The Brief | May 22, 2024

The Brief: MacArthur Foundation’s John Palfrey is long on the inclusive economy

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Greetings Agents of Impact! On this International Biodiversity Day, dig into the pending shareholder proposals on biodiversity, deforestation and deep sea mining, the UK’s new market for trading nature credits, and what’s at stake at this year’s biodiversity summit in Cali, Colombia, in October. For a refresher on the economics of biodiversity, take another look at the 2021 Dasgupta Review. – David Bank

👋 Hop on today’s Call. The billions of low and middle-income customers around the world represent trillions in impact investment opportunities. Today’s Agents of Impact Call will discuss a new guide to investing in better livelihoods and expanded access to goods and services for such emerging consumers (ImpactAlpha’s Jessica Pothering prepared a handy cheat sheet). Special guests Martina Castro of British International Investment, Borja Garcia Fernandez of Citi Social Finance, Elevar Equity’s Amie Patel,  FMO’s Juan Jose Dada, and Wagner Albuquerque de Almeida of the International Finance Corp. will share growth stories of companies creating value in the true mass market. RSVP for access to The Call, today at 8am PT / 11am ET / 4pm London.

In today’s Brief:

  • MacArthur’s John Palfrey on the leadership challenge
  • Bridge loans for climate startups
  • Renewable energy-powered data centers
  • Mainstreaming impact solutions

MacArthur Foundation’s John Palfrey is “long and strong” on investments in the inclusive economy (Q&A). The best defense is a good offense, says John Palfrey, president of the $8.2 billion MacArthur Foundation. The agenda to create a more inclusive form of capitalism “is going to be successful and it’s going to bring a lot of people along,” Palfrey tells ImpactAlpha in a revealing Q&A. Palfrey’s response to the coordinated attacks on DEI (diversity, equity and inclusion) and ESG (environmental, social and governance): Continue making impact investments that deliver on the promise of a multiracial democracy in which everyone thrives. Palfrey, who took the helm of MacArthur Foundation in 2019, last year succeeded Ford Foundation’s Darren Walker as chair of the advisory board of the US Impact Investing Alliance. “We are long and strong on impact investing and will continue to be,” Palfrey said. “The net effect of that is going to be a much healthier US and global economy.”

  • Multiracial prosperity. Over four decades, MacArthur Foundation has committed more than $750 million to roughly 200 mission-driven funds and enterprises, including recent investments in Invest Appalachia and Candide Group’s Afterglow Climate Justice Fund. “I see this as a set of investments that bring about the kind of society that we should all want to live in, which is one that allows everybody to thrive,” says Palfrey, who expects MacArthur in coming years to commit more capital and more resources to impact investing, with deeper integration of grant making, impact investing and the endowment. “That’s exactly where we need to be,” he says. 
  • Leadership challenge. Palfrey joins a growing chorus of philanthropic and business leaders offering a counter-narrative to conservative criticisms of efforts to promote diversity and inclusion. See, for example, McKnight Foundation’s Tonya Allen, Operation Hope’s John Hope Bryant, Robert Raben of the Diverse Asset Managers Initiative, and Sandhya Nakhasi of Common Future (below). Key messages: Increased participation in the economy drives much-needed economic growth, and investing in underserved populations is an opportunity for risk-adjusted returns. The best posture, Palfrey says, “is one of offense, not defense, and continuing to just do the work with conviction.”
  • Catalytic capital. The MacArthur Foundation has been a champion and pioneer in the deployment of catalytic capital to drive deeper impact and crowd in commercial capital, including as the anchor of the Catalytic Capital Consortium, which supports ImpactAlpha’s coverage. A $25 million MacArthur guarantee for Allianz’s SDG Loan Fund late last year helped unlock more than $1 billion from European banks and insurance companies for small and growing businesses, resilient agriculture and climate solutions in emerging markets (for context, see “Allianz’s SDG Loan Fund leverages a $25 million guarantee to catalyze $1.1 billion”). “We should be doing that all day long,” says Palfrey. Going forward, he expects such partnerships “to develop new institutions that are going to make things possible we can’t imagine today.”

Dealflow: Climate Finance

Enduring Planet secures $4.1 million to make bridge loans to government-backed climate businesses. Enduring Planet is looking to raise up to $40 million to meet the liquidity needs of climate ventures and small and mid-sized businesses awaiting government grants or payments, which can take months. With its new climate fund, the Portland-based investor will provide non-dilutive and non-collateralized working capital to climate founders, particularly those from underrepresented backgrounds and marginalized communities. That includes the likes of Black-led Dollaride, which won a $10 million grant from the New York State Energy Research and Development Authority to electrify “dollar vans” in New York’s transit deserts. Enduring Planet’s loans range between $100,000 and $500,000. “With this fund, we’re expanding to lending against any government procurement in climate,” Enduring Planet’s Dimitry Gershenson told ImpactAlpha. “If the government is buying your climate-related product or service, we want to provide you with working capital for that work.”

  • Climate funding gaps. Investors in the Enduring Planet fund’s initial close include Green Spark Ventures, several ImpactAssets-managed DAFs, members of Toniic, and clients of Figure 8 Investment Strategies. The working capital needs of climate founders, who often must hit milestones before receiving government grants or wait months to be reimbursed, is massive, Gershenson said. “We can’t even imagine filling that need with just this fund. But we hope that this fund serves as a proof point, enabling us to scale to the needs of the market.”
  • Seed funding. Gershenson says Enduring Planet has made progress on its own seed investment round, with commitments from Cerulean Ventures, Avesta Fund, Dangerous Ventures and other backers. Enduring Planet provides financial advisory services to climate founders.

Spring Lane Capital commits $30 million to Soluna for “green” data centers. Microsoft’s sustainability report last week underscored the downside of energy-hungry AI applications: the tech giant’s greenhouse gas emissions rose by 30% as it invested heavily in new data centers. Soluna Holdings develops and operates data centers co-located with wind, solar or hydro-powered energy to make use of any surplus energy. The Albany, NY-based company received a commitment of up to $30 million from Boston-based Spring Lane Capital to finance new data centers and expansions. “We’ve been backing the company and their projects for a couple of years, and we’re really excited about what they’re bringing to the table,” Spring Lane’s Rob Day told ImpactAlpha. “This was very much a crypto story, and now it’s very much an AI story – it just happened sooner than we expected.”

  • Wind pedigree. Soluna, founded by former wind power developers, addresses challenges that can undermine renewable energy producers. For example, when a glut of wind or solar power overwhelms the grid and depresses prices, producers often curtail their production. As much as one-third of renewable power can be wasted. By offtaking surplus power, Soluna enables producers to keep generating power – and profits. When demand (and prices) skyrocket, Soluna’s data centers can go dark. That makes them suited to batch processing applications, such as training voracious large language models. Soluna offers energy producers attractive power purchase agreements, and its modular data centers can be air-cooled, saving energy. “This is the first true positive additionality when it comes to AI and computing and climate,” said Day.
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Dealflow overflow. Investment news crossing our desks:

  • Mumbai-based private buyout firm Arpwood Partners will acquire a majority stake in Sitara, which provides financing to low-income homebuyers in India, including informal female workers. (YourStory)
  • 280 Earth raised $280 million, led by Builders VC, to scale up its direct air capture carbon technology. (280 Earth)
  • Woman-led Zero Carbon Capital closed a £20 million ($25.4 million) fund to provide seed financing to founders in Europe developing science-based technologies for decarbonization. (ZCC)
  • Norway’s Spoor scored $4 million in a seed round to use  AI and machine learning to monitor the flight patterns of birds to prevent collisions with wind turbines. (TechCrunch)

Impact Voices: Leadership Challenge

​​The world is ready for impact investing solutions. Are impact investors ready to lead? The spring conference season gave impact practitioners a chance to take stock amid a fast-moving swirl of global developments shaping the broader societal challenges they aspire to address. From ImpactPHL in Philadelphia to Mission Investors Exchange in Los Angeles, Common Future’s Sandhya Nakhasi was listening for “opportunities to mainstream the investment practices and ideas of our Black and Indigenous leaders that for centuries have been building economies based on the principles of interdependence of people and planet.” In a guest post on ImpactAlpha, Nakhasi writes that she found “opportunity, yet to be harnessed.” (Disclosure: Common Future is an investor in ImpactAlpha)

  • Collective action. People and institutions across the globe are looking for solutions to big societal challenges – from persistent racial inequality across economic, health and educational outcomes, to climate disaster, economic instability and declining worker power. “What would it look like for us as institutions committed to impact investment to collectively organize and be at the forefront of presenting solutions to a broader audience ripe for change?” asks Nakhasi. “The world is ready for us now. It’s incumbent upon impact investors to keep pushing further as our ideas are mainstreamed.”
  • Connecting the dots. There’s room for improvement. At the gatherings, “we were not collectively talking about how half of the world is voting in elections this year, and how we as a sector could harness that power to push for change,” writes Nakhasi. “We were not relating growing global economic uncertainty to the fact that our markets have become increasingly financialized and disconnected from people and their needs.” Nor, she says, were impact practitioners addressing how the calls for divestment from harmful investments and institutions by student protestors “are linked deeply to why we started on this journey of impact investment.” Says Nakhasi, “We have some guidance and tools to offer for how to begin wrestling with these issues.”
  • Read her full post

Agents of Impact: Follow the Talent

The Impact Seat Foundation appoints Velveteen Ventures’ Betsy Fore, Jonah Seiger of Broadscale Group, and Women in Cloud’s Chaitra Vedullapalli to its board of directors… Kieron Boyle will step down as the Impact Investing Institute’s chief executive in October later this year to become 100x Impact Accelerator’s CEO and director. The Institute’s current executive directors Bella Landymore and Sarah Teacher will replace Boyle as co-CEOs… The International Conservation Fund of Canada appoints Barnabe Geis, previously a senior director at Foresight Canada, as CEO.

Pivotal Ventures is hiring an investment director… Autodesk Foundation’s grantmaking and investments team seeks a portfolio associate in New York… Also in New York, the Royal Bank of Canada’s sustainable finance group is recruiting an associate… CapShift has several open positions in Boston… South Africa-based Secha Capital launches the Junior Operator-Investor Network, a training program for young investment professionals in Africa… Elemental Excelerator will accept applications for its latest investment cycle until Friday, May 31.

👉 View (or post) impact investing jobs on ImpactAlpha’s Career Hub.

Thank you for your impact!

– May 22, 2024