The Brief | May 14, 2024

The Brief: Growing an investment ecosystem around coral reefs

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Greetings, Agents of Impact!

👋 The Call: A guide to investing in livelihoods and access for emerging market households. Consumers in emerging markets worldwide spend trillions on essential energy, housing, healthcare, education and financial products and services. Livelihood businesses provide economic security and growth. Providers of high-quality, low-cost and often tech-enabled goods are reaching hundreds of millions of underserved households and business owners. International Finance Corp., British International Investment and the Dutch development finance institution FMO have developed the Inclusive Business Investing Guide to help investors expand the capital invested in generating positive outcomes for lower-income people (see Impact Voices, below). On our next Agents of Impact Call, IFC’s Wagner Albuquerque de Almeida, BII’s Martina Castro, FMO’s Juan Dada, Elevar Equity’s Amie Patel and Citi Social Finance’s Borja Garcia Fernandez will offer practical guidance for investments that boost incomes, improve livelihoods and expand access, Wednesday, May 22 at 8am PT / 11am ET / 4pm London. RSVP today

In today’s Brief:

  • Investing in ocean resilience
  • Green bank “liberty notes”
  • Inclusive investing in emerging markets
  • Generating alpha with quality frontline jobs

Global Fund for Coral Reefs blends opportunity and urgency to finance ocean resilience (Q&A). Reefs are investable. As the value of the world’s disappearing coral reefs becomes abundantly clear, so too does the value of techniques and initiatives that show promise in regenerating the precious ecosystems. Can private equity deliver? “The blue economy is a huge market and there are investment opportunities,” says Dale Galvin, who manages the Global Fund for Coral Reefs for Connecticut-based Pegasus Capital Advisors. The fund is building a portfolio of 15 to 20 investments in wild-caught fisheries, aquaculture, hospitality and the “circular economy” to protect vulnerable coral reefs and coastal communities, particularly in the Global South. Galvin was an early investor in the ocean economy with the Meloy Fund, a sustainable fisheries fund he launched in 2017. “We need to change the trajectory of how companies and businesses and communities and governments interact with the oceans in a much more sustainable way,” Galvin says in an interview with ImpactAlpha.

  • Deal pipeline. The bleaching, death and collapse of fragile reef ecosystems is exceeding global worst-case scenarios. “We specifically target the most critical area where people and nature intersect — the territorial or coastal waters,” Galvin says. Coral reefs, mangroves and seagrass beds provide biodiversity and ecosystem benefits along with food security and jobs. The Global Fund for Coral Reefs has invested in Carbonwave, a processor of sargassum seaweed, and plastics upcycler Parley for the Oceans. Galvin is looking at “trillion-dollar sectors” like fishing, aquaculture, tourism, waste management and shipping. “These are large markets with thousands and thousands of companies in them and all of them have opportunities to do things better, or to be innovative in their own business models on behalf of sustainability.”
  • Catalytic capital. The fund has received over $250 million in grant and equity commitments toward its $750 million target. The reefs fund combines grant capital for programmatic and technical assistance with a blended-finance fund for institutional investors. The Green Climate Fund, the UN-backed climate adaptation and mitigation fund, is providing a first-loss tranche of up to $125 million to de-risk investments for private investors. Lukas Walton’s Builders Vision and Minderoo Foundation have committed to the commercial fund. Investors in the grant fund include: Monaco Foundation, Bloomberg Philanthropies, the Paul G. Allen Family Foundation and the governments of Germany, France, Canada, the UK and the US. 
  • Ocean-lens investing. The count of private equity and venture capital funds focused on the blue economy has grown from a decade ago, to at least 30 funds. “Institutions are now awakening to the fact that we need to overhaul the capital markets to stand a chance of averting the climate crisis,” says Chris Gorell Barnes of Ocean 14 Capital, which last week announced a €201 million ($217 million) raise for its inaugural fund. The European Investment Fund is a lead investor with €35 million, backed by a first-loss guarantee from the European Fund for Strategic Investments. Ocean 14’s portfolio includes Brazilian tilapia producer Tilabras Aquaculture and Singapore-based SyAqua, a supplier of shrimp to hatcheries and farmers.
  • Keep reading, “Global Fund for Coral Reefs blends opportunity and urgency to finance ocean resilience (Q&A),” by Roodgally Senatus on ImpactAlpha.

Dealflow: Muni Impact

Liberty Notes let retail investors invest in Connecticut’s green transition. The Connecticut Green Bank, the first green bank in the US, has enabled $2.4 billion in investments for the green transition since 2011. It’s now in the market with a one-year note that allows anyone with as little as $100 to invest to support, and make a return, on Connecticut’s green energy initiatives. The “Liberty Notes” will help the state’s small businesses secure no-interest loans to conduct energy audits and make lighting, heating and cooling, and other upgrades. The notes offer interest of 5.25%, or 5.5% for recurring investors. The Connecticut Green Bank’s notes will be open for investment on Raise Green through May 16. They’re being featured as part of ImpactAlpha’s collaboration with HIP Investor to highlight municipal bonds with environmental or social significance.

  • HIP rating. HIP gives the state of Connecticut a rating of 77 out of 100 for the net-positive impact of its green bonds and notes, and a 72 out of 100 for its climate resilience. Investments in initiatives like the green bank’s Liberty Notes support the growth of local businesses, writes HIP’s Liana Lan. The notes “not only help reduce the carbon footprint of the state, but also allow for improvements to income equality, employee pay and hiring, as well as other business improvements.”
  • Check it out

Dealflow overflow. Investment news crossing our desks:

  • The Canada Pension Plan Investment Board and Global Infrastructure Partners will acquire Allete, a Minnesota-based renewable energy services provider in a $6.2 billion deal. (CIO)
  • UK-based Dendra Systems clinched $15 million in Series B financing, backed by Zouk Capital and Aramco Ventures, for AI and drone-enabled land restoration projects. (TFN)
  • New Jersey-based lithium-ion battery recycler Princeton NuEnergy snagged $10.3 million in equity funding from Tech Council Ventures, SCG Group and other backers. (Princeton NuEnergy)
  • MIT spinout Active Surfaces raised $5.6 million in pre-seed investment to design lightweight, flexible solar panels for integration into “virtually any surface.” (Active Surfaces)

Impact Voices: Growth Markets

A guide to investing in better livelihoods and expanded access for low-income people. Low-income, emerging market households collectively spend trillions of dollars per year on essential goods and services. What they spend on is often a function of what’s available, rather than what best serves them. The International Finance Corp., British International Investment and FMO have developed the Inclusive Business Investing Guide to help investors identify and allocate capital to businesses generating positive outcomes for underserved households. “Inclusive business investing offers a way to improve livelihoods for low-income people and expand access to essential, affordable goods and services on a scalable, commercially-viable basis,” the authors write in a guest post on ImpactAlpha. 

  • Practical resources. Among the due-diligence questions investors should ask: Does the business have a detailed understanding of customers’ spending habits, their willingness to pay, and their preferences? To what extent can the investor’s type of capital influence an investee to expand its inclusion of low-income stakeholders? To determine customers’ income levels when data isn’t available, the guide suggests proxies including land ownership, livelihoods, and access to services like banking, water, power and formal education. Capacity-building and technical assistance funding can drive product or service uptake and deepen their impact. The guide “aims to coalesce investors around a common approach to investing in inclusive businesses,” the authors say.
  • Keep reading,A guide to investing in better livelihoods and expanded access for low-income people,” and join the IFC, British International Investment and FMO to discuss takeaways and strategies from the Inclusive Business Investing Guide,” Wednesday, May 22. Sign up.

Signals: Good Jobs

The next frontier of private equity value creation: Better jobs for frontline workers. Truck drivers. Care givers. Sales teams. Workers on the frontlines of business interactions are key drivers of value and profitability. Improving the quality of their jobs can reduce turnover, boost engagement, and decrease burnout. By delivering better jobs down the organizational chart, some private equity firms are unlocking superior returns, says Ellen Frank-Miller of the Workforce and Organizational Research Center, or WORC. In Thinking beyond the C-suite pays off,” the center examines the role of human capital management in value creation at private equity firms with more than $5 billion in assets. Too often firms don’t have the time, money or energy to focus on quality jobs for frontline workers, Frank-Miller says. Instead, they focus on CEO recruitment and perhaps hold leadership accountable for workers’ satisfaction. “There’s so much untapped value being left on the table,” Frank-Miller tells ImpactAlpha.

  • Driving value. From employee ownership to quality jobs, human capital management is reshaping private equity. Alongside pay and benefits, practices that drive value include job autonomy, professional growth opportunities, and perceived support from the organization, supervisors and co-workers. Smaller impact managers with an intentional quality-jobs focus like HCAP Partners (a WORC client) and FoW Partners (formerly Two Sigma Impact) are poised to capture that value, says Frank-Miller.
  • Finding alpha. Larger fund managers like TPG and BlackRock are upping their game. Follow the money, says Ladell Robbins of BlackRock Impact Opportunities Fund. “In many businesses, that frontline interaction is what drives profitability and drives the success of the investment,” Robbins told WORC. For businesses heavily reliant on frontline workers, he added, “You really want to understand how those individuals are rewarded and compensated.”
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Agents of Impact: Follow the Talent

🔌 On tomorrow’s Plugged In: Better, cheaper and faster climate impact. Climate volatility is here. Stonly Blue of Third Sphere looks for investments that foster climate resilience alongside the deployment of hardware-based climate solutions. Blue joins Plugged In host Sherrell Dorsey to share where he is finding deals and opportunities for climate impact, live on LinkedIn, tomorrow, May 15, at 10am PT / 1pm ET / 6pm London. RSVP.

Two Sigma Impact is now FoW Partners (for Future of Work)… Melinda French Gates will step down from the Bill and Melinda Gates Foundation; the health-focused charitable organization will be chaired solely by Bill Gates and will be renamed the Gates Foundation…  George Ashton, previously with LISC Strategic Investments, will join Candide Group as CEO… Abhay Pande, previously with Citigroup, joins Pollination Group as a senior advisor. 

IMPACT Community Capital appoints Luke Rottmann, formerly with White Oak Partners, as managing director of investor relations and capital markets… Octopus Investments names Alex Godfrey, ex- of Savills, to lead its new natural capital strategy… Franklin Mora is leaving Open Road Alliance for a new opportunity…. Candide Group is hiring a director of operations… mHUB seeks an entrepreneur success associate in Chicago… Project Equity is recruiting a project manager and a head of finance and administration. 

Finance in Motion is on the hunt for a fund manager in Germany… Tideline is hiring a remote impact consultancy manager… Chan Zuckerberg Initiative is accepting applications for its Innovative Housing Finance initiative to support mission-driven lenders addressing the state’s housing gap. The deadline is Thursday, May 16… Calvert Impact is looking for input for its biennial investor survey through the end of May.

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

Thank you for your impact!

– May 14, 2024