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Larry Fink’s corporate net-zero mandate pushes carbon markets mainstream. Think all those corporate 2050 net-zero pledges are nothing but hot air? The price of carbon credits in voluntary markets has risen to $15 or even $20 per ton, driven by corporate efforts to meet their net-zero pledges by locking in offsets with forward contracts of a decade or more. BlackRock, the $9 trillion asset manager, is adding, uh, fuel to the fire. “We are asking companies to disclose a plan for how their business model will be compatible with a net-zero economy,” BlackRock’s Larry Fink wrote in his annual letter to corporate CEOs. “We are asking you to disclose how this plan is incorporated into your long-term strategy and reviewed by your board of directors.” The stick: face BlackRock votes against management and, ultimately, divestment. More than 1,500 companies have adopted targets to zero out their emissions by 2050 or sooner. While some companies, such as Walmart, have pledged to do so entirely by cutting emissions and shifting to renewable energy, many others are relying on carbon offsets to fulfill their net-zero pledges.
- Boom in carbon. Voluntary carbon markets (as opposed to mandatory compliance markets in California and elsewhere) let companies pay for forest protection and restoration, regenerative agriculture and other carbon-reducing projects to offset their own greenhouse-gas emissions. The market for offsets is expected to grow from less than a half-billion dollars last year to up to $25 billion per year by the end of the decade, and perhaps $480 billion by 2050, according to Trove Research. “We will need tens of billions of dollars, eventually hundreds of billions of dollars, to transfer from people like us to people who are actually able to make a difference in terms of affecting the ultimate outcome of carbon emissions,” Standard Chartered’s Bill Winters said at this week’s virtual Davos conference. Winters chairs the Taskforce on Scaling Voluntary Carbon Markets, created by Mark Carney, ex- of the Bank of England and now a U.N. special envoy, that will release a report today.
- Soil wealth. The demand for carbon credits from technology companies alone already outstrips the current supply of credits in the voluntary markets. One reason for the rush: expectations that carbon prices will go higher as regulations and mandates ratchet up. “It’s an astute financial move,” says Greg Landua of Regen Network, which has sold the first credits (from an Australian rancher) on its blockchain-based carbon exchange. Indigo Ag claims a long list of corporate buyers for its agricultural carbon credits at $20 a ton, including Barclay’s, JPMorgan Chase and IBM. Cargill is the biggest buyer of credits from ReHarvest Partners, a spinoff of Quantified Ventures that is paying Iowa farmers to reduce carbon emissions and fertilizer use. The carbon marketplace Nori in October sold its first 5,000 credits to Shopify for $15 per ton. General Mills, Nestlé and McDonald’s are founding members of the Ecosystem Services Market Consortium, which is provisioning its own credits.
- Mission Possible. Steel, aluminum chemicals, cement, shipping, planes, aviation and trucks account for 30% of global emissions. A new coalition launching today at Davos aims to accelerate the decarbonization of critical but heavy-emitting sectors. The Mission Possible Partnership, which includes the Energy Transitions Commission, Rocky Mountain Institute, the We Mean Business coalition and the World Economic Forum, will help companies create their own net-zero plans within three years.
- Leaders and laggards. Fink outlined plans for climate-tilted indexes, metrics to capture the Paris agreement-alignment of equity and bond funds, and economic projections that incorporate climate considerations. BlackRock’s move follows last month’s launch of the Net Zero Asset Managers initiative with 30 asset managers representing $9 trillion in assets, including AXA, Legal & General and Wellington (see, “Leaders and laggards among asset managers on climate stewardship”). In turn, Fink’s letter puts pressure on Vanguard and State Street, the Nos. 2 and 3 asset managers. “We have only seen initial climate steps from State Street and nothing from Vanguard,” said Mary Cerulli of Climate Finance Action. If climate has become a legacy issue for Fink, she says, State Street’s Ronald O’Hanley and Vanguard’s Tim Buckley, “are now falling woefully behind.”
- Red flags. Carbon credit markets have been dogged by a lack of transparency and suspicions about greenhouse gas-reducing projects that may be receiving offset fees for measures that were planned anyway. And purchasing credits for third-party projects can let companies delay carbon reductions in their own operations. “Reducing emissions is the No. 1 strategy,” Kirsten Spalding of CERES told ImpactAlpha. Offsets, she says, should be “a last resort.” More bad news: As many as 600-700 million tons of old carbon credits – seven to eight times current annual demand – remain to be claimed and could swamp the market with little to no additional climate benefits.
Keep reading, “Larry Fink’s corporate net-zero mandate pushes carbon markets mainstream,” by Amy Cortese and David Bank on ImpactAlpha.
Dealflow: Follow the Money
MacArthur Foundation backs Ankur Capital fund for impact tech in India. Commercial investors tend to steer clear of businesses targeting low-income customers, leaving billions in India without access to affordable and essential products and services. Mumbai-based Ankur Capital seeks out early and even unproven businesses in agriculture, food, healthcare, financial inclusion and education using technology to drive down the cost of delivery of high-impact products at scale. MacAthur’s investment follows Ankur’s $33 million first close for its second fund last year, which included investments from Dutch Good Growth Fund, CDC Group and the Small Industries Development Bank of India.
- Digitization opportunity. Ankur backed this month’s $20 million financing round for Bangalore-based CropIn, which provides data analysis on crop yields and risks. The more than half-dozen recent agtech deals in India “signal the investor traction the digitization of Indian agriculture has gained despite – or because of – COVID-related disruptions,” ImpactAlpha’s Jessica Pothering wrote this week.
- Catalytic capital. MacArthur’s $7.5 million program-related investment is part of the Catalytic Capital Consortium, or C3, which also includes Omidyar Network and Rockefeller Foundation.Other MacArthur C3 commitments include One Acre Fund, Impact America Fund, Prime Coalition, Acumen’s ALIVE and the Women in Safe Homes fund (disclosure: MacArthur Foundation is a sponsor of ImpactAlpha’s Catalytic Capital coverage).
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Solar fintech Sunlight Financial to go public via Apollo-affilated SPAC. Sunlight Financial has enabled more than $3.5 billion in lending for residential solar installations. The New York- and Charlotte-based company will be acquired by Spartan Acquisition Corp. II, a special purpose acquisition company affiliated with $312 billion asset manager Apollo Global Management. The transaction includes $250 million in PIPE, or private investment in public entity, financing and values the company at $1.3 billion.
- New Year’s SPACs. Cleantech and renewable energy IPOs have dominated the recent wave of SPACs. Others announced this month: Electric charging operator EVgo’s merger with Climate Change Crisis Real Impact I Acquisition Corp.; electric bus maker Proterra’s merger with ArcLight Clean Transition Corp.; Renewable Resources Group and Capricorn Investment Group’s “environmental challenges” SPAC; and Ivanhoe Capital’s “sustainable mining” SPAC.
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Upaya Social Ventures supports ‘good jobs’ in India with four investments. The Seattle-based impact fund invests in small and growing businesses creating dignified jobs for underserved Indians. It closed four convertible notes in late 2020, including organic food producer ONganic Foods; Bastar se Bazaar Tak, a food producer supporting tribal forest farmers; artisan marketplace Shoegaro Fashions; and waste management company Hasiru Dala Innovations, which supports informal waste pickers.
- Pandemic relief. Upaya made nine investments in 2020 through a pool of recoverable grants from foundation partners (see, “Upaya uses recoverable grants to invest in two Indian agribusinesses”). The organization also provided pandemic relief financing to portfolio companies that committed to retaining jobs (see, “How creative financing structures can help companies preserve jobs and weather the pandemic”).
DFC guarantees Cordaid to spur lending in Africa’s Sahel. The U.S. development finance institution approved a $14.8 million loan portfolio guarantee for Cordaid Investment Management to get financing flowing to microfinance institutions and small and medium-sized businesses in Burkina Faso, Guinea, Mali, and Sierra Leone. USAID offered a $2 million grant as first-loss capital. Cortaid is looking to lend $37 million to 58 entities.
- Recovery capital. Meanwhile, the U.K.’s development finance institution, CDC Group, pledged to invest $1 billion in African businesses in 2021 to help small businesses and entrepreneurs rebound from COVID.
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West African Development Bank issues €750 million sustainability bond. The 12-year bond will enable the development bank to ramp up investments in agriculture and food security, renewable energy, infrastructure, healthcare, education and housing. More than 250 investors backed the bank’s first sustainable development bond, which was reportedly over-subscribed sixfold.
Agents of Impact: Follow the Talent
The Global Impact Investing Network is hiring a research associate in New York… The Cystic Fibrosis Foundation seeks an investment analyst in Bethesda, Md… ImpactAssets’ Margret Trilli is moderating “COVID-19: The Long Haul – The Critical Role of Philanthropy Right Now,” with Schmidt Futures’ Tom Kalil, Syra Madad of NYC Health and Hospitals, Johns Hopkins’ Jennifer Nuzzo and Stop the Spread’s Sharon Knight, Friday, Jan. 29.
Thank you for your impact.
– Jan. 27, 2021