The Brief | August 27, 2024

The Brief: How institutional investors are grappling with ‘slow-onset’ climate risks

ImpactAlpha
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ImpactAlpha

Greetings Agents of Impact!

This week’s Call: Investing behind federal funding for water quality, community health and climate resilience. Cities and rural communities in the US are scrambling to take advantage of once-in-a-generation federal funding to upgrade critical water infrastructure. They need help developing projects, catalyzing capital, and floating bonds to stretch the funding. Join other Agents of Impact to identify high-impact water investment opportunities, with North Star Strategy’s Radhika Fox, who as head of the EPA’s Water Office helped develop the Bipartisan Infrastructure Law; Shaun O’Rourke of Quantified Ventures, which designs investable solutions for water and health; and Rogelio Rodriguez of the nonprofit WaterFX, which helps communities finance equitable water infrastructure, Thursday, Aug. 29 at 10am PT / 1pm ET / 6pm London. RSVP today.

In today’s Brief:

  • Helping pension funds and insurers assess the value of climate resilience 
  • Capitol Gains podcast: The future of fiscal justice
  • Digitizing Africa’s small businesses
  • Climate VCs rally for the planet – and their portfolios

Institutional investors grapple with ‘slow-onset’ climate risks – and with how to value resilience. Hurricanes, floods, wildfires are the climate shocks that make headlines with harrowing stories of human tragedy. Slower moving impacts of climate change – think water stress and creeping desertification – will also upend lives and livelihoods in the decades to come. These “slow onset events,” also known as chronic risks, are a growing concern among investors in real assets, whose investment horizons are long enough to see such risks manifest. The new Physical Climate Risk Assessment Methodology is helping institutional investors assess climate hazards and weave resilience into their lending and investment processes. Rather than just focus on the costs, the framework – PCRAM for short – identifies the benefits of resilience, including enhanced credit quality and more predictable cash flows. “All investors need to look at how all assets respond to slow onset events,” says Mahesh Roy of the Institutional Investors Group on Climate Change, a membership group of 400 investors overseeing $65 trillion in assets that is shepherding the development of PCRAM.

  • Step by step. The four-step methodology helps investors pinpoint an investment’s physical climate risks and improve its resilience to them by scoping and data-gathering through materiality assessment, resilience building, and economic and financial analysis. Things get interesting in the “resilience building” step: Bringing specialist teams together to find ways to build resilience against material risks. In a test case with a hydropower facility, the team identified nine resilience measures, from digging a new access to manage sediment and remove debris, to installing corrosion-resistant turbine blades. The resilience and de-risking measures go into a revamped cost/benefit analysis and an updated estimate of the internal rate of return to reveal the “true” long-term value of a project. “Yes, there’s a lot of work,” says Dominika Nowosinska of Mott MacDonald Group, the London-based engineering and design consultancy. “But you have to start somewhere – with your key risks, your key hazards, and your key assets first.”
  • Climate-proofing. Big insurers and other institutional investors are increasingly interested in climate-resilient infrastructure. Pension funds, for example, are evaluating investments in US power plants that are contending with lower generation, higher demand, and more wear and tear as temperatures rise (there is no insurance for a lack of generation from drought). The Insurance Development Forum in April tapped the asset management giant BlackRock to implement a climate-resilience “blueprint” and create a pipeline of infrastructure projects to meet insurers’ needs, likely in the form of a dedicated infrastructure fund. Members pledged to invest $500 million in blueprint-approved projects, according to AXA’s Paul Flavier at the United Nations’ Bonn Climate Conference in June. What will spur more investors to assess infrastructure projects through the lens of climate resilience? Flavier’s simple answer: “Compelling returns.”
  • Keep reading, “Institutional investors grapple with ‘slow-onset’ climate risks – and with how to value resilience,” by Louie Woodall on ImpactAlpha. 

Podcast: Capitol Gains

The future of fiscal justice with Activest’s Homero Radway. “We use data and research, developed by and with communities, to better quantify and address the risks associated with unjust practices and policies, and create investor campaigns that can hold issuers accountable for their behavior,” Activest’s Homero Radway told hosts James McIntyre and Matt Posner in the latest episode of Capitol Gains. The approach helps Activest to see through discriminatory credit ratings and tap hidden opportunities to achieve positive social impact. Citing examples of successful community investing in Flint, Mich., and in New Jersey, Radway calls for a rethinking of how credit ratings are applied. (Radway was a speaker on last year’s Agents of Impact Call, “The arbitrage opportunity in high-impact municipal bonds.”)

Dealflow: Small and Medium Enterprises

Sukhiba raises $1.6 million for enterprise software that helps Africa’s small businesses close deals. Much of Africa’s  business gets done over Whatsapp. To help the continent’s small businesses close deals, Sukhiba in Kenya has developed a customer relationship management system, or CRM, that integrates with the messaging app, payment providers and and other business software. Its system manages inventory ordering, payments, trade credit, delivery and customer interactions. The company has raised a $1.6 million seed extension round from EQ2 Ventures, Accion Venture Lab, Quona Capital and other investors.

Agrion inks $50 million to fight water and coastal pollution from sugarcane in Brazil. Brazil is the world’s largest producer of sugarcane, accounting for one-third of global production, which is used for ethanol, fertilizer and animal feed as well as white sugar. Sugarcane production is rife with environmental harm and human rights abuses. Agrion, based in the south-central Brazilian city of Uberlândia, is working to address sugarcane farming’s negative impacts with a line of organic fertilizers. Its products replace chemical fertilizers that leach into water systems and coastal ecosystems. The company secured a $50 million commitment from the Global Fund for Coral Reefs, an impact fund managed by Pegasus Capital Advisors, to build new production facilities. Agrion is the fourth deal from the reef fund, which has raised $250 million toward its goal of $750 million (read ImpactAlpha’s Q&A with Dale Galvin of the Global Fund).

Dealflow overflow. Investment news crossing our desks:

  • The Development Bank of Rwanda launched its second sustainability-linked bond to improve its ESG initiatives and access to capital for women-led businesses and affordable housing. The bond, which is aiming to raise 30 billion Rwandan francs ($22.5 million), is part of a 150 billion-franc note series (learn more, “Three Africa-led blended finance models mobilizing billions for development”). (Development Bank of Rwanda)
  • London-based Sunswap raised €20 million ($22.3 million) for its solar + battery systems that are designed for use on Europe’s refrigerated trucks in order to reduce carbon emissions in the cold chain. (EU-Startups)
  • Brazil’s ESG Now raised $310,000 in early-stage funding for its software that helps companies track and manage their environmental, social and governance performance. (Startupi)

Signals: Impact Forward

Climate investors rally behind Kamala Harris to protect policies – and portfolios. Next month’s Climate Week NYC will showcase green energy startups and solutions – and the stakes of a presidential election that will then be just six weeks away. “We only get two choices,” says Abe Yokell of Congruent Ventures, an early stage climate tech investor in San Francisco. “One choice is blow it all up.” The other: Preserve what is arguably “the biggest climate, energy and industrial policy that has happened over the last 100 years.” Yokell is part of the newly formed Climate for Kamala, which is kicking off Climate Week with what it calls a “blowout” fundraiser for Vice President Harris’s campaign, at the old Domino Sugar Factory in Brooklyn on Sept. 23. “It is going to be an enormously powerful industrial alliance,” Overture Climate VC’s Shomik Dutta tells ImpactAlpha.

  • Business agenda. Just as some cryptocurrency investors are throwing their support to former President Donald Trump in hopes of boosting their returns, some climate investors are considering their portfolios as well as the planet by backing Harris. Dutta and Yokell organized Climate for Kamala with Clay Dumas of Lowercarbon Capital and Lowercase Capital, Brendan Bell of Aligned Climate Capital, and Michael Smith of Regeneration VC, and other climate investors. Trump’s plans to roll back climate initiatives “are a very real and present danger to the delicate progress that the venture, growth and infrastructure communities have been making on bringing the next generation of emissions reduction technologies to global scale,” Smith tells ImpactAlpha. 
  • Who’s who. Other Climate for Kamala participants include MCJ’s David Aronoff and Cody Simms; Alfred Johnson of Crux Climate; Craig Shapiro and Guy Vidra of Collaborative Fund; Josh Felser and Raj Kapoor of Climactic VC; Emily Krisch of Powerhouse; Emily McAteer of Odyssey Energy Solutions; serial entrepreneur Bill Smith; Ian Samuels of New System Ventures; Steph Speirs of solar power startup Solstice; David Rusenko of Leapforward Ventures; Brandon Hurlburt and Jeff Navin of Boundary Stone Partners; Richard Kauffman at Generate Capital; Mosaic’s Dan Rosen; Kiran Bhatraju of Arcadia; Sophie Purdum of Planeteer Capital; Matt Eggers of Prelude Ventures; Sam Kass of Acre Venture Partners; Nik Mittal of Molecule Ventures; and Leonardo Banchik at Voyager Ventures. 
  • Campaign cash. Organizers of the Climate Week event aim to raise $5 million from 1,000 invitees, including family offices. That would far eclipse the take from a separate VCs for Kamala Zoom fundraiser earlier this month that raised just $176,000, according to its organizers. The new group is working with Climate Voters for Harris-Walz, a campaign-led initiative that will formally launch next month, the Harris campaign’s Ela Jetter tells ImpactAlpha. Climate for Kamala is hosting a call with existing and new participants this Thursday. A separate Impact Economy for Harris call is scheduled for Sunday, Sept. 8. The long-term vision of Climate for Kamala is to create a new voice for the climate tech industry in Washington, DC. “Nobody has really carried what we view as a business-oriented climate agenda,” Yokell tells ImpactAlpha.

Agents of Impact: Follow the Talent

Amy Nelson of Rethink Education becomes the firm’s third managing partner… Citi’s sustainability and ESG team is looking for an assistant vice president of ESG disclosure and ratings… WaterEquity is recruiting a head of infrastructure investments in London…  The UN-hosted Accelerator for Risk Assessment is hiring a remote director of nature-centric approaches.

ESG Global Advisors seeks a principal for business development, client management and oversight, and internal firm/team leadership… Four Seasons Hotels and Resorts seeks a manager of environmental impact in Toronto… CleanCapital is hiring a director or senior director of capital markets in New York… Conscious Markets Group is hosting “CMG Revival Opportunity Fund: Investor Q&A,” today at 12pm PT/3pm ET.

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

Thank you for your impact!

– Aug. 27, 2024