The Brief: Deploying the Greenhouse Gas Reduction Fund’s billions

Greetings Agents of Impact!

🔌 Today’s Plugged In: Inside Wisconsin’s game plan to tap federal financing for the green transition. Get Plugged In with ImpactAlpha’s Sherrell Dorsey and Forward Together Wisconsin’s Mandela Barnes, today at 11:30am PT / 2:30pm ET / 7:30pm London. Join in.

📞Tomorrow’s Call: Lessons in catalyzing capital at scale for climate and development On this Thursday’s Agents of Impact Call, Climate Fund Managers’ Rajashree Padmanabhi will join Mitsubishi UFJ’s Ariane Pevide, MacArthur Foundation’s Debra Schwartz, and Convergence’s Nnamdi Igbokwe, to share practical lessons in “blending billions,” tomorrow, Sept. 19, at 10am PT / 1pm ET / 6pm London. RSVP today.

• Catch up quick by reading “Blending billions: Lessons in catalyzing capital at scale for climate and development.” 

In today’s Brief:

• Climate United’s Beth Bafford on deploying $7 billion 
• Using enzymes to upcycle plastics into textiles
• Ceniarth’s core beliefs as an impact-first lender

Featured: Deploy!

Beth Bafford on Climate United’s $7 billion strategy to mainstream green lending (Q&A). The Environmental Protection Agency set off a scramble last year with its call for proposals to manage the National Clean Investment Fund. The agency aimed to select two or three nonprofits to build on the $14 billion NCIF and create a lending infrastructure to finance green upgrades for families and communities nationwide. When the dust settled, $7 billion – the biggest slice of the pie – went to Climate United, a coalition of Calvert Impact, Community Preservation Corp. and North Carolina-based community development lender Self-Help. It was a crowning moment for Calvert Impact, which for three decades has structured financial vehicles to connect communities with financial markets. “From the beginning, when the EPA put out their implementation framework, we saw a picture being painted of the kind of market infrastructure that we have seen for a long time from our perch at Calvert impact,” Calvert’s Beth Bafford tells ImpactAlpha. 

• Ready to roll. Bafford, who heads Climate United, has the challenge of deploying that $7 billion, and fast. “We are hitting the ground running,” she says. “We expect to have investments closed and funded in the next couple months.” Since contracts were finalized last month, Climate United and the other awardees have been busy vetting and underwriting energy retrofits, EV charging networks and community solar projects in communities across the country. The National Clean Investment Fund is the largest pillar of the $27 billion Greenhouse Gas Reduction Fund. The other NCIF awardees are the green bank network Coalition for Green Capital and Power Forward Communities, an alliance of community lenders, housing nonprofits and Rewiring America. The design for a distributed green bank was led by the EPA’s Jahi Wise, who last week announced he is leaving the Biden administration (for background see, “Architecting a green bank for the US”).

• Clean buildings at scale. Climate United’s winning proposal zeroed in on the decarbonization of homes and buildings, leaning on Community Preservation Corp.’s experience financing multifamily affordable housing and Self-Help’s expertise with homeowners. The EPA’s goal is to crowd in seven times the amount of public funding in private capital. During the pandemic, Bafford helped structure “community recovery vehicles” in New York and other states to securitize loans for community lenders in order to free up capital for small business lending. She’s drawing on those skills as she seeks to integrate Climate United’s green real estate lending with the massive mortgage market. “That’s the only way we’re going to be able to get decarbonization done at scale and drive the benefits that come with it – the lower energy costs, the energy reliability, the cleaner air for families, the jobs that it creates.”
  
• Catalytic capital. To make the upfront investments work, affordable multifamily housing projects will need a “subordinate, catalytic piece in the stack,” she says. Single family mortgages could be aggregated to provide liquidity. To help schools go green, Climate United is looking to tap the muni bond markets. Says Bafford, “It feels like we’ve finally reached the starting line, and we’re ready to get to work.”
  
• Keep reading, “Beth Bafford on Climate United’s $7 billion strategy to mainstream green lending (Q&A),” by Amy Cortese at ImpactAlpha.

Dealflow: Sustainable Fashion

Evoralis lands $2.8 million to develop enzymes to break down discarded textiles. The world generates more than 100 million tons of textile waste each year, making textiles and fashion among the most polluting industries. UK-based Evoralis spun-out of the University of Cambridge to develop a process for breaking down synthetic materials like polyester, nylon and polyurethane into base components that can be reused. Evoralis claims over 80% of textiles could be recycled using its enzymatic technology. The opportunity to “displace the use of virgin materials in the textiles industry cannot be emphasized strongly enough,” said Claire Shrewsbury of the climate-focused NGO Waste and Resources Action Programme, or WRAP. Evoralis’s funding round was backed by WRAP’s Circular Plastics Accelerator and partner Archipelago Ventures, alongside Cambridge Enterprise Ventures and Parkwalk Advisors, Backbone Ventures. Italy-based deep tech venture capital firm LIFTT led the round. The Center for Process Innovation, which invested in June, converted its loan to equity.

• Circular fashion. Much of the global textile waste was previously deemed unrecyclable. US-based Circ is working to transform discarded clothing back to their original fibers. Refiberd has developed AI-based textile waste sorting technology to make sure more materials make it to recycling facilities in the first place. Evernu is converting cotton waste into a new material that is better able to withstand reuse.
  
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ClassBank snags pre-seed funding to support financial literacy among students in underserved communities. Former middle school teachers Abby Cole and Katie Gracey founded ClassBank (then called ClassEquity) in 2021 to create a financial literacy curriculum for kindergarten to high school students. The Los Angeles-based company partners with school districts in Orange County, Calif., New York City and Columbus, Ohio, to teach more than 400,000 students how to earn, save and spend money. ClassBank’s digital classroom platform is “helping students understand financial decisions before they face real-world challenges and ramifications,” said Michael Lapido of Ruthless for Good, the lead investor in ClassBank’s $1 million equity and grant round. The early stage venture firm invests in companies targeting education, the future of work and access to resources for underserved communities, with a focus on female founders and founders of color.

• Financial inclusion. ClassBank has launched a digital savings account feature, in which students have deposited $11.7 million. The company, whose founders are Transcend Network edtech fellows, also secured investment from the Transcend Fund, an early stage venture fund that invests in the future of learning and work. Other backers include Brass Ring Ventures and The Yass Prize.
  
• Check it out.

Dealflow overflow. Investment news crossing our desks:

• Paris-based Eiffel Investment Group raised €777 million ($864.7 million) for its second impact debt fund to invest in Europe’s growing businesses. (Eiffel Investment Group)

• London-based carbon accounting platform Zevero raised $7 million in a seed round led by Spiral Capital. (Tech.eu)

• Field Intelligence in Nigeria secured $11 million from the Bill & Melinda Gates Foundation to expand the delivery of pharmaceuticals and maternal medical supplies using its software and logistics service (see, “COVID pandemic gives Africa’s health tech startups a chance to shine“). (Empower Africa) 

• Boulder, Colo.-based Besolo raised $1.5 million to help self-employed workers access benefit plans, handle taxes and accounting, and manage other facets of their businesses. (Besolo)

Impact Voices: Family Offices

‘And I thought you were an impact investor.’ Investors who prioritize positive social and environmental goals and outcomes over profits tend to catch grief. Some investors criticize the impact-first method as weak and financially undisciplined. Frustrated founders insist their climate- or community-friendly products or services should compensate for lackluster financials. Neither assessment reflects an accurate understanding of what impact-first investors do, say Diane Isenberg and Greg Neichin, managing directors at Ceniarth, a single-family office that invests to benefit underserved communities globally. Ceniarth has “a rigorous, clear-eyed approach to financial analysis with a goal of preserving and recycling our capital,” they write in a guest post on ImpactAlpha. But: “We exist first and foremost to use our capital in pursuit of impact in vulnerable and marginalized places.” Their impact ethos: “We like to lean in and over the impact cliff, but only when we are sure that we are harnessed and roped in.”

• Catalytic capital. Impact-first investors aren’t grantmakers. Some founders are surprised “when we are not consenting fully to an investee’s request, or we are trying to be assertive about our rights as an LP or a lender,” Isenberg and Neichin write (see also, “Inconvenient truths from an impact-first investor”). Ceniarth recently exited its position in a financial intermediary focused on equipment leasing in East Africa that had been buffeted by the Covid pandemic. Ceniarth worked with other lenders to find alternative financing. The exit “was at times tense,” Isenberg and Neichen write, but the company is now on a successful trajectory. They call for a standardized and professional approach to financial forecasting, management and reporting as “a prerequisite for a positive relationship with investors and lenders.” 

• Dangerous message. Some startup founders have been receiving advice that investors are being “extractive” when they probe for more information or seek on-site diligence meetings, say Isenberg and Neichin. “There is a dangerous, yet thankfully niche, movement of activist asset owners, primarily in the coastal US impact sector, advocating that investors should pose fewer questions to an investee,” they write. That isn’t serving founders well, especially amid a competitive fundraising environment. “Coaching investees that impact investors who lower their diligence standards are signaling purity is a terrible precedent for the sector.” And asking an investee difficult diligence questions “is not evidence that we are predatory capitalists.”

• Keep reading, “‘I thought you were an impact investor,’” by Ceniarth’s Diane Isenberg and Greg Neichin on ImpactAlpha.

Agents of Impact: Follow the Talent

Climate Week NYC exclusive: Scaling climate impact and returns with a gender lens. Hear in person from investors who are spotting new market opportunities, accelerating impact and facilitating a just transition.  Join Heading for Change’s Sana Kapadia and Jackie Vanderbrug, UBS’s Andrew Lee and Amantia Muhedini, Courageous Capital Advisors’ Laurie Spengler, MCE Social Capital’s Camilla Nestor, and The 22 Fund’s Tracy Gray, in conversation with ImpactAlpha’s David Bank, in New York, Tuesday, Sept. 24 at 4pm ET. Space is limited. Register your interest.

The Pivot Fund welcomes Paola Nicole Marizan, previously with America Amplified, as communications manager… Raphaele Chappe, formerly research and development strategy economist and director at DeVol Network, returns to Predistribution Initiative as economic research director… Acumen America is recruiting an investment associate in San Francisco… Viridan Group seeks an investment banking senior analyst in New York. 

Also in New York, Maycomb Capital is looking for a Brooklyn-based investment analyst… Matrix Renewables has an opening for an investment associate in Miami… Community Investment Management is hiring an investment analyst in Bogota… New Majority Capital launched its fifth bETA accelerator cohort, its first in New York City, to partner with 36 entrepreneurs via its ownership through acquisition strategy… Echoing Green is accepting applications for its 2025 fellowship program until Tuesday, Oct. 8.

The US Small Business Administration approved Lafayette Square’s application for a specialized small business investment company, or SSBIC, license (read and listen, “​​Lafayette Square’s Damien Dwin: Investing in working-class people and places (podcast)”). SSBIC status is given to companies financing small businesses owned and operated by historically-underrepresented individuals.

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

Thank you for your impact!

– Sept. 18, 2024