Greetings Agents of Impact!
In today’s Brief:
- Fixing the EU’s import carbon tax
- Basket bond to spur green lending in emerging markets
- Worker-owned conglomerates
Featured: Policy Corner
How Europe’s import carbon tax can boost global prosperity, not hurt it. Climate action, meet economic nationalism. When the European Union’s Carbon Border Adjustment Mechanism goes into effect in 2026, companies selling everything from steel to cement into the bloc will start paying for their carbon emissions. CBAM, as it is known, is the first real attempt to tax the carbon content of imported goods. Its goal is to encourage low-carbon production without penalizing European companies for the higher costs that might entail. The law is part of a broader wave of protectionism upending global trade flows as countries position themselves for a low-carbon future. CBAM, says Karthik Ramanna of the University of Oxford’s Blavatnik School of Government, “reflects the new geopolitical zeitgeist of economic protectionism.” Countries from China to the UK fear CBAM will unfairly penalize their exports, while others, including the US, Canada and Australia, are mulling their own import assessments. “Is there a way to sustain the efficiency gains and cross-national wealth sharing that come with free trade while also advancing CBAM’s potential to curb catastrophic greenhouse gas emissions?” Ramanna asks in a guest post on ImpactAlpha. As the global carbon experiment takes shape, Ramanna identifies areas where the law could be strengthened and help usher in more rigorous standards for carbon accounting that can spread prosperity, not hurt it.
- Loopholes. The primary challenge that CBAM and other carbon border assessments face is the lack of an accurate, verified and comparable basis for import levies – in this case, units of greenhouse gas emissions. CBAM allows the use of industry or regional averages to sidestep the lack of primary emissions data. “That, ironically, punishes those companies that have lower emissions and disincentivizes new investments in ‘greener’ technologies and processes,” Ramanna explains. CBAM also does not extend across supply chains, exempting, for example, upstream mining emissions. It is initially limited to certain products, including cement, steel and aluminum, but not their potential substitutes. What’s needed, he says, is a robust carbon accounting system.
- Carbon accounting. Since 2021, Ramanna and his colleagues at Oxford have been developing an “environmental-ledgers algorithm” to generate “accurate and auditable data on the total cradle-to-gate emissions embedded in any product or service.” Companies including Hitachi Energy and Tata Steel have piloted the system, which Ramanna says could underpin carbon tax regimes. “Carbon border accounting, if done right, can be a powerful tool against climate change,” he notes. “It can raise the rules of the game so that companies and countries compete on low-emissions goods and services, just as they currently compete on factors such as costs, quality, and timeliness,” and align with principles of free trade that have eased commerce for decades.
- Keep reading, “How Europe’s import carbon tax can boost prosperity, not hurt it,” by Karthik Ramanna of the University of Oxford on ImpactAlpha.
Dealflow: Green Finance
BII and Symbiotics initiate second ‘basket bond’ for green business lending. British International Investment and Symbiotics are doubling down on an investment approach they tested in 2022 to address a growing need for individuals and small businesses in emerging markets to “climate-proof” their livelihoods. The “basket bond” the partners developed is a debt facility, funded by the UK development finance institution, for small business lenders to on-lend as green loans. Their first $75 million facility had been fully deployed as of March across 11 financial institutions in Asia and Africa. The second basket bond will channel an additional $75 million as lending capital for home and business solar upgrades, electric vehicles, climate-smart farming tech, and other green assets. BII is pairing its investment capital with $460,000 in technical assistance funding to help portfolio lenders develop and deploy climate and green lending products.
- Catalytic capital. BII is aiming to invest $1 billion in climate-related projects by 2026. The “basket bond” was designed to help BII to accelerate its climate investment activity in high-need areas while meeting the financial services group’s $10 million investment minimum (see, “How a $75 million ‘basket bond’ is catalyzing climate lending to small businesses in emerging markets“). The structure allowed BII to write a fairly big check to Symbiotics, which could then write smaller checks to local financial institutions. The partners say the mechanism could be replicated for other investors, or with multiple investors in one bond. “We hope that this second green basket bond will have a catalytic effect on the mobilization of capital for similar projects that play a key role in successfully tackling climate change and its consequences,” said Symbiotics’ Yvan Renaud.
- India’s green transition. Half of BII’s new tranche of funding will be invested in India. “We see significant impact potential in being able to reach specialist climate lenders in this market,” BII’s Samir Abhyankar told ImpactAlpha. The first basket bond’s portfolio included farmer finance venture Samunnati, and Mufin, which offers financing for electric two- and three-wheelers. Bolstered by the government’s green incentives, numerous startups have sprung up in India in recent years to help consumers and business owners switch to EVs and solar energy. BII hopes to help “mobilize private and commercial investors going forward to support the much-needed energy transition in India,” said Abhyankar. “It is an important market to demonstrate the commercial viability of supporting small-scale green lending through [small business] lenders.”
- Check it out.
Dealflow overflow. Investment news crossing our desks:
- South Korea-based LD Carbon raised $28 million in a round led by Toyota’s growth venture fund, Woven Capital, to recycle used vehicle tires into materials for new tires. One such component, carbon black, is otherwise a petroleum-intensive product to make. (Axios)
- Nigeria-based InfraCredit secured $15 million from the African Development Bank to lend to renewable energy, telecommunications, healthcare, green housing and transportation infrastructure projects. (The Guardian)
- Sweden’s Net Zero Company, a blockchain-based market for carbon removal credits that was founded by Ikea’s former head of sustainable innovation, closed a $5.5 million seed round. (Tech.EU)
- California-based Kinetic secured $21 million in Series B equity financing for its network of EV servicing and repair centers. (Kinetic)
- Brazil’s Mercado Diferente, a consumer marketplace for lower-cost organic produce, raised $1.6 million from Collaborative Fund and Caravela Capital. (LatamList)
Signals: Ownership Economy
Worker-owned ‘conglomerate’ Obran Cooperative gets a boost from Acumen America investment. Employee ownership is becoming more common, with the growth of worker-owned cooperatives – and investment funds looking to support them. Less common: worker-owned holding companies with multiple businesses in their fold. Obran Cooperative calls itself the “first worker-owned cooperative conglomerate.” The Baltimore-based organization owns a half-dozen companies in sectors ranging from healthcare to staffing that collectively employ some 450 people. “Our idea of ownership is that it’s not just enough just to cut somebody in,” Obran’s Joseph Cureton tells ImpactAlpha. “It has to allow them to shape their own destiny, with a fundamental right of stewardship and the ability to create value and wealth.” Acumen America, a spinoff of global impact investor Acumen, invested $500,000 in Obran, structured as debt rather than equity to align with Obran’s equity ownership structure. “We have gotten really excited about the impact opportunity of employee ownership,” says Acumen America’s Amon Anderson.
- Mighty co-ops. Other cooperatives have banded together for greater economic might, including Cleveland-based Evergreen Collective in Cleveland, Arizmendi Association of Cooperatives in the San Francisco Bay Area, and also Spain’s Mondragon Corp. Cureton differentiates Obran’s “cooperative conglomerate” model from those groups, which operate as federations of individually-run co-ops. “We are one consolidated business,” Cureton says. Worker-owners share in Obran’s profits as well as its governance. Cureton notes that Obran is profitable and aims to hit $100 million in revenue over the next 12 months.
- Good jobs. Obran’s subsidiaries include CORE Staffing, a temporary job-placement company run by formerly incarcerated individuals; Tribe Works, a digital creative services company; and Appalachian Field Services, a real estate development company managed by workers recovering from substance abuse. In 2022, Obran acquired Apollo Home Healthcare in California for $20 million. Its deals have been financed through the Obran Acquisition Fund, a targeted $30 million debt fund backed by Momentus Capital, the University of Maryland Medical System, and Seed Commons, a cooperative network of community-based funds.
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Agents of Impact: Follow the Talent
Ayana Parsons, co-founder of Fearless Fund, steps down as chief operating officer… Dutch bicycle rental company Swapfiets seeks two sustainability interns in/near Amsterdam… The Southeast Energy Efficiency Alliance is hiring a senior research associate in Atlanta… MassMutual is recruiting an impact investment associate for its catalyst funds.
Breakthrough Energy is seeking a director of partnerships in Washington, DC… US Bank is looking for a business development officer of affordable housing, both in Chicago… IIX seeks an assistant vice president of strategic initiatives in Mumbai… Public Finance Initiative is hosting a webinar, “Engaging investors and residents in equity and public finance strategies,” on Tuesday, July 2.
Correction: Yesterday, ImpactAlpha inadvertently attributed hires and promotions of Allison Brink, Julia Winck, Jessica Botelhoto and Adele MacEwen to Community Investment Management. These Agents of Impact were hired and promoted by Community Capital Management.
👉 View (or post) impact investing jobs on ImpactAlpha’s Career Hub.
Thank you for your impact!
– June 25, 2024
