The Brief: Looking Ahead to 2023: Emerging Markets

The team at

ImpactAlpha

Greetings, Agents of Impact!

👋 Call No. 47: Looking ahead. This week’s thematic roundups on ImpactAlpha flag the signals we’ll be watching for in 2023. What’s on your radar? On our last Agents of Impact Call of 2022, we’ll also recap new ImpactAlpha features like The Liist and Climate Finance Tracker and share plans for Impact: The Video Game. We’re still taking nominations for “Word of the Year.” Shoot us a note (just hit “reply”) and we’ll call you up tomorrow, Dec. 21 at 10am PT / 1pm ET / 6pm London. RSVP today

Featured: Looking Ahead to 2023

2023 emerging market opportunities are locally-rooted, gender-smart and climate-friendly. “This is about urgency,” says Evelyne Dioh of Senegal’s WIC Capital. Local fund managers, entrepreneurs and political leaders are not waiting on international development finance institutions from wealthy countries to plug financing gaps. Instead, they’re rallying local investors, building local ecosystems and crafting local policies for long-term sustainable economic development. Some trends we’ll be watching next year: 

  • Local talent and capital. Local investors, including pension funds, insurance companies and individuals, were key backers for first-time fund managers like Senegal’s small business-focused Teranga Capital, Nigeria’s gender-focused Aruwa Capital, and tech-focused funds like Mexico’s Amplifica Capital and Palestine’s Ibtikar Fund. Local government, community and business leaders “should be the ones who feel the greatest sense of urgency” to invest in local fund managers, says Lilian Mramba of Grassroots Business Fund. “We’re trying to make changes in our communities. We shouldn’t only look at trying to change the mindset of capital coming from outside.”
  • Women rising. Assets in gender-lens investment funds remain woefully small at just $20 billion annually. But in a noticeable shift, investors now expect an embedded gender-lens in nearly all emerging markets investment strategies. Frameworks, like IIX’s “orange bond” principles for gender-focused bonds, are setting standards and building accountability for investors claiming a gender edge and impact in their portfolios. Where efforts fall short: getting money into the hands of female investment managers. “We are overtrained and over-mentored and underfunded,” says Lelemba Phiri of Africa Trust Group. “Just write the check,” adds Anna Raptis of Amplifica Capital in Mexico City.
  • Financing climate adaptation. New financing vehicles, structures and commitments promise to unlock the huge volumes of capital needed to finance climate adaptation globally. Will they deliver? The 20 most climate-vulnerable countries have lost a total of $525 billion to climate impacts since 2000, roughly 20% of their GDP. Private capital is starting to flow into adaptation. Nuveen and the Shell Foundation are investing $100 million to build climate resilience in emerging markets. Bill Gates’ Breakthrough Energy Ventures last month said it will expand its focus on decarbonization to include adaptation.
  • Catalytic development capital. The big international actors in economic development are largely letting smaller fish do the heavy lifting. A report this year from Convergence found that development finance institutions insist on standard commercial terms in three-quarters of the blended-finance deals in which they participate. “There’s definitely scope to take on more risk,” says Convergence’s Ayesha Bery. DFIs and multilateral banks are facing pressure from Barbados Prime Minister Mia Mottley to U.S. climate envoy John Kerry to U.S. Treasury Secretary Janet Yellen to take on the role of capital mobilizers, not just capital providers. Watch for intensifying pressure and transparency initiatives that expose DFI leaders and laggards, like Publish What You Fund’s new DFI Transparency Index.
  • Keep reading, “2023 emerging market opportunities are locally rooted, gender-smart and climate-friendly,” by Jessica Pothering on ImpactAlpha. Yesterday’s climate finance roundup: “Deadline 2030: Midway to climate marker, time to take deployment exponential.”

Dealflow: Climate Finance

General Atlantic’s BeyondNetZero mobilizes $3.5 billion climate fund. BeyondNetZero is the global growth equity firm’s first fund dedicated to climate tech. The fund invests in innovative growth companies that cut carbon and speed the transition to a net-zero economy. About $2.6 billion came from sovereign wealth funds, family offices, corporations and institutional investors; General Atlantic’s core growth equity fund will contribute 25% of each deal. “The fight against climate change will be won or lost this decade – on our watch,” said Lord John Browne, the former CEO of BP, who chairs the fund. He said the climate solutions the fund is backing “are an important part of the systemic transformation required to mitigate the global threat of climate change.” 

  • Scalable solutions. BeyondNetZero has invested $800 million in five companies, including Sun King, one of the earliest makers of solar-powered lanterns and home systems for Africa and Asia; RoadRunner Recycling, a commercial recycling and waste removal marketplace; and 80 Acre Farms, which develops renewable energy-powered vertical farms. The fund has “Article 9” designation under the E.U.’s new fund labeling rules, meaning its objective is sustainability or carbon reductions (for context, see, “The case of the suddenly missing trillions in ESG investments).
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Other investment news crossing our desks:

  • Enpal, a German residential rooftop solar startup, raked in €855 million ($906.4 million) in debt funding from BlackRock Alternatives and other investors
  • South Africa’s Standard Bank closed a $750 million sustainability-linked loan with Bank of America, Mizuho and SMBC Bank International to finance clean energy and social impact-focused projects in Africa.
  • The Canada Pension Plan Investment Board invested around $200 million in San Francisco-based energy efficiency-as-a-service provider Redaptive
  • Kodama Systems raised $6.6 million in seed funding from Breakthrough Energy Ventures, MCJ Collective, Climate Capital and Tahoe Fund for forest restoration projects.
  • Closed Loop Partners provided a $5 million loan to the Waste Commission of Scott County in Iowa for equipment upgrades at the county’s materials recovery facility.

Agents of Impact: Follow the Talent

Dana Bezerra, who joined the Heron Foundation in 2006 and has served as the foundation’s president since 2017, will depart the foundation at the end of 2022. Bezarra will join Greater Share as CEO… Social Finance seeks an impact investments director in Boston… BlueMark is looking for a marketing director… University of Utah’s Sorenson Impact Center has openings for a partnerships director and a student program director.

The Global Development Incubator is looking for two country deal managers for its Resilient Water Accelerator based in Bangladesh and Nigeria… Catalyst seeks a director of labor for the future of work… Terraformation is recruiting a carbon certification specialist in the U.S. or Europe… The University of Zurich’s Center for Sustainable Finance and Private Wealth is looking for a managing director for the North American region. 

BerlinRosen is hiring an account supervisor for global social and economic impact… Roots of Impact is recruiting an associate and a senior associate… The U.S. Impact Investing Alliance submits recommendations to federal policymakers to strengthen community investing with best practices for leveraging private capital through public policy.

Thank you for your impact.

– Dec. 20, 2022