The Brief: Plugged In to the inclusive economy, fossil fuel doom loop, Canada’s employee ownership trusts, recapitalizing Copia in Kenya, Voices of impact management

The team at

ImpactAlpha

Greetings, Agents of Impact! 

Plugged In: Investing in an inclusive economy (live on LinkedIn). Lenore Champagne Beirne founded Bright Ventures to bring capital and coaching to inclusion-focused innovators. Bright Ventures Fund, launched in 2021, has backed a dozen diverse-led ventures in digital health, fintech and the future of work. Champagne Beirne joins Plugged In host Sherrell Dorsey on LinkedIn Live, Thursday, Dec. 21, at 9am PT / 12pm ET / 5pm London. RSVP today.

Featured: The Transition

Renewables’ improved performance and falling costs doom fossil fuels, even if COP28 didn’t. Consensus, Margaret Thatcher once said, is “the process of abandoning all beliefs, principles, values and policies.” The consensus text from 197 nations at COP28 in Dubai left many parties, and the planet, wanting. The key phrase: “transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner.” Calling out fossil fuels was hailed as a historic win, but left out were obvious uses of oil, such as fuel, plastics and petrochemicals. A big tell was the reaction of Saudi Arabia. “The issue of immediate and gradual disposal (of fossil fuels) has been buried,” the country’s Energy Minister Prince Abdulaziz bin Salman crowed on Saudi television. But builders of the low-cost, low-carbon renewable economy can seize the new narrative as well. “This was a death knell for new infrastructure, new pipelines, new wells, new gas processors, all of it,” Stephan Nicoleau of Full Cycle Partners tells ImpactAlpha.

  • Stranded assets. Hastening fossil fuels’ doom loop are the favorable economics of clean energy. Despite inflationary and interest-rate road bumps, most notably for offshore wind, costs have been rapidly declining for renewable energy and storage as utility-scale deployment takes off. Batteries, for example, are set to “enable the phaseout of half of global fossil fuel demand,” according to RMI. Says Germany’s climate envoy Jennifer Morgan, “Every investor should understand now that the future investments that are profitable and long-term are renewable energy — and investing in fossil fuels is a stranded asset.” 

Signals: Ownership Economy

With employee trusts, Canada opens a pathway to worker ownership. Expect to see a surge in Canadian companies becoming employee owned in 2024. Legislation set to go into effect in the new year creates a framework for “employee ownership trusts” and provides incentives for Canadian companies to transfer ownership to workers, rather than, say, selling to private equity firms. A capital-gains tax break on the first $10 million of a sale could save departing business owners more than $2 million in taxes. “We’ve finally got all of the pieces in place that we need for there to be a burgeoning employee-ownership sector here in Canada,” says Jon Shell of Social Capital Partners, a Toronto-based nonprofit championing worker ownership strategies (and which launched a $2 million demonstration portfolio).

  • Scaling employee ownership. Canada is joining the ranks of countries using worker ownership as a strategy to foster economic growth, preserve jobs and mitigate rising income inequality. The UK has seen a surge in employee-ownership conversions since the government introduced employee ownership trusts in 2014. In the US, employee stock ownership plans, or ESOPs, provide significant tax advantages to companies in which employees hold a stake of at least 30%. If the Canadian policy is successful, says Mark Hand of University of Texas at Arlington, “then we should see thousands of these companies established in the next few years.”
  • Wealth transfer. With three of every four Canadian small businesses set to change in ownership over the next decade, employee ownership “really is the solution” to building broader-based wealth, says Tiara Letourneau of Rewrite Capital Advisors and a member of the Canadian Employee Ownership Coalition. “Now every time you tell your accountant, ‘I’m thinking about selling my business,’ they’re gonna say, ‘Have you heard of an employee ownership trust?’”
  • Keep reading, “With employee trusts, Canada opens a pathway to worker ownership,” by Roodgally Senatus on ImpactAlpha. 

Dealflow: Last-Mile Commerce

Investors back Copia with fresh capital to right the ship. The wave of investment to digitize informal businesses in emerging markets produced overfunded startups, artificial valuations and unproven business models. Kenyan e-commerce company Copia is seeking to recover from the fallout. The company raised more than $100 million to offer a catalog of products to people living outside standard delivery areas; more recently, it has instituted multiple rounds of layoffs and pulled out of the Ugandan market (see, “Trouble at Twiga… and Copia… and Sendy“). Investors are re-upping their commitment to the company with a $20 million Series C extension round. The round includes participation from Enza Capital, Goodwell Investments, LGT Group, the DFC, Germany’s DEG, Sorenson Foundation and others.

  • Path to profitability. Copia’s network of field agents support rural customers in placing and securing orders. The company is working to digitize its agent network amid increasing smartphone adoption. Copia announced a partnership Visa to let customers’ overseas friends and family pay for goods with a digital wallet. John Lazar, former CEO of Microsoft-owned Metaswitch joined the board. The “push towards digitization feels like an inflection point for us,” said Lazar. “It just changes the game on unit economics and efficiencies.”
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San Diego County eyes $166 million for green bond for public health facilities. San Diego, California’s second-largest county, aims to promote sustainable development and preserve natural resources through regional planning. The county is issuing a $166 million bond to build a new Public Health Laboratory for rapid testing for infectious diseases, genome sequencing, wastewater disease surveillance and tuberculosis testing. The bond will also fund other facilities for the Health and Human Services Agency housed at the county’s operations center. 

  • Use of proceeds. The county has already contributed $112.3 million, as well as $18.8 million in grant funding, to the project, explains HIP Investor’s Anna Rautenberg. HIP gives San Diego County a “net positive” impact rating of 73.6 out of 100. Its issue has been designated a green bond for the facilities’ sustainability features. The bond closes on Tuesday, Dec. 19.
  • Get the details. ImpactAlpha is featuring the issue as part of our ongoing series with HIP to feature bond issuers with strong social and/or environmental practices.

Dealflow overflow. Other investment news crossing our desks:

  • Ara Partners locked in more than $3 billion for its third fund, focused on industrial decarbonization. Its first investments include sustainable packaging supplier Genera and Vacuumschmelze, a producer of rare earth magnets. (Ara Partners)
  • Opportunity Finance Network committed $8.5 million from its Finance Justice Fund to Maine’s Coastal Enterprise Inc., NC-based Self-Help Ventures, Florida’s Solar and Energy Loan Fund and three other community development financial institutions to support climate resilience. (Business Insider)
  • Accion Venture Lab invested in Bababos, which connects Indonesia’s small manufacturers with raw materials, and Showroom B2B, which connects small garment makers to retailers in India’s secondary cities. (Accion Venture Lab)
  • Bamboo Capital launched its BUILD investment fund and technical assistance facility to support small businesses in Zimbabwe. The impact fund manager earlier this year scored $10 million for the BUILD Fund’s planned work in Zimbabwe and Zambia. (Bamboo Capital)

Impact Voices: Impact Management

The push: Limited partners and regulators are demanding more rigorous impact reporting. The pull: Fund managers are finding alpha in impact. Agents of Impact share what works: 

💲Three principles behind the SDG Loan Fund for mobilizing capital at scale. The $1.1 billion SDG Loan Fund shows that “collaboration, co-creation and constructive problem solving among three different types of market actors can attract private commercial investors to deploy significant capital into emerging markets,” writes Laurie Spengler of Courageous Capital Advisors. Learn how.

🇺🇳 How investors are moving from ‘alignment’ to ‘contribution’ to the UN Global Goals. Savvy investors are reporting not only their alignment with the UN Sustainable Development Goals, but the contribution of their capital in achieving them, writes Neil Gregory, an advisor to West Potomac Capital. Hint: asset allocation strategy contributes as much as specific investments. Get his take.

⚕️ Seven ways to maximize (and measure) the impact of health impact investing. British International Investment conducts deep-dive gap analysis. Quadria Capital initiates impact discussions with companies in due diligence. LeapFrog Investments monitors metrics widely used in public health, like disability-adjusted life years, or DALYs. Dalberg’s Maximus Ateba, Kusi Hornberger and Divya Karan share top practices investors use to maximize the impact of their health investments. Collect the whole set.

🗣️Why this Latin American venture fund is listening to customers to drive impact and returns. ALIVE Ventures worked with 60 Decibels to survey 2,300 customers from portfolio companies in its first fund. Limited partners valued the impact data; companies used it to up their game. ALIVE’s second fund will link part of its carry to impact outcomes, with customer voice as a source of impact accountability, shares 60 Decibels’ Carla Grados Villamar. Take a peek.

Agents of Impact: Follow the Talent

Matthew Mendelsohn, who led the Canadian government’s impact and innovation unit, will become CEO of Social Capital Partners. Jon Shell chairs the board… Forest Investment Associates appoints Mike Cerchiaro as president and CEO, replacing Mark Walley. FIA also promotes Andrew Boutwell to head of investment management, and MaryKate Bullen to head of business development and sustainability… Kiko Ventures adds three members to its investment team: Arielle Schacter, ex- of Connecticut Innovations; Marius Evers, ex- of Trade Republic; and Paul Eisenberg, ex- of Planet A Ventures. 

Opportunity International is looking for a senior associate of capital solutions in Chicago… Enfinity Global is hiring a renewables portfolio manager in Miami… The Impact Facility is recruiting a program executive director in London… Oikocredit seeks an investment officer in Nigeria… IIX has an opening for an innovative finance analyst in Singapore… ROM InWest is looking for an investment manager in the Netherlands… The European Network Against Racism Foundation is on the hunt for a Belgium-based manager for its Racial Economic and Justice Investment Fund.

“DEI done well,” a SOCAP23 panel moderated by ImpactAlpha’s David Bank, is now available on YouTube. “Evaluating impact in gender lens investing,” moderated by Dennis Price, is also available. Watch all 15 featured sessions here (use the password “socap23”). 

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

Thank you for your impact!

– Dec. 14, 2023