The Brief | March 6, 2023

The Brief: India’s energy transition, digital upskilling in Mexico, small-business financing in Kansas City, purpose trusts for stakeholder governance

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Greetings, Agents of Impact!

Featured: Climate Impact in India

India poised to lead – and test – the just energy transition. India is becoming the focus of efforts to supercharge climate funding in the Global South. Under Prime Minister Narendra Modi, India is pushing clean energy as an economic development and diplomatic tool. India heads the Group of 20 nations this year and an Indian-born American, Ajay Banga, looks set to take leadership of the World Bank. India needs as much as $10 trillion of investment to meet its development and net-zero goals, which are set for 2070. The country’s annual greenhouse gas emissions, already the third-highest in the world, are rising rapidly: energy consumption has doubled over the past two decades and will need to double again in coming decades to alleviate poverty and raise living standards. “I invite every stakeholder in the energy world to invest” in Indian clean energy, Modi recently urged.

  • Catalytic capital. Barbados Prime Minister Mia Mottley has led the charge to drive more private lending via multilateral banks and development finance institutions. At the G-20, India is continuing an effort started by Indonesia to deploy loan guarantees and other forms of catalytic capital. The World Bank is likely to get a climate makeover if Banga is approved by the bank’s governing board next month. Banga, a naturalized American citizen who was born and raised in India, is vice chairman at General Atlantic and a former head of Mastercard. He lacks direct climate expertise but has a wide-ranging network that could help him assemble an effective team.
  • Finance gap. Foreign investors are trying to massively scale up funding for India’s net-zero transition. The trick is to do it in a way that is socially inclusive and doesn’t leave workers or communities behind. Just $6.5 trillion of India’s needed investment can be met by conventional sources of funding, according to the Council on Energy, Environment and Water, a Delhi-based think tank. Another $3.5 trillion will need to come from innovative financing mechanisms, including $1.4 trillion from outside the country.
  • Transition financing. India’s negotiations with G-7 countries over a potential Just Energy Transition Partnership, or JETP,  to finance its energy transition have faltered. At issue: India’s refusal to commit to phasing out coal, as countries including South Africa, Indonesia and Vietnam have done as a condition for billions of dollars in JETP financing (for background, see “Just Energy Transition Partnerships and other ways to shift climate finance toward low-income countries”). India argues its carbon will peak by 2035 and that it needs the flexibility to continue using coal until renewables offer a fully secure supply – underscoring the complexity of transitioning its massive economy.
  • Keep reading, “India poised to lead – and test – the just energy transition,” by Bill Spindle on ImpactAlpha.

Sponsored by CalCEF Innovations

Seeking proposals for a China climate ETF or mutual fund. California Clean Energy Fund (CalCEF) Innovations, a nonprofit public benefit corporation, is seeking proposals from sustainable financial advisors and fund management companies that specialize in the development of climate-aligned exchange-traded funds and mutual funds, as well as the marketing of those investment products to U.S.-based retail and institutional investors. The purpose of the request for proposals is to expand China-focused, climate-aligned investment product offerings for the U.S. market through the development of a climate-friendly fund product – in the form of an ETF, index fund or mutual fund, which tracks a designated climate index. The RFP will offer a sponsorship of up to $300,000 to deliver the fund. All work required for regulatory approval must be concluded by October 31, 2023.

  • How to apply. All proposals must be submitted by Friday, March 31. For more information read the full RFP.

Dealflow: Upskilling Labor 

IDB Lab backs Quotanda to finance digital upskilling for women and youth in Mexico. About one-quarter of Mexico’s population attains a university degree. To improve livelihoods and earning potential for the rest, Quotanda helps learners pay for tech training in high-demand skill sectors like web-programming, cybersecurity and Salesforce implementation. The company partners with tech bootcamps like Academlo and Ironhack. Students repay the costs of the program only after they’ve secured a job earning at least 12,000 Mexican pesos ($670) per month, which is at the high end of earnings for urban workers. About 85% of learners enrolled with Quotanda’s tech bootcamp partners secure jobs paying more than 20,000 pesos monthly, Quotanda’s Grant Taylor told ImpactAlpha.

  • Expansion finance. IDB Lab, a division of the Inter-American Development Bank, is providing Quotanda with a $750,000 loan to ramp up its financing of income-share agreements. “With this program, IDB Lab aims to foster inclusion and to help more women and students from vulnerable backgrounds gain the skills they need to start a career in the digital economy,” said IDB Lab’s Elena Heredero.
  • Pay-as-you-earn. A host of startups worldwide, such as New York-based Pursuit, are using income share agreements to help low-wage and underserved groups train for and access higher-wage jobs (for context, see, “Accountability for outcomes can spur impact investments in educational income share agreements”). Financial backers of such programs include Boston-based Social Finance, which is investing in “career impact bonds” with partners like Google to upskill low-income workers in the U.S. The Future of Work Fund has secured backing from family office Ceniarth, the U.S. International Development Finance Corp. and others to use income share agreements to finance worker upskilling in Rwanda.
  • Check it out.

DreamSpring secures $5.3 million from Kauffman Foundation for small business lending in Kansas City. The foundation’s grant allocation includes $5 million to catalyze $140 million in microloans for more than 8,000 small businesses in the Kansas City, Mo.-area over the next five years. DreamSpring, an Albuquerque-based community development financial institution will focus on lending to small business owners in Kansas City’s low-income and distressed census tracts. The Kansas City metro area has more than 50,000 small business owners, who rely primarily on loans from traditional banks. Such lenders have historically failed to reach businesses that are Black, women and minority-owned. 

  • Inclusive economy. DreamSpring will another $300,000 from Kauffman to deploy the loans to borrowers. Kauffman made the investment via its Direct Capitalization Loan Fund, which facilitates lending to small businesses in underinvested communities. Since its inception in 1994, DreamSpring has issued more than 46,000 loans totaling over $538 million to small businesses that have created roughly 80,000 jobs in underserved communities.
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Dealflow overflow. Other investment news crossing our desks:

  • Edtech startup Kai XR scored $1.6 million from Kapor Capital, the Mitchell Kapor Foundation, American Family Insurance and others for virtual reality-based teaching for grade school students in the U.S.
  • Miami-based Marco secured $8.2 million in equity and $200 million in credit to provide trade financing for small businesses in Latin America and the U.S.
  • Koolskools, a woman-led edtech startup in Morocco, raised $960,000 from Azur Innovation Fund to help schools provide online learning, monitor student progress and digitize school records.

Impact Voices: Capitalism Reimagined

Want to wring impact from ESG? Look to governance. For stakeholder capitalism, we need stakeholder governance. “We need to change who makes decisions more broadly, along with the interests they’re accountable to and the incentive structures they work within,” Jasper van Brakel of RSF Social Finance writes in a guest post on ImpactAlpha. “Benefit corporations” now number in the thousands; the legal form requires companies to specify social and environmental goals, report publicly on progress, and consider those goals alongside profitability and shareholder value when making decisions. Adding workers, customers, supply chain partners and community representatives to boards would be another positive step, says van Brakel. Research shows that diverse groups are more innovative and make better decisions. Ultimately though, “to produce different outcomes, we have to embrace alternative governance structures,” he says.

  • Purpose trusts. Van Brakel advocates for companies’ conversion to non-charitable perpetual purpose trusts, which own a majority of voting shares and appoint a board of directors (for context, see, “Through ‘ownership trusts,’ investors can help employees become owners and owners retire”). He’s keen on the kind of purpose trusts that govern Organically Grown, less so on the type adopted by Patagonia, which let the Chouinard family maintain control over the voting rights. Organically Grown’s structure “redefines fiduciary duty to include multiple stakeholders, reinvests profits and shares them with stakeholders, and enables investors to purchase stock and receive dividends from the corporation even while voting control is held in a trust.”
  • Flexible form. Almost any company can convert to a purpose trust, including high-growth startups and publicly-traded corporations. Can they attract capital? Perhaps not from sources that are singularly interested in maximizing their own return, says van Brakel. The trust model is compatible with traditional debt financing. Structures between pure debt and equity, including revenue-based financing and convertible notes that generate a dividend, provide appealing alternatives. Says van Brakel: “These companies are well positioned to deliver attractive returns at lower risk.”
  • Keep reading, “Want to wring impact from ESG? Look to governance,” by RSF’s Jasper van Brakel on ImpactAlpha.

Agents of Impact: Follow the Talent

Saurabh Bajaj, ex- of Proterra Investment Partners, joins LeapFrog Investments’ climate investment team as director of investments. Katherine Owens, a former senior manager of climate change and sustainability services at EY, joins as associate director of impact measurement and management. Nimish Desai, ex- of Relativity Investment Management, joins as an associate director. Akshi Sharma, also ex- of Relativity, joins as an investment associate. 

Kieron Boyle, ex- of Guy’s & St. Thomas’ Foundation, is named chief executive officer of the Impact Investing Institute… Community Investment Management is recruiting a chief operating officer in San Francisco… Nasdaq seeks senior climate analyst… EIG is looking for an ESG analyst in Houston… The Paul Ramsay Foundation is hiring impact analysts in Sydney… The World Bank is looking for a lead climate finance specialist.

Cardano is recruiting a senior sustainability and ESG research analyst… Starbucks seeks a senior manager of enterprise sustainability and water stewardship in Seattle… VC Include will begin accepting applications for the 2023 fellowship for BIPOC first-time fund managers on Monday, April 3… Aunnie Patton Power and Accion Venture Lab’s Ashley Lewis are launching Impact Finance INSIDERS to support impact talent.

Thank you for your impact.

– March 6, 2023