the industry is not representative of the population – only 11% of C-suite executives are people of color. “We need to make some changes across the industry,” writes Reuter in a guest post on ImpactAlpha. “This is not only the right thing to do, but can also add value to your company.”

  • Inclusion alpha. Being in front on racial justice is a strong recruitment tool, says Reuter. Half of LLR’s new hires in the past two years have come from diverse backgrounds. Employee diversity has a flywheel effect “as recruits see that we are acting on our values,” Reuter says. More diverse staff has the added benefit of bringing in different deals and building greater trust with portfolio companies founded or led by people of color. “We are beginning to see anecdotal evidence of stronger performance from diverse teams and companies.”
  • Steps to racial justice. Reuter lays out individual, team and organizational steps firms can take to embed racial justice. Reuter joined the group “White Men for Racial Justice,” which meets regularly to explore biases around race and how to be better allies. LLR engaged advisory firm CapEQ to explore how the firm can help portfolio companies support racial justice and how it can better invest in communities where it operates. The goal: Operate differently to meet “the needs and demands of our changing economy,” says Reuter. “There is no end point to racial justice.”
  • Keep reading, “Three ways to move your private equity firm closer to racial justice and create value,” by LLR’s David Reuter.

Agents of Impact: Follow the Talent

George Spencer becomes vice president and head of impact investing and ESG at BackBay Communications… The Nature Conservancy is looking for a grants specialist in Arlington, Va… Additional Ventures is hiring a remote policy director for ocean CO2 removal… Williams-Sonoma seeks a content and communications manager for sustainability and ESG in San Francisco… Impact Frontiers is looking for a remote senior associate.

Syncronic is recruiting a part-time, unpaid and remote impact investing and ESG intern… Root Capital is hiring a lending-focused monitoring, evaluation and learning manager in New York… Also in New York, LISC seeks a manager of legal operations… Three Native CDFIs – Akiptan, Haa Yakaawu and Nimiipuu Fundwill take home a combined $375,000 in grants from OFN’s 2022 Native CDFI Awards… The Taskforce on Inequality-related Financial Disclosures will meet virtually for its global meeting on Thursday, Nov. 3.

Thank you for your impact!

– Oct. 26, 2022