Greetings, Agents of Impact!
Featured: Financial Inclusion
Why ’embedded finance’ is emerging as the future of global financial inclusion. Borrowers and beneficiaries financed by the World Bank are buckling under the weight of expensive debt, fragile post-Covid economies, inflation and climate change. The bank’s spring meeting in Washington, D.C. last week came at an inflection point for the institution, which is undergoing a leadership change, and for the markets it serves. “People are sober. The tone is serious,” Shamina Singh of the Mastercard Center for Inclusive Growth told ImpactAlpha in a wide-ranging interview. Singh was in Washington for the Center’s own summit – a “global inclusive growth” convening in partnership with the Aspen Institute meant as a solutions-focused complement to the high-level discussions at the World Bank’s meeting. “It’s going to take all of us using the assets that we control and making sure we’re operating as a collective and pulling the right levers,” she said.
One of those levers is philanthropic capital to derisk new models for financial inclusion and resilience. Under Singh’s leadership, Mastercard’s philanthropic arm has disbursed more than $350 million. A $15 million grant to Accion in 2019 has enabled access to financial products and services for 13 million people and 5.5 million small businesses in emerging markets. A second joint initiative is focused on “embedded finance” from providers of logistics, farm management and other services. Singh and Accion’s Michael Schlein spoke with ImpactAlpha on the sidelines of the Washington convenings about the next phase of their partnership, opportunities and risks in emerging financial technologies, and their hopes for the World Bank under new leadership.
- Mispriced risk. The Brookings Institution hosted a separate side event about the impact of credit ratings on the cost of development finance in Africa. “Consistently unfavorable credit ratings and negative outlooks impede growth and really undermine the economic stability that we have,” said Ken Ofori-Atta, Ghana’s minister of finance and economic planning. Oulimata Sarr, Senegal’s minister of economy, planning and cooperation made similarly heated comments. “We are told that reforms take time, that getting funding takes time. And we see that Credit Suisse was rescued over the weekend,” Sarr said. “It seems sometimes fast-tracking can happen, and that gives a sense of unfairness.”
- Keep reading, “Why ’embedded finance’ is emerging as the future of global financial inclusion,” by Jessica Pothering on ImpactAlpha.
Dealflow: Climate Finance
Marketplaces for federal tax credits unlock capital for green projects. San Francisco-based Evergrow raised $7 million to build out its platform for buying and selling tax credits for climate projects. The startup is among the handful of companies capitalizing on an unsung provision of the US Inflation Reduction Act that for the first time allows developers to sell their tax credits. The Act showered incentives on developers of community solar, wind power, battery storage, electric-vehicle charging and other green infrastructure. To ensure the tax credits are widely used, it allowed for the “transferability” of credits. The move was welcomed by smaller developers, nonprofits and local governments that don’t have taxable income to offset (previously, such entities monetized their credits through complex “tax equity” arrangements with investors).
- Pipeline. Evergrow’s Series A financing was led by First Round Capital, XYZ Venture Capital and Congruent Ventures, and follows a $7 million seed round in late 2021. The company vets and curates projects for family offices, corporations and other potential buyers. It has a pipeline of $150 million in clean energy projects that are expected to come online this year (tax credits are generated once a project is completed). “We are already seeing the IRA unlock appetite among new investors, which is what it was designed to do,” Evergrow’s James Richards told ImpactAlpha.
- Making a market. The transferability clause could spawn a new market for tax credits and eventually enable investors to lend against the credits, said Rob Day of Spring Lane Capital. Crux Climate launched last week with $4.6 million from Lowercarbon Capital and other investors to enable credit trading. New York-based Basis Climate raised an undisclosed amount earlier this year. Reunion Infrastructure, another startup developing a marketplace for tax credits, is backed by Segue Sustainable Infrastructure.
- Much more.
S&P Global leads BlueMark’s $10 million raise for impact verification and benchmarks. Concern about accusations of “impact washing” is driving demand for third-party assessments of impact practices and reporting. New York-based BlueMark raised $10 million to expand its verification business. Three Singapore-based investors that are encouraging the firm to expand its activities in Asia also backed the round. “We want all investments to be accountable for impact and for BlueMark to be the mark of impact, integrity and quality,” BlueMark’s Christina Leijonhufvud told ImpactAlpha. BlueMark has shared its research on impact management practices, benchmarks, and impact reporting, including in sponsored posts on ImpactAlpha. S&P Global’s venture unit led the Series A round. Temasek Trust Capital, the Singapore sovereign wealth fund’s philanthropic arm, and Blue Haven Initiative, Gunung Capital and Tsao Family Office, also participated, as did the Ford Foundation and Radicle Impact, which invested in BlueMark’s $2.25 million seed round last year.
- Operating principles. Since 2020, BlueMark has completed 125 verifications for investors with more than $200 billion in combined assets under management. Much of its practice has centered around the Operating Principles for Impact Management (see, “‘Operating principles’ help investors hold asset managers accountable for impact”). Increasingly, the firm is also assessing investment firms against Europe’s Sustainable Finance Disclosure Regulation, or SFDR, and other frameworks. BlueMark also verifies firms’ impact reporting as well as the criteria for sustainability-linked loans and bonds.
- Cover your ass. “We do have clients who are committed to learning and improving. The fact that we approach the service in a way that provides insights as to how they can improve and fill gaps is appealing to them,” Leijonhufvud said. “Probably the majority of clients are first and foremost motivated by fear of being accused of impact-washing,” she added. “I do think, certainly, that CYA is a motivator.”
- Keep reading.
Dealflow overflow. Other investment news crossing our desks:
- EVEN secured $2.2 million to help Black and Brown music artists retain equity in their creative work by selling their music directly to fans. (TechCrunch)
- Impact investment manager Aavishkaar Capital invested in INI Farms, an India-based exporter of fruit and vegetables that is working to digitize and upgrade the products and services it offers to farmers. (Abhishek Mittal)
- ChargeLab snagged $30 million in Series A financing for its EV-charging management software. (ChargeLab)
- Respondology raised $11 million from SJF Ventures and others for its online content-moderation service to identify and remove “hate, abuse and spam” on social media. (Respondology)
Impact Voices: Policy Corner
Public investment alone cannot achieve the goals of U.S. industrial policy. A new vision of the public sector’s role in building an equitable and sustainable economy is emerging. Recent legislation, including the IRA, CHIPS and the Infrastructure Investment and Jobs Act, signal a step-change in US industrial policy. But public money alone can’t achieve the policy goals without strategy, institutional capacity and accountability mechanisms, Aaron Cantrell of Future Nexus, David Wood of the Harvard Kennedy School, and Melanie Brusseler of climate think-tank E3G write in a guest post on ImpactAlpha.
- Beyond capital. The Inflation Reduction Act is the largest climate investment in history. But, “while the IRA provides significant funding for programs, it offers less to support the building of institutions needed to deliver those funds effectively,” the authors write. They advocate for standards and accountability mechanisms to ensure equitable, inclusive and democratic governance of the funds. Longer term, they argue, strong, well-governed institutions will be needed to develop the expertise and stakeholder trust that can come from holistic, equitable and effective development strategies.
- Keep reading, “Public investment alone cannot achieve the goals of U.S. industrial policy,” by Aaron Cantrell, David Wood, Melanie Brusseler. Catch up on all of ImpactAlpha’s policy coverage at Policy Corner, sponsored by the US Impact Investing Alliance.
Agents of Impact: Follow the Talent
Don’t miss these upcoming ImpactAlpha partner events:
- April 24-26: Neighborhood Economics in Jackson, Miss. (use code nejxnNetwork50% to save 50%)
- April 24-26: Big Path Capital’s MO Summit in Austin
- May 1-2: ImpactPHL’s Total Impact summit in Philadelphia (use the code IMPACTALPHA for $500 off)
- May 1-5: The AVCA’s annual conference in Cairo.
Village Savings and Agriculture Insurance from Gulu University in Uganda wins the 2023 Kellogg-Morgan Stanley Sustainable Investing Challenge (for context, see “MBA and other students rise to the sustainable investing challenge”)… Ravtegh Aurora, ex of World Bank, joins Impact Capital Managers as an analyst.
Common Future seeks a remote vice president of finance… Down Ballot Climate Partners is hiring a data products manager and a strategic partnerships manager… CNBC is hosting a conversation on sustainable investing, Wednesday, April 19.
USAID, the US Department of State and the Office of the U.S. Special Presidential Envoy for Climate are launching the Blended Finance for the Energy Transition program to mobilize $1 billion or more of capital to accelerate emerging markets’ energy transition efforts. Join the virtual bidders conference Thursday, April. 20 to learn more.
Thank you for your impact.
– April 18, 2023
