Greetings Agents of Impact! In today’s Brief:
- GE’s Scope 3 disclosure dance
- Alt-capital in the circular economy
- Decarbonizing small businesses
- Financial inclusion in climate investing
Featured: The Transition
Energy spinoff GE Vernova may have a bigger carbon footprint than GE claims. GE moved to spin off of its energy business in 2021. Oil prices had crashed and wind and solar were on the rise. Investors were clamoring for conglomerates to free their greenest units to attract the rich valuations of what ImpactAlpha dubbed “ReNewCos,” a play on the finance-speak placeholder for the “new co” in a corporate restructuring (see, “Accelerating net-zero transition pushes incumbents to spin off green ReNewCos”). Three years later, US oil and gas production is at an all-time high. Russia’s invasion of Ukraine unleashed an expansion of natural gas (the U.S. is the second-largest exporter, after Saudi Arabia). Last month’s global climate summit in Dubai gave tacit approval to gas as a “transitional” fuel. Corporations are making the most of the reprieve: ExxonMobil this week sued to block a climate proposal at its May investor meeting.
GE Vernova combines GE’s coal and gas turbine business with its wind, solar and grid businesses. The name means “new verdant earth,” and GE says it aims to drive “electrification and decarbonization.” The unit’s 7,000 gas-powered turbines also power nearly half of all gas-powered electricity around the world. As GE seeks to rally investors ahead of Vernova’s NYSE debut later this year, including via its quarterly earnings call today, Australian shareholder activist group Market Forces alleges the conglomerate has understated “Scope 3” emissions data from its power division. According to Market Forces, GE’s emissions reporting also misled investors on its progress to meet ambitious net zero emissions reduction targets by 2050, writes Climate and Capital’s Peter McKillop, who first reported on the complaint filed with the Securities and Exchange Commission. The complaint warns investors that GE’s Scope 3 disclosures give “the appearance that GE emits less carbon, and therefore is better managing its climate risk and is more appealing to green investors.”
- Classical gas. The discrepancy turns on GE’s calculation of its share of downstream emissions – that is, the CO2 generated by the coal and gas plants that deploy its turbines. “It appears they are deliberately downplaying their greenhouse gas emissions profile by using creative climate accounting practices in its methodology,” Market Forces’ Binbin Mariana told McKillop. Market Forces charges that GE is undercounting by as much as 300% the “Scope 3” emissions generated by the use of its gas turbines (a GE spokesperson dismissed the complaint as “without merit”). Also of note: GE’s net-zero pledges assume renewables will displace gas; its recent annual report expects to grow its natural gas business by “low-single digits” over the next decade. Siemens, which has a gas turbine business roughly the size of Vernova’s, reports four times the Scope 3 emissions.
- Scope 3. Scope 3 reporting has become the target of major lobbying campaigns. In California, lawmakers last year passed a landmark climate disclosure law requiring corporations with revenues over $1 billion to begin disclosing greenhouse gas emissions by 2026 and Scope 3 emissions the following year. Gov. Gavin Newsom, who had earlier said he might delay the rules, has indeed frozen the budget of the agency that is implementing them. The Scope 3 provisions in the SEC’s own proposed climate disclosure rules also appear to be in jeopardy. In the European Union, large companies are required to report this year’s Scope 3 emissions next year.
- Keep reading, “Energy spinoff GE Vernova may have a bigger carbon footprint than GE claims,” by Peter McKillop on ImpactAlpha.
Dealflow: Ownership Economy
Alt-capital and alt-ownership models for circular hygiene startup Vyld. The products of German biotech startup Vyld are distinctive: seaweed tampons and compostable algae diapers. Also setting founders Ines Schiller and Melanie Schichan apart is their commitment to retaining ownership and mission as they grow. Vyld uses a steward ownership model to align profits with its purpose. It raised early funding through a profit-sharing agreement rather than standard equity.
- Impact incentives. Schiller and Schichan launched Vyld in 2021 as a traditional German limited liability company. In its first round of investor funding, terms included a commitment to convert to steward ownership. Purpose Foundation, an organization that supports steward-ownership adoption, holds 1% of the company’s shares to ensure mission alignment. “The central question for us was how we wanted to approach ownership, power and financing,” said Schiller. “It just doesn’t make sense to produce a great, sustainable product, but then have an exploitative company structure and culture.”
- Long-termism. Vyld’s new round of funding includes a structured exit, paying investors a fixed rate of return through the company’s eventual profits. The founders need equity-like financing for intensive R&D and product testing. Schiller and Schichan designed the terms to counter “old narratives” and “legacy logic” around business growth and profitability. “We have a chance to realize a regenerative economy,” said Schiller, “with fair returns for all stakeholders involved.”
- Share this post. And search more than 60 Ownership Economy funds in ImpactAlpha’s new database.
Budderfly clinches up to $400 million in debt to help American businesses improve energy efficiency. Connecticut-based Budderfly is an “energy as a service” company that works with small and mid-sized businesses to upgrade their energy systems to reduce costs and environmental footprints. The company helps restaurant chains, retail franchises and assisted living facilities finance better HVAC systems, solar panels, smart thermostats and lighting, and other energy-saving technologies. “Successfully decarbonizing our economy will require efforts from organizations of all sizes,” said Budderfly’s Al Subbloie. “The mid-market often lacks the resources needed to get the job done.” Vantage Infrastructure and Nuveen are providing Budderfly with $200 million in debt and an option to draw an additional $200 million. Check it out.
Dealflow overflow. Investment news crossing our desks:
- Canada’s ArcTern Ventures raised $335 million for its third climate tech fund. The firm joined Shell Ventures, Fifth Wall and Dutch pension fund manager ABP in backing Netherlands-based Soly, a solar and battery leasing company for households and small businesses.
- FinAgg, which provides cash flow financing for India’s small and medium-sized businesses, secured $11 million in Series A equity funding from Tata Capital and Blue Orchard. (The Economic Times)
- Germany’s Vidia Equity raised €415 million ($452 million) for its first fund, which invests in decarbonization technologies for the industrial sectors. (FinSMEs)
- Denmark-based Kost Capital raised €25 million ($27.2 million) for a fund to help sustainable food innovations get from lab to market. (Arctic Startup)
Impact Voices: Climate Finance
The pivotal role of financial inclusion in climate adaptation and resilience. The agreement at COP 28 to operationalize the “loss and damage” fund highlighted on the global stage the dire need for financing for climate adaptation and resilience. The vast majority of climate finance goes to mitigate carbon emissions. In a guest post on ImpactAlpha, Paul Buysens and Kapil Kanungo of Incofin Investment Management say financial institutions can bridge the gap between mitigation and adaptation by prioritizing financial inclusion in their climate investments. “Global discourse on climate finance for adaptation and resilience is gaining momentum,” they write. “Climate justice must become the focal point of the broader climate finance narrative, given the interconnectedness of environmental sustainability and social equity.” Financial institutions can help facilitate “the development of tailor-made financial products that support communities in developing their own resilience strategies.”
- Equitable distribution. In addition to financial assistance, the clients need non-financial support to navigate the complexities of climate-related financial products and risk assessment. Buysens and Kanungo call for financiers to commit to a climate strategy, invest in risk- and needs-assessment tools, and tailor solutions to the needs of investees. They call for a reevaluation of climate finance itself to ensure “a more equitable distribution of resources, with a stronger emphasis on grassroots resilience-building.”
- Keep reading, “The pivotal role of financial inclusion in climate adaptation and resilience,” by Incofin’s Paul Buysens and Kapil Kanungo on ImpactAlpha.
Agents of Impact: Follow the Talent
Impact Ag Partners names Hugh Killen, former chairman of Climate Asset Management,CEO and Australia managing director… ImpactAssets Capital Partners promotes Sandra Osborne Kartt to deputy chief investment officer and Nick Peters to managing director of investments… DAI Capital adds Casey Verbeck, a former partner and managing director at Veris Wealth Partners, as impact investment managing director… Diane Damskey, the former head of secretariat of the Impact Principles at the GIIN, launches DC Damskey Global Consulting, an impact and sustainability advisory practice.
Invest in Our Future is hiring for several roles… Energy Impact Partners seeks a senior associate in New York… also in New York, Capricorn Investment Group has an opening for an investment analyst… Opportunity Finance Network is looking for a senior associate for climate and environmental programs in Washington DC… In San Francisco, Decarbonization Partners is on the hunt for an associate and Community Investment Management is looking for an impact director.
New Markets Fund seeks an investment analyst in Toronto, Vancouver or Montreal… RBC is recruiting a Toronto-based student summer intern to focus on corporate citizenship, social impact and innovation… Also in Toronto, the Investment Management Corporation of Ontario is hiring a renewable power investments’ associate portfolio manager… Root Capital has several new openings… SoLa Impact is on the hunt for a vice president and general manager in Los Angeles.
Thank you for your impact!
– Jan. 23, 2024
Get ImpactAlpha for Teams. Save with substantial group discounts. Start here.
Partner with us, including by sponsoring this newsletter. Get in touch.