Greetings, Agents of Impact!
Featured: Carbon Markets
Forget crypto. Here’s how to play the rising price of carbon (podcast). Rising demand. Shrinking supply. Higher prices. Carbon markets in Europe, California and elsewhere are finally starting to work as intended to raise the cost of greenhouse gas emissions for power plants, refineries and other major polluters. “Suddenly we’re at a point where you hit that inflection where supply and demand flips,” venture capital and private equity investor Edwin Datson says on the latest Agents of Impact podcast. “People start suddenly realizing that not only will there be scarcity this year, but that scarcity will get worse and worse and worse. And then that really drives the prices up.” Prices in Europe’s emissions trading system, which until recently hovered at about €5 ($5.90) a ton, are nearing €60 ($70) (see, “That feeling when investors realize carbon is going to $100 a ton sooner than they expected”). California prices have risen to about $22 a ton, from about $14 late last year. That is making it cost effective to undertake operational changes and carbon-mitigation projects that were considered uneconomical only a short time ago.
Corporations and outside investors are starting to stockpile carbon allowances and credits as prices curve upward. Datson and other fund managers spot an opportunity to buy baskets of allowances and credits in a variety of markets to meet the growing needs of customers. “We think that there’s a huge opportunity to acquire a diversified portfolio of these things around the world,” he says in the podcast. Even investing in basic carbon exchange-traded funds like KraneShares Global Carbon ETF (KRBN) or iPath Series B Carbon ETN (GRN) have year-to-date returns of nearly 50% and more than 70%, respectively. “We think you can do better than that, or as good as that, by also investing in high-quality offsets and in schemes which are at an earlier stage of their development,” Datson says. “You can invest early in the less-liquid schemes before the futures markets are well developed, before the liquidity is there, and get outsized returns for taking that lack of liquidity.”
Keep reading “Forget crypto. Here’s how to play the rising price of carbon,” and listen to the podcast. Catch up on all of ImpactAlpha’s podcasts, including our weekly Impact Briefing.
- ImpactAlpha’s coverage of carbon pricing and carbon markets is supported by Solutions Journalism Network.
Dealflow: Affordable Housing
IMPACT Community Capital raises $210 million to preserve affordable housing in the U.S. Federal affordability restrictions on more than 123,000 housing units expire this year; hundreds of thousands more expire over the next several years. The IMPACT Mortgage Opportunities Fund is looking to preserve affordable housing by providing short-term bridge loans as owners apply for longer-term financing and government subsidies. Typical loan sizes will range from $5 million to $20 million. “Strong interest in co-investment opportunities from investors will allow us to finance much larger deals,” IMPACT’s Jeff Brenner told ImpactAlpha. The fund will target deals all over the country; Brenner expects most deals to be in larger markets where the need for affordable housing is acute.
- Institutional impact. IMPACT Community Capital was founded by major insurance companies. Commitments from the insurers and other institutional investors “shows that they recognize the challenge that there’s a lack of affordable housing, and they’re putting their investment capital to it,” Brenner said. The mortgage opportunities fund received commitments from Pacific Life Insurance, Farmers Insurance Group, Nuveen, New York Life Insurance, Nationwide Mutual Insurance and Bank of Labor.
- Check it out.
Clinify Health and HUED raise funding to improve access to health providers for underserved communities. Chicago-based Clinify is aiming to improve healthcare access and outcomes for families by combining financial and clinical data with insights on the social determinants of health. The Black-led startup raised $3.1 million in a round backed by Seae Ventures, Better Ventures, Acumen America, Impact Engine and the California Health Care Foundation. Clinify partners with 35 clinics in Chicago; the company is looking to expand to California, Tennessee and Minnesota.
- Health equity. Black woman-led HUED matches Black and Latinx patients with similar providers for culturally-sensitive health care. The Washington, D.C.-based company scored $1.6 million from Serena Williams’ Serena Ventures, Osage Ventures, Black Founders Matter, Halle Tecco, Gingerbread Capital and Northwestern Mutual (see, “Northwestern Mutual backs Black fund managers with a $100 million impact fund”).
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Dealflow overflow. Other investment news crossing our desks:
- GreenLight Biosciences agreed to go public in a $1.2 billion merger with Environmental Impact Acquisition Corp., a special purpose acquisition company, or SPAC, backed by Canadian investment bank Canaccord Genuity Group.
- Southern Company spins out carbon offset startup Cloverly in a $2.1 million deal led by Tech Square Ventures.
- EV charging software company AmpUp raised an undisclosed sum from Goodyear Ventures, Foothill Ventures and TechNexus Venture Collaborative.
- Blue Like an Orange backs fintech Credijusto to support Mexico’s small businesses.
- PNC Financial Services Group closed an inaugural social bond issuance of $700 million for projects that promote positive social outcomes in underserved populations.
Impact Voices: Social Infrastructure
Five critiques of blended finance – and five responses from Convergence. The opportunity to blend private capital with philanthropic and public funding has been heralded by financial heavyweights from BlackRock to billionaire-backed Breakthrough Energy as a way to advance investments aligned with the U.N. Sustainable Development Goals (see, “Business leaders rally to U.S. infrastructure bill to mobilize capital for climate solutions”). “As blended finance becomes more prosaic and widespread, it also attracts more skeptics, and for good reason,” writes Joan Larrea of Convergence, a global network for blended finance. “Private sector involvement in development should always warrant close scrutiny.” In a guest post on ImpactAlpha, Larrea takes on common critiques of blended finance.
- Concessionary capital. Transactions that include public and philanthropic funding risk distorting markets, says Larrea. That’s why below-market interest rates and other concessional terms should be used sparingly: for transactions outside the risk-return mandates of private investors, or to bring in commercial capital that would otherwise stay on the sidelines. The OECD and other organizations have developed principles to help donors assess the appropriateness of blended finance and concessional financing.
- Keep reading, “Addressing five common critiques of blended finance for global development,” by Joan Larrea on ImpactAlpha.
Agents of Impact: Follow the Talent
Trella Walker is named interim CEO and president of Nonprofit Finance Fund. CEO Antony Bugg-Levine announced his departure in June (see, “Agent of Impact: Antony Bugg-Levine“)… David Su, ex- of Norwest Venture Partners, will co-lead the global impact arm of Apax Partners… Liliana Alvarado is promoted to executive director at Ethos Public Policy Lab.
B Lab is recruiting a new global CEO… Elevar Equity is looking for an associate of capital partnerships, location flexible… Owl Ventures seeks an executive assistant in San Francisco… Catalyst at Large and Wharton Social Impact Initiative are surveying private equity, venture capital and private debt funds with a gender lens for Project Sage 4.0.
Thank you for your impact.
– Aug. 17, 2021