The Brief | January 19, 2022

The Brief: Institutional shifts (podcast), revenue-based financing in Mexico, e-scooters in Taiwan, small farms in India, Larry Fink’s conventional wisdom

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Greetings, Agents of Impact! 

Featured: Institutional Shift 

‘Net-zero’ becomes ‘uh-oh’ and other sustainability trends to watch in 2022 (podcast). Getting to net-zero greenhouse gas emissions is going to mean a deep re-engineering of every industry, every corporation, every job, Equilibrium Capital’s Dave Chen said on ImpactAlpha’s annual Institutional Shift podcast about sustainability trends to watch for the year ahead. “Everyone likes to believe that there’s a magic moment in time when everybody gets it,” he says. “The reality is that about 10 or 15 or 20% of the companies or individuals get it, and they run ahead, and they take it.” Takeaways from the conversation: 

  • Impact accounting gets real. Sustainability metrics have begun to converge around a set of standardized, comparable frameworks. “It will make that set of data now a call to an auditable, legally attributable function,” Chen said. “It’s a massive step forward.”
  • Rising price of carbon. Chen sees the emergence of billion-dollar direct carbon purchases by corporations trying to meet their net-zero commitments. “They’re not going to the open market. They’re going to contract for it,” he said. “You’re going to see the big activity in carbon being point-to-point trades.”
  • Credits where credits are due. “We have our institutional investors asking us, ‘Hey, if my capital created the opportunity for you to create this carbon credit, how do I get credit for doing that?’” Chen said. Sounds like a case for the blockchain.
  • Changing of the guard. The mainstreaming of impact and sustainable investing may mean that pioneers of the field don’t get to the Promised Land, Chen says. “It’s an altogether different conversation. The vocabulary is different. The demographics of the applications, the demographics of the investors, are shifting.”

Read on (and listen to), “‘Net-zero’ becomes ‘uh-oh’ and other sustainability trends to watch in 2022 (podcast),” by David Bank on ImpactAlpha.

Dealflow: Digital Shift

Elevar backs Fairplay’s revenue-based financing for online businesses in Mexico. Fintech startup Fairplay provides revenue-based working capital loans and inventory financing to Mexico’s small and mid-sized online businesses. The Mexico City-based company launched in 2019 to plug the small-business financing gap in Latin American e-commerce. The pandemic has since super-charged businesses’ digital transformation. “There is a huge market opportunity in Mexico and Latin America for fintech focused on the performance of the end beneficiary,” said Lina Peña of Elevar Equity, which backed Fairplay’s $35 million Series A raise. Dila Capital and Kayyak Ventures led the $15 million equity portion. Architect Capital led the $20 million in debt financing.

  • Business-friendly. Fairplay provides quick online loans to businesses for digital marketing, inventory and logistics costs. The company charges a flat fee and takes a cut of earnings, on flexible terms, until the loans are repaid. More than 90% of Fairplay’s customers have 15 to 50 employees. “We’re seeing many closures of small businesses that have not been able to survive the past two years,” Peña told ImpactAlpha. Fairplay, she said, is “easing the shift to the digital economy in a systematic manner.”
  • Impact in fintech. Fintech companies accounted for more than half of the $20 billion in venture capital invested in Latin America last year. Elevar has largely sat out the fintech boom, in part over because of predatory pricing. “Very few business models are taking into account the actual needs of businesses like Fairplay,” Peña said.
  • Dive in

Engine No. 1 backs Taiwanese electric scooter maker Gogoro. Taipei-based Gogoro builds zero-emission and electric smart-scooters with swappable batteries. It recently brought its battery swapping stations to mainland China, which has some of the world’s most densely populated urban areas. Gogoro filed last September to become a publicly-listed company through a merger with Poema Global Holdings Corp., a special purpose acquisition company, or SPAC. The deal, which would value the company at $2.4 billion, is expected to close this quarter.

  • Innovative finance. Engine No. 1, India’s Hero MotoCorp and an undisclosed investor are investing in Gogoro via a private investment in public equity, or PIPE, funding round. The PIPE structure allows private investors to purchase shares of publicly-traded stocks. The investment brings Gogoro’s total funding to date to $285 million from investors including Generation Investment Management and Temasek.
  • Smart cities. Gogoro is looking to go global with its subscription-based battery swapping service; Hero MotoCorp is bringing the model to India. “Gogoro’s innovative products provide solutions that are critical to helping countries decarbonize their transportation sectors,” said Engine No. 1’s Edward Sun. Engine No. 1 “will provide strategic guidance on how environmental impact can drive economic value,” said Gogoro’s Bruce Aitken.
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Arya raises $60 million to expand agri-commerce for India’s smallholder farmers. The Delhi-based company helps India’s smallholder farmers transport and store their crops and provides working capital until they sell their harvests. Arya has digitized about 10,000 warehouses in underserved farming communities across 21 Indian states. “Arya is successfully bridging the trust gap in post-harvest agri transactions through complete transparency and assurance on quality, quantity and payments,” said Varun Malhotra of Quona Capital, which led the $46 million Series C financing round with Asia Impact SA and Lightrock India. The U.S. International Development Finance Corp. and others provided $14 million in debt. Check it out.

Dealflow overflow. Other investment news crossing our desks:

  • Silicon Valley’s The Westly Group raises $300 million to invest in “the digitization and sustainability of energy, mobility, buildings, industrial technology and cybersecurity.”
  • SeABank secures $70 million from the International Finance Corp., responsAbility and BlueOrchard to finance climate projects and small and women-led businesses in Vietnam.
  • Nairobi-based Poa Internet raises $28 million to improve Internet access for underserved communities in Africa.
  • Kampala-based Asaak, which, like Tugende, finances the purchase of motorcycle taxis for Uganda’s “boda boda” drivers, raises $30 million.
  • Tado, which sells smart home energy management software and devices, aims to go public via a Luxembourg-based SPAC.

Signals: Ahead of the Curve

The arc of Larry Fink’s annual letters trace the mainstreaming of sustainable investing. You know impact investing has gone mainstream when Larry Fink’s annual letter to CEOs elicits a collective yawn. “This is kind of a boring letter?” opined Bloomberg’s Matt Levine. That the CEO of BlackRock, which just crossed the $10 trillion mark in assets under management, had to walk a thin line between impact skeptics and conservative critics reflects just how fast capital has rotated towards sustainability and social impact. Climate risk, worker power and stakeholder capitalism not long ago were at the margins of finance. Now they’re at the center. “We have seen a tectonic shift of capital,” Fink said, in the two years since he called climate risk an investment risk. Readers of ImpactAlpha know all that, of course. In just a few years, Fink’s annual letters have gone from leading indicator to conventional wisdom.

  • Democratizing proxy voting. A desire to fend off critics may be behind Fink’s recent move to shift more voting power to shareholders, starting with big institutional clients in indexed funds. Activists say BlackRock has misused its outsized voting power by giving climate-lagging board directors a pass and voting against proposals seeking accountability on corporate political spending. The new policy will also give red-state pension funds that oppose Fink’s net-zero agenda their own say on proxy votes. Giving clients back their votes “cannot be an excuse for inaction,” says Majority Action’s Eli Kasargod-Staub.
  • Decarbonize everything. Divesting from entire sectors “will not get the world to net zero,” says Fink, arguing for staying engaged to help transform industry incumbents into climate leaders. “The decarbonizing of the global economy is going to create the greatest investment opportunity of our lifetime.” Every company and every industry will be transformed, he says. “The question is, will you lead, or will you be led?”
  • Keep reading, The arc of Larry Fink’s annual letters trace the mainstreaming of sustainable investing,” by Amy Cortese and Dennis Price.

Agents of Impact: Follow the Talent

Egypt names foreign minister Sameh Shoukry to lead the COP27 climate talks… Holly Gordon, Participant Media’s chief impact officer, is named to JUST Capital’s board of directors… Cassie Bowe is promoted to partner at Energy Impact Partners… Joanna Kuang is promoted to vice president at Illumen Capital… PayPal is hiring a director of impact measurement in New York… The U.S. Department of Homeland Security is recruiting environmental protection specialists and management and program analysts for its new climate change professionals program.

Thank you for your impact.

– Jan. 19, 2022