The Brief: Green accountability, zero-gap financing, microfinance in Rwanda, fossil-fuel writedowns, effective corporate engagement

The team at

ImpactAlpha

Greetings, Agents of Impact! 

👋 Next week’s Call: The employee-ownership edge. A growing set of fund managers are stepping up to finance companies’ conversions to employee ownership. Join Apis & Heritage’s Todd Leverette, Mosaic Capital Partners’ Ian Mohler, Common Trust’s Zoe Schlag, Ownership Works’ Anna-Lisa Miller and other Agents of Impact, Wednesday, Sept. 27, at 10am PT / 1pm ET / 6pm London. RSVP today.  

Featured: Climate Finance

The $100 billion opportunity in climate finance accountability. Developed nations have pledged (but not delivered) $100 billion annually to help low and middle-income countries adapt to climate change and mitigate future impacts. That same amount could be saved with better climate finance measurement and management, while cutting greenhouse gas emissions by at least three gigatons each year. “One dollar spent on green accountability could unlock up to $12 that is currently wasted, and ensure capital is deployed efficiently and equitably,” according to Better accountability, better finance,” a new report from UK-based Systemiq. The authors offer up five guidelines for green accountability: clarity about the source, structure and conditions of capital; simplicity in accessing it; end-user decision-making on financing design and deployment; and responsiveness to changing needs. Finally, capital should accelerate the development of the local real economy.

  • Inefficient finance. As much as 75% of committed climate financing from governments and development finance institutions miss their stated deployment deadlines. Even where capital is flowing, “there has been a greater focus on quantity than on quality,” the authors write. Catalytic capital meant to crowd in commercial investors often goes to deals where private capital is already available. One in six adaptation projects actually risk worsening vulnerabilities to climate change. Up to 30% of sustainability-linked bonds are not on track to meet their targets.
  • Local control. Capacity-building support allowed Project STOP to ramp up waste collection and recycling in Indonesia. “Green accountability places those most affected by climate change at the heart of decision-making, giving them agency in the design, deployment and evaluation of climate finance outcomes,” the authors write. Guarantee provider GuarantCo provided data on green bonds in Vietnam that showed how guarantees pulled in private financing and enabled GuarantCo to reduce its coverage rates over time.
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Dealflow: Catalytic Capital

Zero Gap Fund backs regenerative agriculture investor Trailhead Capital. The Rockefeller and MacArthur foundations four years ago partnered on the $30 million Zero Gap Fund to catalyze private capital for the Sustainable Development Goals. The fund’s final commitment helped Boulder, Colo.-based Trailhead Capital close a $50 million fund to invest in tech companies supporting the transition to regenerative agriculture. Zero Gap invested alongside the Argosy Foundation, Cisco Foundation and impact funds of funds Wire Group and WovenEarth Ventures.

  • Model portfolio. Among its dozen investments, Zero Gap anchored Apis & Heritage’s first employee-ownership and job preservation fund. The fund helped blend finance to protect investors in LeapFrog Investments’ third emerging consumers fund, which scored $500 million from Singapore’s Temasek. It provided first-loss capital for IIX’s second women’s livelihood bond. It also invested this year in Blue Forest Conservations first forest-resilience bond, which provides loans to forest and biodiversity restoration projects.
  • Climate strategy. As part of Rockefeller Foundation’s $1 billion climate strategy, the foundation will direct 75% of its giving to fighting climate change, including renewable energy in emerging markets and sustainable food systems (see, “Q&A with Rockefeller’s Thomas Belazis”). “We have a food system that accounts for more than 30% of greenhouse gas emissions, yet we have billions of people sliding into hunger,” Rockefeller Foundation’s Liz Yee told ImpactAlpha. “We’ve got to create incentive structures for markets and government policy to be built so that capital crowds in.”
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Incofin sells its stake in Unguka Bank in Rwanda. The Belgian impact investor sold its 28% equity stake in Rwanda’s Unguka Bank to Sri Lanka’s LOLC Holdings. LOLC’s Ishara Nanayakkara touted Africa’s economic and population growth as the firm’s reason for buying in. Incofin invested $1.2 million in Unguka a decade ago through its $173 million second Rural Impulse Fund. Unguka serves roughly 1,700 clients in Rwanda. British International Investment, which acquired a 20% stake in Unguka in 2015, remains an investor.

  • Africa opportunity. LOLC invests in micro and small enterprises in Asia and Africa in sectors including agriculture, construction and financial services. LOLC owns a majority stake in Nigeria’s Fina Trust Microfinance Bank. Last year, LOLC’s Africa group landed $9 million from Verdant Capital to boost financing for micro- and small enterprises.
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Dealflow overflow. Other deals crossing our desks:

  • Fresh off its $1 billion raise, Nevada-based battery recycler Redwood Materials acquired Redux Recycling, a European lithium-ion battery recycling peer. (Redwood Materials)
  • Agrifood tech investor Astanor Ventures closed its second fund to focus on sustainability technologies, at €360 million ($385 million). (Astanor)
  • CrossBoundary scored $10 million from the African Development Bank’s Sustainable Energy Fund for its blended finance facility for solar mini-grids in rural Africa. (CrossBoundary)
  • Lupiya snagged $8.2 million in Series A funding, led by Alitheia IDF, to bring financial services to Zambia’s underbanked. (Disrupt Africa)
  • US-based GreenMax Capital and UAE-based Tradable are partnering to add 75,000 electric vehicles to African roadways by 2025, starting with a $5 million pilot project in Nairobi. (Afrik21)

Signals: Climate Week NYC

Write it down. Oil may be nearing $100 a barrel again, but long-term prospects for fossil fuels are less rosy. Coal is well past its peak. Electric vehicles have reached a tipping point that could crater demand for oil (for example, see, “With laws and lawsuits, California takes on Big Oil”). Natural-gas use is still rising, but solar power and biogas, along with heat pumps and induction stoves – and regulation of methane emissions – could bend the curve. “The fossil fuel system is ending,” Carbon Tracker’s Mark Campanale said at Climate Finance Day, a Climate Week NYC event. 

Accountants have not caught up. The value of fixed assets – such as refineries, mines, pipelines and supertankers – will eventually need to be written off or depreciated, said Campanale, who a decade ago applied the concept of “stranded assets” to fossil fuel reserves and infrastructure (see, “Mark Campanale, Agent of Impact”). The notion of a managed wind-down of fossil fuels may sound like a relic of 2020, when pandemic shutdowns briefly pushed oil prices below $0. Nigel Topping, the UK’s High-Level Climate Action Champion, expects credit rating agencies to start downgrading oil and gas-related companies early next year.

  • Effective stewardship. Also at Climate Finance Day, Nick Spooner of the Australasian Centre for Corporate Responsibility laid out a focused strategy for corporate engagement. ACCR focuses on 14 of the most carbon-intensive listed companies in Australia, which are also some of the world’s biggest emitters. The organization tracks their lobbying and models future emissions. “You don’t really need to cover that many companies to drive systemic change and impact a large portion of your portfolio missions,” he said. Beneficiaries and constituents are demanding stronger stewardship from state pension plans, said Mary Cerulli of the nonprofit Climate Finance Action, which works with pension funds and union workers. Rather than focusing on thousands of votes, “they’re saying, ‘It’s time to focus on a sector. It’s time to focus where our risk is.’” In addition to ACCR and Carbon Tracker, Climate Finance Day was hosted by As You Sow and the Institute for Energy Economics and Financial Analysis.
  • Mobilizing climate finance for island nations. Across town at the revamped Clinton Global Initiative, Bahamas’ Prime Minister Philip Davis announced a blended-finance facility, designed with help from Resilience Capital Ventures, to mobilize $500 million for climate-resilient infrastructure, coastal conservation and a clean-energy transition for the small island nation. The Bahamas and Open Society Foundations committed $6 million of the $15 million needed to launch the initiative. 

Agents of Impact: Follow the Talent

🎙️ Upstart Co-Lab and ImpactAlpha are co-hosting, “Investing in an inclusive creative economy,” with Upstart’s Laura Callanan and Ward Wolff, and ImpactAssets Deb Parson, in conversation with ImpactAlpha’s Dennis Price, Thursday, Oct. 5. RSVP.

Drawdown Fund, managed by Tiger Grass Capital, hires Lisa Schule as managing director… Ford Foundation is recruiting a mission investments technology fellow in New York… Also in New York, Pursuit is hiring an impact investment associate… Morgan Stanley seeks a sustainable real assets senior associate or vice president… Zubi Group is looking for a head of impact investor relations in Madrid… The University of Michigan’s William Davidson Institute will host a conversation on how Toyota’s “lean manufacturing” practice can be applied to businesses in emerging markets to reduce waste. 

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

Thank you for your impact!

– Sept. 20, 2023