Happy New Year, Agents of Impact! And to all of you newcomers, welcome to ImpactAlpha. The hundreds of new subscribers who have recently come on board, and the thousands more who re-upped for the new year, are driving ImpactAlpha’s industry-leading coverage of impact investing and sustainable finance. Thank you, all.
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What we’re watching in 2021. Embracing impact in public equities. Helping small businesses rebound. Crowding in commercial capital. Stepping up climate finance. And delivering on a proactive vision for racial justice and reconstruction. Here are some of the issues we think impact investors and entrepreneurs will be taking on this year:
Holding investors and enterprises to account for impact outcomes. The COVID-19 pandemic revealed that global financial systems are one disruption away from disaster. Stakeholders, including shareholders, are pushing asset managers to push companies, large and small, to contribute to solutions to urgent challenges and hold themselves accountable for actual impact and tangible outcomes. What we’re watching for: Growth in the share of companies’ revenues generated by such solutions and market signals rewarding producers of such “positive externalities.” Read, “Investors, asset managers and, yes, corporations, set their sights on impact outcomes in 2021.”
Accelerating the race to ‘net zero.’ Generation Investment Management’s David Blood calls the transition to net-zero emissions “the most significant transformation in economic history.” Global emissions dropped by 7% in 2020 as air travel, commuting and other activities ground to a halt. We need to repeat that reduction, every year, for three decades. What we’re watching for: Governments, corporations, investors, banks and asset managers to raise their climate ambitions before the follow-up to the Paris climate agreement set for Glasgow in November. Read, “Investors step up for dramatic climate action in 2021.”
Financing proactive strategies for racial justice and economic liberation. Public policies and investment practices that center Blackness also deliver solutions for communities more broadly in the U.S. “The Reconstruction” is a beat, a podcast series and a platform for the emerging positive vision that centers Blackness as we recover from the pandemic, reset for climate action and reimagine capitalism, says ImpactAlpha contributing editor Monique Aiken. What we’re watching for: All the ways in which finance drives racial injustice and for the investors doing the opposite: deploying their financial and social capital to root it out. Read, “Centering Blackness in the U.S. economic recovery and reconstruction in 2021.”
Hunting for capital gaps to close. Investors driving flexible, responsive capital to marginalized communities and under-appreciated sectors are angling to outperform – on impact. The ability to provision funds, facilities and enterprises for deep impact is the comparative advantage of catalytic investors. They are getting opportunities to expand lending to smallholder farmers and other small businesses in emerging markets, provide access to business capital for Black and Brown entrepreneurs in the U.S., and extend risk capital for very early, and very promising, climate technologies. What we’re watching for: Instead of being disparaged for “concessionary” or “below-market” investments, catalytic investors are being courted as the essential linchpins of many high-impact deals. Read, “Catalytic investors sharpen their tools for deep impact in 2021.”
Supporting the rebound of small businesses in emerging markets. Small business digitization is the entry point to financial inclusion. New tech ventures are helping businesses access new markets and streamline operations, and offering creative supply-chain financing and working capital to businesses underserved by traditional lenders. Data and technology have super-charged the action. Fintech startups and other non-bank lenders are making bank on an enormous market long-ignored by, well, banks. What we’re watching: How mainstream financial institutions adapt to new evidence of small business creditworthiness and investability. Read, “Helping small businesses in emerging markets survive and thrive in 2021.”
Dealflow: Follow the Money
Indian agrifood tech startups raise rounds to get ready for 2021. Gramophone, based in Indore, raised a $3.4 million Series B round for a mobile marketplace that connects India’s farmers to inputs, equipment, climate information and farm services. Siana Capital led the round, with backing from existing investors Info Edge, Asha Impact and Better Capital. Bangalore-based qZense Labs secured $6.2 million for connected sensors that monitor and track food quality as food travels through the supply chain. The female-founded startup was backed by Venture Catalysts, 9Unicorns, The Chennai Angels, Entrepreneur First and Lumis Partners. “Micro-farm” provider Aqgromalin, which equips and finances small farmers in Southern India looking to expand into aquaculture and animal rearing, raised $2.7 million from unnamed investors.
- December dealmaking. The spate of year-end deals follows crop storage and financing venture Arya’s $21 million round, led by Quona Capital.
The Rise Fund leads $210 million round for Chinese edtech venture Meishubao. Beijing-based Meishubao offers artificial intelligence-based online arts classes for young students. Like many other edtech ventures, the company’s growth has been buoyed by the pandemic’s acceleration of online learning. TPG Growth led the company’s Series D round from its second impact-focused Rise Fund.
- China connection. In July, Rise Fund launched a solar investment arm, Matrix Renewables, after acquiring the one-gigawatt renewable energy portfolio of China-based Trina Solar.
- Check it out.
PremierCredit raises funding for micro-entrepreneurs in Zimbabwe and Zambia. The Zambian fintech firm offers micro business loans and micro asset financing for basic business tools like smartphones, solar lighting and even bicycles. U.S.-based Enygma Ventures, which invests in women-owned businesses in Africa, committed $650,000 to PremierCredit.
- Local expertise. Enygma Ventures is one of three early-stage investment funds that sources deals through Africa Trust Group, a gender-lens investment firm and technical assistance provider for African startups. Africa Trust Group also supports Shift Fund, which focuses on post-pandemic resilience for African small businesses, and angel investing network Empress Fund.
- Read on.
Sustainable packaging company Cellugy raises €2.4 million. The woman-led Danish startup is making a bio-based plastic alternative to cut fossil fuels out of packaging production. The seed funding came from the European Innovation Council’s accelerator program.
Signals: Ahead of the Curve
The surprising climate carveouts in the U.S. spending package. President-elect Joe Biden has pledged to ramp up the U.S. response to climate change. The massive spending and stimulus bill signed into law late last year represents a down payment. The legislation – which delivers a second round of COVID relief to families, small businesses and community lenders (see, “U.S. coronavirus relief package boosts lenders in underserved communities”) and $1.4 trillion in omnibus spending – also includes $35 billion over five years for clean energy, including $1 billion for energy storage, $1.5 billion for solar, and $450 million for carbon capture technology. Solar investment tax credits were extended and a new 30% tax credit was created for offshore wind projects that begin construction by 2026. There is also $300 million for broadband infrastructure in rural and tribal areas and to help low-income families cover Internet bills.
- Return to Kigali. Congress also endorsed curbs on hydrofluorocarbons, potent greenhouse gasses used in refrigeration and air conditioning systems. The legislation requires companies to reduce HFCs to 15% of 2012 levels by 2036. That would bring the U.S. into compliance with the Kigali agreement, a 2016 pledge signed by 197 nations to phase out HFCs – which was never ratified by the Trump administration.
- Sunlight. There was good news for governance in the separate National Defense Authorization Act. The bill includes the Corporate Transparency Act, which aims to put an end to anonymous shell companies that have been used by bad actors to launder money, evade taxes and disguise pay-offs. The law requires most new and existing non-public corporations and LLCs to identify their real owners with the Treasury Department, closing a gaping loophole in U.S. law. Excluded: Private equity firms and hedge funds, which successfully lobbied for an exemption. The bill became law over the veto by President Trump, a prolific user of shell companies.
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Agents of Impact: Follow the Talent
Hiro Mizuno, ex- of the Government Pension Investment Fund of Japan, is named Special Envoy on Innovative Finance and Sustainable Investments by United Nations Secretary-General António Guterres… Chris Slevin, previously with Economic Innovation Group, will become deputy director of the White House Office of Legislative Affairs.
Emerson Collective seeks a senior associate for its early stage venture investing team in Palo Alto, Calif… OnePierce Community Resiliency Fund is hiring an impact investing manager in Tacoma, Wash… Zevin Asset Management is looking for an investment analyst in Boston… SEAF is recruiting for an impact and learning manager and other roles.
Thank you for reading.
– Jan. 4, 2021