The Brief: Impact investing in water – let it flow!

Greetings Agents of Impact! This month’s edition of ImpactAlpha Latin America comes out later today. As an ImpactAlpha subscriber, you get the top stories first (see below). For the full LatAm experience, opt-in to the speciality newsletter at no additional cost. ¡Disfruta! – David Bank

In today’s Brief:

• Co-investing in water for underserved communities 
• Small business lending in Palestine
• Health equity and green buildings for Wisconsin hospitals
• Impact investing at Latin America family offices

Featured: Deploy!

Making impact investments to help communities maximize historic federal funding for water infrastructure. The $50 billion in funding earmarked for water in the 2022 bipartisan infrastructure law is the single largest amount of federal funding for US water infrastructure ever. Communities have an historic opportunity to upgrade their facilities to improve health outcomes, build climate resilience, lower greenhouse gas emissions, and lay the foundation for economic growth. “Water is one of the best bets that we can make as a nation,” says Radhika Fox, who as assistant administrator of the Environmental Protection Agency spearheaded the water funding in the bipartisan infrastructure bill. The unprecedented appropriation, which includes $15 billion for lead pipe removal and $500 million for technical assistance for localities, is only a drop in the bucket. Disadvantaged communities often “lack the technical, financial and managerial capacity to be able to access and compete for these dollars,” says Fox, now with North Star Strategy. “That’s also a huge opportunity for the impact investing community.” 

• Filling gaps. Foundations, green banks, intermediaries and private investors are devising innovative funding mechanisms to address the obstacles. The nonprofit Water Finance Exchange partners with communities to build their capacity to finance water and other essential infrastructure. “We work with them to show there are ways to finance this infrastructure affordably,” says the group’s Rogelio Rodriquez. WaterFX has created a “disadvantaged community advancement fund” to help places with modest needs – say, $10,000 to fix a pump. Its low-interest loan fund covers engineering and other pre-development activities. And WaterFX is looking to pool impact and philanthropic capital to provide bond insurance for small communities.
  
• Green banks. The IRA’s $27 billion Greenhouse Gas Reduction Fund sets up a distributed green lending network for community solar, building retrofits and other climate-friendly projects. Clean water projects are eligible as well. The range of climate-friendly solutions runs from rain gardens, urban tree canopies and projects that reduce harmful run-off, to renewable energy for water utilities and water efficiency measures. Washington, DC-based Quantified Ventures is working with a half-dozen green banks to build water programs and tee up investable water projects. “We see green banks as being the catalytic opportunity to move money into non-traditional water projects, such as nature-based solutions,” says Quantified Ventures’ Shaun O’Rourke
  
• Keep reading, “Making impact investments to maximize historic federal funding for water infrastructure,” by Amy Cortese on ImpactAlpha.
  
• This week’s Call. For World Water Week, join hundreds of other Agents of Impact to identify high-impact water investment opportunities. North Star Strategy’s Radhika Fox, WaterFX’s Rogelio Rodriguez and Quantified Ventures’ Shaun O’Rourke will cover the landscape in conversation with ImpactAlpha’s Amy Cortese and David Bank, Thursday, Aug. 29 at 10am PT / 1pm ET / 6pm London. Go with the flow.

Dealflow: Small Businesses

Proparco joins $65 million consortium for small business lending in Palestine. Palestinian businesses were underserved even before the latest war tore through the territories, devastating businesses, infrastructure and livelihoods. France’s development finance institution Proparco is providing the Bank of Palestine with $20 million in senior debt to offer lines of credit to Palestine’s small businesses. The loan is part of a $65 million financing agreement with the International Finance Corp. and SANAD Fund for MSMEs, an impact fund backing Middle Eastern and North African enterprises. 

• Economic lifeline. Palestine’s small businesses are the economy’s lifeline, employing over 85% of the working population and contributing more than half of its GDP. The vast majority are family-owned. The ongoing war with Israel has throttled the economy, which continues to shrink. The consortium’s financing equips the Bank of Palestine “with liquidity and the long-term ability to provide needed financing for a vital economic sector,” said the bank’s Hashim Shawa. Healthy small businesses, he added, “enable the real economy to revive, recover and grow.”

• Renewed support. Proparco has invested in the Bank of Palestine since 2021, when it made a $12 million equity investment. It teamed up with the bank again in 2022 on a green financing facility to help local Palestinian banks make loans for renewable energy and energy efficiency projects. Last year, Proparco, alongside the European Union, provided the Palestinian bank with its fifth portfolio guarantee facility of $9.2 million. The financing came from its ARIZ vehicle that provides guarantees on loans to small businesses and microfinance institutions.
  
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University of Wisconsin Hospitals raises $28 million to boost health access and slash emissions. University of Wisconsin Hospitals has long been ranked as the top hospital system in Wisconsin. A $28 million bond will help the system modernize some facilities, build new ones, and advance health equity and energy efficiency goals. HIP Investor rates the bond offering at 80.6 on a 100-point scale, reflecting the positive environmental and social impact potential of the bond’s proceeds. HIP Investor has tracked UW Health’s above-average performance in patient satisfaction, positive health outcomes for patients, and minimal hospital violations, writes HIP’s Liana Lan. The bond is featured as part of ImpactAlpha’s collaboration with HIP Investor to highlight municipal bonds with environmental or social significance.

• Health equity. The UW Health system’s intake of patients in its main service area of Madison, Wisc., and surrounding Dane County has increased nearly 7% in recent years. Its flagship hospital is located in a federally-designated Health Professional Shortage Area, where primary care, mental health, and dental professionals are scarce. The system has a five-star rating from the Centers for Medicare and Medicaid Services’ hospital quality index, compared to a national average of 3.2 stars. A portion of the bond’s proceeds will address health inequities, such as racial disparities in birthweight and infant mortality. Proceeds from the bond will also be used for energy-efficient HVAC systems, a solar-ready roof, and a stormwater retention pond.
  
• Get the full details.

Dealflow overflow. Investment news crossing our desks:

• Distributed energy storage company Swell Energy is shutting down just six months after its acquisition of solar installer Renu Energy Solutions. Swell raised $120 million in a round led by SoftBank and Greenbacker in 2022 (see, “Swell Energy’s $120 million raise points to the energy grid of the future”). (Latitude Media)
  
• San Francisco-based RE-volv raised $4 million from Candide Group’s Afterglow Climate Justice Fund and Invest in Our Future to provide solar financing to nonprofits helping accelerate solar adoption in underserved communities. (RE-volv)
  
• Canadian investment firm MKB raised $145 million for its third energy transition fund, securing backing from Canada Growth Fund, CDPQ, Investissement Québec and BDC Capital. (CDPQ) 

ImpactAlpha Latin America: LP / GP

The push and pull of impact investing for wealthy families in Latin America. The push: Next-gen family members nudging previous generations’ wealth toward impact. The pull: Large, overlooked markets, ample opportunities to mitigate risks, and a growing set of investable impact products and funds. The number of wealthy families with allocations for impact investments is increasing across Latin America. That is giving fund managers, high-impact startups and small businesses a growing source of flexible capital. Latin America is one of the fastest growing regions for The ImPact, a global network of high-net worth families that do impact investing. CREO, a global syndicate of impact-focused wealthy families, is also recruiting members in Latin America. Latimpacto, a homegrown network of impact investors, counts dozens of family offices and foundations among its more than 200 members. “Long-term, I can have market returns with lower risk,” says Pablo Alonso of Eurocapital, a multifamily office with clients in Chili, Argentina, Peru and Uruguay, as well as Spain. “And I can help with climate change or education or reduce poverty.” Alonso will join Fernanda Camargo of São Paulo-based Wright Capital and other family offices, wealth managers and advisors at Latimpacto’s Impact Minds conference next month in Oaxaca, Mexico. ImpactAlpha is a media sponsor.

• From experiments to experience. “Families in the region have gone from making ‘experimental’ investments to building robust and intentional impact investment portfolios,” The ImPact’s Linda Rincón told UBS and Latimpacto for a report that profiles the impact strategies of Latin American families. In Chile, the Mustakis family has dedicated 15% of the foundation’s endowment to impact investments. The Russo family in Brazil created Meraki Impact as an impact-focused family office. About 80% of family offices have at least small allocations for impact investments. Maria Hollan, a next-gen impact investor at Timke Ventures in Mexico, helped her family lift impact out of the philanthropy bucket with two direct impact investments. “Then I realized you can have impact as a complete portfolio,” she told ImpactAlpha (watch her video interview).
  
• Funds of funds. In the young but maturing impact market in Latin America, intentions too often fall short of reality. Alonso says at least seven of his 32 clients now invest in private impact funds, writing tickets of between a half-million and $1 million. They are on the hunt for nature-based and regenerative opportunities, like Regenera Ventures in Mexico. But with local managers raising small funds, and track records still nascent, many families continue to move money out of the region, to funds like TPG’s Rise Fund and Blue Earth Capital. Funds of funds provide an attractive alternative. Alonso has found success with Santiago, Chile-based Fondo de Inversión Social and Sonen Capital’s Latin America Impact Fund, a fund of funds co-managed with Mexico’s Fondo de Fondos (for background see, “Grupo Bimbo anchors an impact fund of funds in Latin America”).

• Infinite opportunities. Wright Capital’s Camargo manages the wealth of over 40 Brazilian families. She has stood up three in-house funds of funds of roughly $30 to $40 million each. By pooling capital and due diligence, the structure cuts the transaction costs of investing in smaller funds. Camargo’s clients have invested with Brazilian managers, including Vox Capital, MOV Investimentos, Positive Ventures and Estímulo. Brazilian families are “motivated by the impact,” says Camargo, who started Wright a decade ago with a requirement that families invest at least 1% of their assets in impact. Today, such allocations are close to 4%; a handful of families are even deploying impact-first and catalytic capital. Wright’s next fund of funds will focus on nature-based solutions, regenerative agriculture and climate tech. “We have an infinite amount of opportunities in the bioeconomy,” Camargo told ImpactAlpha.

• Keep reading, “The push and pull of impact investing for wealthy families in Latin America,” by Dennis Price on ImpactAlpha.

Agents of Impact: Follow the Talent

The US Impact Alliance is recruiting a senior policy associate and a senior operations assistant… Impact Engine is looking for an investment analyst in Chicago… Local Initiatives Support Corp. is searching for a director of lending and investments in Los Angeles and hiring a senior program officer for lending and investment in Boston.

CrossBoundary Group is hiring several investment advisors for its El Savador office… Transform Finance in New York is seeking a remote lead researcher for a new project on the role of business and finance in building a more equitable society… The Interfaith Center on Corporate Responsibility is looking for a remote director of climate change and environmental justice.

As You Sow and Carbon Tracker Institute are hosting Climate Finance Day during Climate Week in New York, Monday, Sept. 23. Stay tuned for more Climate Week events.

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

Thank you for your impact!

– Aug. 28, 2024