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In today’s Brief:
- Hacking finance for regenerative returns
- Sustainable aviation fuel in Pakistan
- Diversified solar portfolios in Africa
Featured: Regenerative Finance
How to hack the finance system for regenerative returns. A “regenerative” economy transcends the transactional. It centers relationships, creates shared value, and uses money as a tool to regenerate communities and natural environments. Such an economy “is not just a utopian fantasy,” writes Jasper van Brakel of RSF Social Finance. “I know that, because a growing number of us are making it real.” In a Q&A for ImpactAlpha, van Brakel interviews Betty Francisco of Boston Impact Initiative and Mark Lewis of Trailhead Capital, who are each building investment models for delivering regenerative results. On the agenda: lessons learned and hacks that work. “There is no single pathway,” writes van Brakel. “We’re eating away at the edges of the existing model and looking at ways to model new things.”
- Boston impact-first. BII’s model includes place-based investing, integrated capital, and using investment to drive racial and economic justice (for background see, “How some communities and funders are practicing ‘participatory investing’ to share power as well as capital”). The interest rate on the firm’s loans are between 5% and 7%, below current conventional bank loans. It caps returns on its equity capital at 1.5x to 3x, depending on the level of impact. One hack: BII often builds impact covenants into transactions so investors and entrepreneurs are working toward the same goals. With an investment in Roundhead Brewing, a Latino-owned brewery and restaurant in Boston’s Hyde Park neighborhood, BII helped the company replace a tipped-wage structure with a 20% fee on all guest checks, enabling Roundhead to pay living wages and close the gap between the front- and back-of-house staff. Says Francisco, “Conventional finance has left a lot of people without access to capital, and we are trying to challenge and break that cycle.”
- Trailhead’s venture capital. Denver-based Trailhead uses a more traditional venture capital model to drive beneficial outcomes in climate, biodiversity, water, human health and rural livelihoods through investments in regenerative food and agriculture companies. Its hack: “When it makes an investment, the firm underwrites not only the financial capabilities, but also the regenerative impact case. An investment in Local Line, which helps Chipotle regionalize its supply chain, saved over 800 million food-miles in 2023. “In my view, scale is impact and impact is scale,” says Lewis. Alongside government action and nonprofit efforts, he says, “We need market-based scalable solutions.”
- Changing systems. Since BII began, managers have launched hundreds of impact-first funds designed to meet the capital needs of particular places, says Francisco. “The more disruptors proliferate, the more some models become mainstream.” Change happens at the edges, adds Lewis. “When I’m in a room full of hardcore post-capitalist, regenerative finance people, they think I’m the big bad extractive finance guy. And when I’m in a room full of extractive finance guys, I’m the biggest tree hugger they’ve ever seen,” he says. “Maybe that’s exactly where I want to be.”
- Keep reading, “How to hack the finance system for regenerative returns,” by RSF Social Finance’s Jasper van Brakel on ImpactAlpha.
Dealflow: Low-Carbon Transition
Sustainable aviation fuel project in Pakistan snags $86 million. Safco Ventures, a Pakistan-based biofuel producer, secured financing from a group of development finance institutions to build a biowaste-to-fuel plant for the aviation sector that would be among the largest in the world. The $20 million senior secured loan is the first investment in Asia for the Emerging Africa and Asia Infrastructure Fund, or EAAIF. The firm was set up by the Private Infrastructure Development Group in 2002 to provide long-term commercial debt to infrastructure projects in Asia. In October, it expanded its regional mandate and added “Asia” to its name. The Asian Development Bank provided a $41.2 million senior secured loan, the first project financed under its Innovative Finance Facility for Climate in Asia and the Pacific, or IF-CAP. The aviation industry, which contributes 2.5% of global carbon emissions, is banking on sustainable fuel produced from organic waste and municipal refuse to cut emissions by 70% by 2025.
- Sustainable fuel. The project, located outside of Lahore, will convert used cooking oil into clean fuel. The facility is projected to generate 145,000 tons of aviation fuel annually, create 300 direct jobs and 20,000 indirect jobs. Safco has a long-term offtake agreement with Shell Eastern Trading, a Shell Group fuel supplier. The project could cut more than 500,000 tons of carbon dioxide annually. “The investment marks a pivotal step in Pakistan’s development, introducing a cutting-edge technology to the nation,” said Safco’s Ali Shaikh. Amsterdam-based ILX Fund, a private debt provider for sustainable projects in emerging markets, also provided $20 million in senior debt. International Finance Corp. came in with a $5 million syndicated loan and $30 million in equity, marking its first investment in sustainable aviation fuel.
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Dealflow overflow. Investment news crossing our desks:
- Seedstars Africa Ventures secured $42 million from the African Development Bank, EIB Global and other backers to invest in tech startups supporting education, healthcare, utilities and other basic needs in Africa. (Seedstars)
- Atlanta-based Sola Insurance snagged $3.7 million in a seed round led by Fintop Capital to provide “reliable and affordable” natural disaster insurance coverage for American homeowners and businesses. (Sola Insurance)
- Backcast Partners made a strategic investment in World Water Works, an Oklahoma City-based company that provides water and wastewater treatment solutions for industrial and municipal clients. (Backcast Partners)
Signals: Africa’s Energy Transition
Commercial lenders wake up to Africa’s fastest-growing solar sector. The good news: Africa is attracting a record amount of capital for clean energy development. The bad: Funding for fossil fuel projects on the continent is nearly double the funding for clean energy. To pull more commercial investors into the solar sector, Nairobi-based CrossBoundary Energy is creating a portfolio of on-site commercial and industrial solar projects to allow banks, corporate backers and investment funds to diversify their risk. “We’ve always seen this as a portfolio-level financing opportunity,” CrossBoundary Energy’s Pieter Joubert tells ImpactAlpha, in contrast to utility-scale deployments that are often financed one project at a time. The firm last week secured $140 million in senior debt from South Africa’s Standard Bank – part of a $300 million package – to support CrossBoundary Energy’s commercial and industrial portfolio. Such C&I projects are larger and less risky than small-scale home solar, but far smaller than utility-scale developments. “Giving a funder the ability to lend against a diversified portfolio,” says Joubert, “is a really helpful structure for the lender to consider.”
- C&I surge. CrossBoundary Energy launched its first energy-focused fund in 2015, leveraging a $1.3 million grant from USAID to attract more than $10 million in private capital for C&I projects in Africa. There were just four megawatts of on-site solar capacity on the continent at the time, powering companies like Rio Tinto, Unilever and Heineken. By the time CrossBoundary Energy sold the fund to ARCH Emerging Markets Partners in 2021, Africa’s C&I sector had grown more than 15-fold (see, “CrossBoundary Energy’s fund exit is a proof point for Africa’s commercial solar market – and catalytic capital”). C&I now accounts for the majority of Africa’s new installed solar capacity.
- Power purchase agreements. Most of Africa’s C&I projects are one-offs, with businesses buying and installing the systems directly. CrossBoundary Energy effectively becomes the energy provider to businesses, installing and managing the rooftop solar sites. Companies pay CrossBoundary Energy for providing the power, rather than becoming owners of their own systems. Surging corporate demand for on-site power generation is bringing more African and European commercial lenders to the table, observes Joubert. Another factor: fewer opportunities for competitive returns in utility-scale solar. C&I isn’t yet purely commercial, however. “There is always going to be a role – certainly for blended finance or for some special financing – in helping derisk what are perceived as the more complex and risky areas of the energy sector,” says Joubert.
- Keep reading.
Agents of Impact: Follow the Talent
The Global Fund for a New Economy adds Gina Dalma, previously with Silicon Valley Community Foundation, as chief development officer… New York University is looking for an associate director for its social impact leadership programs… Flourish Ventures is recruiting a senior investment analyst in Brazil… Coalition for Green Capital has an opening for a financial planning and analysis manager in Washington, DC.
Greentown Labs is accepting applications through Tuesday, Jan. 7 for its ACCEL climatetech accelerator… JPMorganChase is accepting applications for two month-long fellowship programs for undergraduate students of color seeking a career in financial services… Environmental Finance and the International Finance Corp. are hosting, “Unlocking capital: powering transition finance in emerging markets,” tomorrow, Dec. 11.
👉 View (or post) impact investing jobs on ImpactAlpha’s Career Hub.
Thank you for your impact!
– Dec. 10, 2024
