The Brief: Nudging climate action from disclosure to accounting

Greetings Agents of Impact! 

In today’s Brief:

• Nudging climate action from disclosure to accounting
• Regenerative agriculture in West Africa
• Village Capital’s tech for good

– David Bank

Featured: Policy Corner

New SEC rules may be just enough to push climate action from disclosure to accounting. First Europe. Then California. And now, the US Securities and Exchange Commission. The SEC on Wednesday enacted long-awaited rules requiring companies to disclose their climate risk to investors, strengthening an emerging global regulatory regime that is making greenhouse gas emissions a material consideration for companies and investors. More than 3,000 domestic and foreign companies will be required to report the financial costs of their transitions away from fossil fuels and their physical risks from storms, drought, heat and other effects of global warming. The new rules will give “investors much-needed insight on how companies are managing the material financial risks and opportunities presented by climate change,” said Ceres’ Mindy Lubber. 

• Yes, but. As had been expected, the SEC’s final rules, even at 900 pages, were more limited than the preliminary version championed by many climate activists. They were especially critical of the omission of reporting requirements for so-called Scope 3 emissions, that is, greenhouse gases produced by supply chain partners, customers, or borrowers for which a company is responsible, even if indirectly. For many companies, Scope 3 emissions constitute the majority of their emissions – think, for example, of the emissions from gasoline produced by oil companies that is later burned in millions of car owners’ vehicles. “While a positive step, this rule falls significantly short of what’s needed,” said the Sierra Club’s Ben Jealous. 

• Legal challenges. Corporations and the US Chamber of Commerce had lobbied furiously against many of the disclosure requirements and even the weakened rules will face legal challenges. West Virginia Attorney General Patrick Morrisey quickly said at least 10 states would challenge the rules in the U.S. Court of Appeals in Atlanta. The U.S. Impact Investing Alliance advised that opponents could mount a Congressional Review Act challenge, “which President Biden would likely veto if passed.” On the other side, groups like the Sierra Club and Earthjustice are considering legal challenges of their own for the removal of key provisions. 

• Beyond disclosure. The SEC rules may be just strong enough to support the development of true climate accounting, said Alicia Seiger of Stanford’s Steyer-Taylor Center for Energy Policy and Finance (see, “From carbon counting to carbon accounting: The case for Emissions Liability Management”). “It really leaves the door open and paves the way for a real accounting system,” she said. Every indirect Scope 3 emission, after all, is somebody else’s direct Scope 1 emission. Accurate accounting for Scope 1 emissions, plugged into algorithms like those developed by the E-Liability Institute, can arguably account for all emissions, Seiger said. “So, you’re getting upstream Scope 3. You’re just getting it through an accounting system that is adding up all the Scope 1s.”
  
• Keep reading, “New SEC rules may be just enough to push climate action from disclosure to accounting,” by Andrea Riquier and David Bank.

Dealflow: Smallholder Agriculture

Warc raises $7.5 million for regenerative agriculture in West Africa (video). Argentinian entrepreneur Emiliano Mroue founded the Ghana-based social enterprise over a decade ago. The company serves roughly 20,000 smallholder farmers in Ghana and Sierra Leone with wholesale inputs and access to markets. Mroue funded Warc’s growth with patient capital from investors including Cordaid, Acumen, Ceniarth, and the Mulago, Small and Dovetail foundations. Now, commercial investors are coming on board to help boost the number of farmers Warc reaches five-fold. Swiss family office Kielder Agro led Warc’s series B. US-based Rippleworks added a debt investment. “We are very happy to be able to show that commercial capital can work in this context,” Mroue told ImpactAlpha in a video interview at FLII in Merída. “Without the impact capital we will not have gotten there.”

• Scaling social innovation. Mroue predicts Warc’s 2024 revenues will hit $20 million; last year, Warc channeled $7 million to farmers. Models that operate in remote locations and require social innovations go slower and take time to prove out, says Mroue. But since the markets are underserved “it could be extremely profitable as well if it’s done properly.” Warc “has always believed that you can take subsistence farmers out of poverty,” Acumen’s Jaqueline Novogratz said in a statement. Acumen, which first invested in 2019, is proud to see the company “become financially sustainable and attract this critical capital to take them to the next stage of growth.”
  
• On location. Warc has built a network of more than 100 women-led “training hubs” in villages where it operates. It works with farmers to improve soil health, crop diversification, and regenerative agriculture farming techniques. It then acts as a secure buyer, providing farmers with guaranteed, predictable prices for their produce. “The whole logic is to be physically close to the farmer always,” explains Mroue.
  
• Share this post. And watch Dennis Price’s interview with Warc’s Emiliano Mroue.

Gates Foundation seeds Africa Water Facility with $6 million grant for urban sanitation. Africa Water Facility, launched by the African Ministers Council on Water and managed by the African Development Bank, aims to bridge the continent’s roughly $35 billion financing gap for clean water and sanitation. The urban sanitation initiative will provide catalytic capital and technical assistance for up to 50 projects to increase access for 15 million Africans. Gates Foundation and AfDB teamed up in 2018 on a similar initiative. Last year, Incofin, British International Investment and water infrastructure investor Metito Utilities rolled out new funds for clean water and sanitation in Africa. AfDB’s Africa Water Facility has financed 138 water and sanitation projects in 52 African countries. 

• Opportunities for private investors. A meager 2% of private finance mobilized in Africa between 2012 and 2020 went into water and sanitation. Untapped investment opportunities include stormwater management, flood risk management and insurance, infrastructure maintenance, irrigation solutions, storage, coastal protection facilities and sewerage treatment.

• Check it out.

Dealflow overflow. Investment news crossing our desks:

• Online lending app mPokket secured $60 million in debt to provide India’s young professionals and freelancers with access to credit. (VCCircle)
  
• Catalyst Opportunity Funds provided $56 million for a mixed-use development project that will create affordable workforce housing for low-income families in Salt Lake City. (Catalyst)
  
• Mexico’s Niko clinched $3.3 million to finance and install rooftop solar for homes and small businesses. (Contexto)
  
• MDaaS Global raised $3 million, led by Aruwa Capital, to help low-income patients in Africa get access to early diagnosis and medical specialists and treatment options faster. (MDaaS)

Impact Voices: Tech for Good

VilCap and IBM propel new technologies as a catalyst for life-improving services. Change brings fear and resistance, as we’re seeing in response to the fast evolution of generative AI. Startup founders in a recent Village Capital accelerator program with IBM exemplify the opportunity for emerging technologies to advance quality of life and resilience worldwide. “Technophobia will of course persist,” writes VilCap’s Ben Younkman in a guest post, “but we hope that impact investment will continue to build up ventures that deserve funding, mentorship and exposure in order to advance technology that helps millions of people.”

• Better services. Johannesburg-based Axalio is using AI to connect Africa’s artisanal miners to finance that helps them improve the safety of their working conditions and access to more lucrative markets. NeuralMed’s algorithms “are able to digest and structure any type of medical data” to streamline healthcare and disease management. Elemendar in the UK is partnering with government agencies to understand cybersecurity vulnerabilities and threats “without needing teams of analysts.”
  
• Read Ben Younkman’s full post.

Agents of Impact: Follow the Talent

Zee de Gersigny, formerly with the Collaborative for Frontier Finance, joins FSD Africa as investment head of venture and early stage financing vehicles. Susan de Witt, also previously with CFF, departed the organization to pursue a PhD in nature and biodiversity finance in Africa at Stellenbosch University… Sayuri Nonaka, a former principal at Universal Materials Incubator, joins Pangaea Ventures as director for Asia… Opportunity Finance Network hires Brendon Miller, previously with Washington Area Community Investment Fund, as executive vice president, chief of staff and head of communications.

Common Trust is hiring a remote content marketing and design specialist… The San Francisco Environment Department is recruiting a senior climate program coordinator… Schroders is on the hunt for a temporary sustainability manager in London… Next Cubed’s HBCU Founders Accelerator Demo Day will take place on April 11 in Atlanta. 

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

Thank you for your impact!

– March 7, 2024