The Brief | August 15, 2024

The Brief: Mapping the market for climate adaptation startups

ImpactAlpha
The team at

ImpactAlpha

Greetings! Many thanks to the hundreds of Agents of Impact that participated in yesterday’s Call on navigating the dramatically changing US regulatory and legal landscape. The takeaway for impact investors: Flex your power. We’ll have the recap and replay in tomorrow’s Brief. – David Bank

In today’s Brief:

  • Attracting billions from retail impact investors
  • Compostable packaging in India
  • A market map for climate adaptation and resilience

Retail investors have billions for impact – and few places to put them. Some sustainability indexes, and the mass-market funds that track them, have performed well even amid the market’s recent volatility. Ordinary investors show a growing preference for sustainability-themed investments, despite an orchestrated backlash against so-called ESG investing. And younger, climate-minded generations are set to inherit billions of dollars. It should be a golden time for impact investments by individual investors. Instead, the investment options available to Main Street investors are few and far between. Individual investors, unless they’re worth at least $1 million (home not included) and deemed accredited investors, are locked out of most private-market impact funds. “If we are not able to democratize access to impact, we will never be able to get to the $4 trillion that we need” to finance the Sustainable Development Goals, says Tim Radjy of emerging-markets impact investor AlphaMundi Group.

  • Slim pickings. Outside of owning shares in a handful of publicly traded companies, mostly in renewable energy and clean technology, authentic options come down to a sprinkling of smaller, specialized funds – and a stomach for volatility. Carbon Collective Investment’s Climate Solutions ETF is down more than 8% this year through Aug. 12, after a nearly 15% gain last year. AXS Investments’ and Change Finance’s Change Finance ESG ETF, which invests in 100 US companies “that live up to the highest standards” of ESG principles, is up nearly 7% so far this year. Amplify Investments’ Etho’s Climate Leadership US ETF is flat so far this year after double digit gains in six out of the eight prior years. First Trust’s Clean Edge Green Energy Index Fund is down more than 23% this year after outsized swings, including a 184% spike in 2020.
  • Earning interest. Retail investors can park interest-earning dollars in mission-driven and minority-owned banks and credit unions and in community finance development institutions through vehicles like CNote. “They’re not securities, but they’re a high-impact, low-risk, low-return vehicle,” says Align Impact’s Matthew Weatherley-White. Cut Carbon Notes from Calvert Impact are investment-grade, fixed-income securities for sustainability upgrades for commercial, industrial and multifamily buildings that yield between 5.5% and 7.75%. Climatize, a crowdfunding firm based in Santa Cruz, Calif., allows ordinary investors to put as little as $10 into small-scale solar energy projects in the US (see, “Solar crowdfunding and ‘purpose rounds’ expand impact options for retail investors”).
  • Green IPOs. An equity opportunity for ordinary investors will emerge in the coming years when green startups conduct initial public offerings or are acquired by publicly traded companies – with impact-minded shareholders bringing their wallets and demands. “We need a very robust secondary market that is eager and waiting to snap up those deals as they go public and get securitized,” says Zach Stein of Carbon Collective.
  • Keep reading, “Retail investors have billions for impact – and few places to put them,” by Lynnley Browning on ImpactAlpha.

Dealflow: Circular Economy

Pakka of India raises $29.4 million to develop its compostable packaging facility. India generates nearly 29,000 tons of plastic waste daily. Pakka, based in the northern city of Ayodhya, started four decades ago to manufacture sustainable food packaging and serviceware from agricultural waste. The company raised $2.8 million in an initial public offering last year and partnered with Brawny Bear, a Mumbai-based packaged foods company, to manufacture greener packaging. It plans to use its post-IPO equity funding to open a facility to make compostable flexible packaging by the end of next year. 

Intramotev scores $14.4 million for battery-electric autonomous railcars. Freight vehicles that move goods worth trillions of dollars are responsible for up to 8% of global greenhouse gas emissions; the industry’s carbon footprint could double by 2050. St. Louis-based Intramotev launched in 2020 to electrify rail freight by retrofitting traditional freight trains with electric motors, batteries, sensors and controls that make them autonomous and energy efficient. Intramotev’s Tim Luchini says that Intramotev railcars can carry 100 tons of goods up to 100 miles with 100 kilowatt-hours of charging. The company installed its technology at a mining facility in Pennsylvania this year.

  • Low-carbon mobility. Investors in Intramotev’s Series A investment round include Advantage Capital, Alpaca VC, Collide Capital and Behind Genius Ventures. “With less than 1% of US rail electrified today, electrifying rail is a massive opportunity,” said Behind Genius’ Page Finn Doherty. Other companies working to electrify freight transit include Sweden’s Einride, which has built a fully electric driverless freight vehicle. Los Angeles-based Parallel Systems also is building automated and battery-electric freight rail vehicles.
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Dealflow overflow. Investment news crossing our desks:

  • CapShift snagged more than $4 million in Series B funding to expand its portfolio of impact investing offerings, including addition of a new advisor platform powered by AI tools. (CapShift)
  • LA-based circular economy startup Ambercycle scored $10 million from Taiwan’s Shinkong Synthetic Fibers Corp. for its first commercial textile waste recycling facility. (Ambercycle)
  • Elevation Capital led the $5 million pre-Series A financing round of Skydo, a Bangalore-based cross-border payments startup for freelancers and small enterprises. (DealStreetAsia)
  • India’s National Investment and Infrastructure Fund invested six billion rupees (about $71.4  million) in Ather Energy, a Bangalore-based maker of two-wheeler electric vehicles. (YourStory)

Impact Voices: Climate Adaptation

A market map of tech solutions for climate adaptation and resilience. Annual record-setting is the new normal in the climate crisis. This year is on pace to be the hottest ever. Last year saw a record number of weather events that caused more than a billion dollars in damages. Investing in climate mitigation strategies is essential, says Joey Barrick of impact investor SJF Ventures. “But we must also prioritize adaptation and resilience technologies and strategies to ensure our infrastructure, communities and economies are prepared.” To support its own and other investors’ adaptation investment efforts, SJF mapped the market of companies developing new resilience technologies. Hazard analytics and response, resource preservation, and owned-asset protection emerged as prominent themes, with sub-categories such as climate risk analytics, climate insurance, fire tech and water resource management.

  • Climate analytics. The first generation of climate adaptation and resilience investing was driven by climate risk analytics – mostly software products that provide short- to long-term forecasting of extreme weather events (see, for example, “Climate adaptation gets a fund of its own to invest in data, analytics and resilience”). Tomorrow.io focuses on real-time, hyper-local weather forecasts. EHAB offers weather-risk analytics to reduce delays in construction and disruption to heavy industries. Climate-related insurance technologies include FloodFlash, which offers parametric, or incident-based, flood insurance. Understory insures against hail. Demex and Kettle are reinsurance solutions for severe convective, or local, storms and wildfires, respectively.
  • Second wave. Next came technologies to address wildfire risks, especially after California’s severe 2020 season. Burnbot, Pano and Rain are advancing wildfire detection, response and mitigation. Startups are taking a long-term view of wildfire risk, “tackling challenges like efficient wildfire recovery, land resilience efforts, and better management of vast land resources,” Barrick writes. AirSeed, Dendra Systems, Mast Reforestation and Terraformation are all supporting land restoration and reforestation, for example. Water resource management is a fast emerging climate adaptation tech sector. Startups in the water space include Zwitter (treatment), Aquasos and Waterplan (risks), and bNovate (quality).
  • Climate preparedness. “More value will be placed on quantifying and informing businesses and consumers about extreme weather risks to homes, properties and other assets,” writes Barrick. AiDash, Ayyeka, Drone Deploy and LiveEO are using connected devices, drones, satellites and AI to provide real-time situational awareness of critical infrastructure. Large property and asset owners and operators like JLL, CBRE and Cushman & Wakefield are quantifying weather event risks across portfolios for clients, regulators and shareholders. Some climate risk analytics companies are also now offering recommendations for adaptation and resilience strategies.
  • Value at risk. Climate adaptation strategies still account for just 5% of all climate finance. Private adaptation and resilience investments are picking up, thanks to a drumbeat of data and research from the Global Adaptation and Resilience Investment working group, the White House, Tailwind Climate, Lightsmith Group and others. Most solutions are being designed for wealthier homeowners, consumers and companies (watch Agents of Impact Call No 41: “How investors are catalyzing climate capital for adaptation and equity“). A measuring stick for climate adaptation and resilience, such as the total “value at risk” from climate events, could accelerate new technologies. “We need and want to see more solutions for vulnerable and underserved communities,” says Barrick. “We hope to see innovators pursue opportunities to integrate adaptation and resilience measures into more comprehensive solutions,” he adds.
  • Read the full post and check out SJF’s adaptation and resilience tech map.

Agents of Impact: Follow the Talent

Tanya Jain, previously with the Health Finance Institute, joins Impact Charitable as a senior investment analyst… Amazonia Impact Ventures’ Pajani Singah has been selected as a SOCAP fellow… ClimateWorks Foundation is hiring a San Francisco-based senior manager for a zero-emissions shipping industry campaign. The foundation is also recruiting a program analyst for an EV campaign… Invest in Our Future has an opening for a remote chief of staff.

Finance in Motion seeks a risk controlling senior officer and a renewables investment officer or manager… The Global Impact Investing Network is looking for an impact measurement and management director in New York… Impact Experience will host a two-day online conference on Oct. 7-8 to explore how financial tools can support or hinder racial equity, fossil fuel divestment, sustainable agriculture and health equity.

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

Thank you for your impact!

– Aug. 15, 2024