The Brief | November 3, 2022

The Brief: Keeping fossil fuels in the ground, climate tech pipeline, microfinance exit in Honduras, Indigenous-led waste recycling, impact-linked compensation

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Greetings, Agents of Impact! 

Featured: Stranded Assets 

A new kind of carbon credit incentivizes fossil fuel producers to ‘keep it in the ground.’ A former Shell executive is creating an economic incentive for oil and gas producers to permanently shut down their wells. “The most valuable barrels may be those that are never extracted,” says Martijn Dekker of ZeroSix, which launches today (the name combines net-zero with the six protons that make up the nucleus of a carbon atom). By creating carbon credits backed by shuttered oil and gas wells, the company aims to reduce emissions from fossil fuels production by a gigaton each year. A former senior executive at Shell in Houston, Dekker teamed up with colleagues that spearheaded Shell’s blockchain efforts. Their goal is to try to satisfy demand for high-quality credits in the voluntary carbon markets while giving fossil fuel producers a reason to phase out production. “People have been saying for a long time we need to stop producing oil and gas, but it hasn’t happened,” Dekker says. “So we said, ‘Let’s create a mechanism to make it happen.’”

ZeroSix’s credits, which might fetch $10 to $20 per ton, claim to have the much-coveted “additionality.” The company will issue credits only for proven reserves and productive wells that would have otherwise resulted in extracting, refining and burning oil or gas. Low-quality and inefficient wells contribute just 0.2% of oil and 0.4% of gas production, yet account for a disproportionate 11% of annual oil and gas methane emissions. Capping them can cost $20,000 or more. “A lot of people keep producing, even though they are barely economic, just to defer the abandonment liability,” Dekker told ImpactAlpha. ZeroSix is working on pilot projects with producers in Colorado and California. What about big oil producers like Exxon, or Dekker’s old company, Shell? “We’re not there yet,” he says, before pausing. “Or, they’re not there yet.”

Dealflow: Inclusive Climate Tech

Elemental Excelerator stocks the climate tech pipeline for hard-to-decarbonize industries. The early-stage climate tech investor and accelerator has helped launch some hot names in climate tech. Among its winners: BlocPower, ChargerHelp, Solstice, Heliogen, Proterra and Stem. Hawaii and California-based Elemental prioritizes community relevance, deployment and scalability (for context, see, “Elemental Excelerator’s climate-tech unicorns develop locally, deploy solutions globally). Elemental’s latest cohort puts a bullseye on solutions for heavy emitting industries like shipping, air conditioning, transportation and construction. “We are betting on entrepreneurs tackling major sources of emissions,” said Elemental’s Dawn Lippert, “and working with every company to deploy successfully in local communities.”

  • Climate cohort. The 17 startups in the latest cohort include Somerville, Mass.-based Transaera, a producer of efficient air conditioners; London-based Modulous, which digitizes construction design and logistics; Portland-based Community Energy Labs, which builds energy management tech for schools, universities, and government buildings; and Origen, a zero-carbon lime producer, also in London.
  • Track record. The new additions bring Elemental’s portfolio to more than 150 startups, with 26 exits. The organization has invested $57 million; those companies have gone on to raise more than $7 billion in follow-on funding. Elemental last year spun out Earthshot Ventures, a climate VC firm whose limited partners include Emerson Collective, Microsoft’s Climate Innovation Fund, NextGen America’s Tom Steyer, Kleiner Perkins’ John Doerr and others.
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Bamboo Capital Partners exits Honduran microfinance institution Banco Popular. Luxembourg-based Bamboo Capital is exiting its investment in the microlender a decade after it invested via its first financial inclusion fund. Banco Popular grew its credit portfolio from $40 million to $144 million in that time, and expanded microlending, microinsurance and other financial services in rural Honduras. The microfinance institution today manages over $170 million and serves more than 180,000 customers. “This is a successful and responsible exit,” said Bamboo’s Jean-Phillippe de Schrevel.

  • In with the new. A pair of emerging markets-focused impact investors – Belgium’s Incofin Investment Management and Amsterdam-based Triple Jump – will take a 65% stake in Banco Popular shares from Bamboo, the IFC and Honduras’ Central American Bank for Economic Integration. Triple Jump’s Jarri Jung cited Banco Popular’s “long term track record of providing impactful financial services to Honduran entrepreneurs.” Existing shareholders FMO and BIO are increasing their stakes in the company.
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Dealflow overflow. Other investment news crossing our desks:

  • AiDash scored $10 million from Schneider Electric’s venture arm SE Ventures to forecast storm and wildfire outages and damages for utilities, energy companies and municipalities.
  • MoEVing secured $2.5 million from JSW Ventures to provide electric vehicle charging, low-cost vehicle financing and EV management services for last-mile drivers and fleet operators in India.
  • Salish Environmental Group, which manages Salish Soils, a composting and waste recycling business on Shíshálh Nation in Canada, raised $2.5 million from Raven Indigenous Capital Partners.
  • Floreo raised $10 million in a Series A funding round for virtual reality behavioral therapy for people with autism, ADHD, anxiety and other conditions.

Impact Voices: Impact Incentives

Have we reached a tipping point for impact-linked compensation? Impact fund managers’ compensation should be directly linked to impact – or they shouldn’t be able to call themselves impact funds – a panel of investors representing nearly $1.7 million in assets under management said at last month’s GIIN investor forum in The Hague. Stephen Morency of Fondaction CSN said so-called “impact carry” terms are “table stakes” for impact fund managers. Aunnie Patton Power, who moderated the panel, says the unanimity of the sentiment could “represent a monumental shift” for the impact sector. “Have we finally reached the tipping point on the link between impact performance and general partners’ financial compensation?” she asks in a guest post.

  • Incentive disconnect. Most impact fund managers aren’t held financially accountable for their impact performance. Just 3% of impact funds link compensation to their impact performance. Most say their investors simply don’t ask for such accountability. That’s “baffling,” Patton Power says. Impact-linked compensation structures “incentivize managers to clearly define their impact and establish systems for rigorous management, measurement and monitoring from the outset,” she explains. Without it, limited partners “risk seeing the impact be sidelined.”
  • Early adopters. Aureos Capital structured an “impact bonus” into its 2009 Africa Health Fund’s rate of carry for achieving impact targets. Brazil’s Vox Capital went further, requiring the fund to achieve both financial and social targets to receive its full rate of carry. Private equity firms Apollo and EQT Future have also adopted impact-linked incentives. “Managers wanting to be at the forefront of the impact investing field should pay heed to this turning tide,” says Patton Power. “It’s a development that is long overdue.”
  • Keep reading, “Have we reached a tipping point for impact-linked compensation?” by Aunnie Patton Power on ImpactAlpha.

Agents of Impact: Follow the Talent

Adam Rein will succeed CapShift cofounder Jacques Perold as CEO… Ali Abbasi, ex- of NRG, joins Perch Energy as chief strategy and analytics officer… Center Creek Capital Group promotes Akzahara McConaghy to director of operations for the Center Creek Housing Funds. Megan McNulty, ex- of The Promise Homes Company, joins the firm as director of portfolio management… The Equality Fund, a Canadian women-led fund, is hiring a vice president for investment. 

The Global Development Incubator seeks a senior associate in Mumbai… Rally Assets is looking for a public equities research associate in Toronto… Silicon Valley Community Foundation is hiring two philanthropy advisors and a director of donor engagement operations in Mountain View, Calif… Goldman Sachs Asset Management is recruiting an associate for its sustainable investing group in New York… The Aspen Institute is hiring a research associate in Washington, D.C.

Thank you for your impact!

– Nov. 3, 2022