The Brief | April 25, 2022

The Brief: Scope 3 for social, circular innovation, decarbonizing products, supply chain visibility, inclusive fintech in Pakistan, XPRIZES for carbon removal

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Greetings, Agents of Impact!

Featured: Scope 3 for Social

Expanding the ‘S’ in ESG to account for the full scope of corporate impact on workers and communities. A company’s climate impact reaches upstream into its supply chain and downstream into the communities that use its products and services. So, too, does corporate impact on workers and communities. And just as such “Scope 3” emissions that account for the bulk of most companies’ climate impacts are often ignored, the indirect effects of corporate behavior on workers and communities are broadly underestimated. The U.S. Securities and Exchange Commission is preparing rules to require corporate disclosures on direct human capital management factors such as workforce composition, compensation and diversity data. “What is Scope 3 for social?” Fran Seegull of the U.S. Alliance for Impact Investing asked on ImpactAlpha’s Agents of Impact Call in February. To deepen the discussion, the Alliance asked a number of Agents of Impact to weigh in on the full scope of the ‘S’ of ESG.

  • Scope 3 for social. From the “Great Resignation” to the worker-organized unionization of an Amazon warehouse on New York’s Staten Island, worker empowerment represents an increasingly important lever for corporate accountability. “As with climate, emerging ‘S’ standards and metrics will enhance visibility and help investors hold boards accountable for a more expansive set of direct and indirect societal impacts that affect long-term returns,” says Federated Hermes’ Diana Glassman.
  • Community-centric. Companies and investors must be cognizant of the “S” factors that communities and underrepresented groups care about most. For example, a corporation may score highly on ESG for board diversity, while simultaneously dumping pollutants into rural communities where many of their employees of color live, says Rachel Robasciotti of Adasina Social Capital. “It’s time to lay everything on the line for workers, customers and communities,” adds PolicyLink’s Mahlet Getachew. “It’s time to redesign business as usual.”
  • Investment incentives. Certain forms of venture financing can pressure companies to “blitzscale,” cut corners on social responsibility, and box out small and mid-sized businesses that may grow at a more stable pace. And, “excess leverage that is put upon portfolio companies can drain them of the resources necessary to offer quality jobs to workers and affordable goods and services to customers,” says The Predistribution Initiative’s Delilah Rothenberg.  
  • Keep reading, “Expanding the ‘S’ in ESG to account for the full scope of corporate impact on workers and communities,” by Fran Seegull on ImpactAlpha. Catch up on all of ImpactAlpha’s policy coverage at Policy Corner, sponsored by the U.S. Impact Investing Alliance.

Dealflow: Circular Economy

Circular Innovation Fund secures €50 million from L’Oréal. The commitment to the joint venture between Montreal-based Cycle Capital and Paris-based Demeter will back funds and growth-stage ventures targeting waste-reduction solutions in materials, packaging, logistics and recycling. The cleantech fund managers will focus on opportunities in North America, Europe and Asia “to scale circular and profitable solutions for sustainable growth,” said L’Oréal’s Alexandra Palt. The fund, which is looking to raise €150 million ($162.3 million), has also received commitments from the family office Haltra and other private investors. Cycle Capital and Demeter also are investing their own capital in the fund.

  • Circular managers. The fund has invested in early-stage funds Closed Loop Partners and Germany’s European Circular Bioeconomy Fund. Closed Loop secured $35 million from PepsiCo earlier this year to invest in small-scale recycling facilities in underserved communities.
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Air Company raises $30 million to turn carbon into vodka and other products. New York-based Air Company uses only air, water and sunlight to transform captured carbon into carbon-negative spirits and other products. It’s among a wave of tech startups that are using captured carbon in consumer products such as hand sanitizer, perfume, handbags, watches and jewelry. Air Company, which launched in 2019, was a finalist for last year’s XPRIZE for turning carbon into high-value products (see below for this year’s carbon removal XPRIZE finalists). Its Series A round was led by Carbon Direct Capital Management with participation from Toyota Ventures, JetBlue Technology Ventures and others.

  • Low-carbon transition. Alberta-based Carbon Upcycling Technologies raised $6 million to produce carbon-enhanced additives for the concrete industry. The company says its carbon-embedded cement and concrete additive can reduce emissions in concrete production by 30%. The round was backed by impact venture funds Clean Energy Ventures and Amplify Capital.
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Dealflow overflow. Other investment news crossing our desks:

  • Spring Lane Capital raised $50 million to invest in sustainable solutions in energy, food, water, waste and transportation. Spring Lane also backed Andion, a renewable natural gas producer.
  • Tive raised $54 million from SJF Ventures, Fifth Wall, Sorenson Capital and others to provide supply-chain visibility for shippers, logistics providers and carriers.
  • Pakistani fintech Abhi scored $17 million to offer emergency loans to individual borrowers and working capital loans to small and mid-sized businesses.
  • Palmetto, which aims to democratize solar energy access for homeowners, secured an undisclosed investment from Main Street Advisors.

Signals: Carbon Tech

Elon Musk’s $100 million XPRIZE awards $15 million to scale carbon removal. The 15 “milestone” winners from nine countries each were awarded $1 million to scale up carbon removal solutions with gigaton potential. The competition was launched in 2020 by Musk and his foundation to spur innovation in removing carbon from agroforestry to direct air capture and storage. Final winners will share an $80 million pot in 2025. “These solutions need to be huge systems and large infrastructure investments,” tweeted Mike Kelland of Nova Scotia-based Planetary, which won for its technology that uses purified mine waste to increase the ocean’s ability to absorb CO2. To demonstrate demand, Stripe and other companies are collaborating through Frontier to make a $925 million “advance market commitment” for carbon removal (for context, see, “How climate investors are getting ready for the carbon removal boom”).

  • Carbon tech. Awards went to a mix of known names, such as Verdox, Heirloom and Carbfix, as well as new entrants. North Carolina-based Sustaera, which is backed by Breakthrough Energy Ventures and the Grantham Trust, will use the prize to build a demonstration plant that removes 10 tons of carbon per day. MIT spin-off Takachar develops low-cost, portable equipment to convert waste biomass into solid fuel, fertilizer and specialty chemicals. Registration for the carbon removal grand prize is open through Dec. 1, 2023.
  • Scaling solutions. The carbon tech and removal market could grow to more than $1 trillion, according to the Circular Carbon Network, an XPRIZE research initiative. The group has identified more than 400 companies in 38 countries working on such solutions. About 185 of those companies have raised a total $3 billion, with nearly a third of that raised since 2020. The sector’s first unicorns include IndigoAg, Solugen, Zume and LanzaTech. Despite the interest, “there remains a Grand Canyon-sized gap between where we are and where we need to be,” the network reports.
  • Catalytic capital. The network reported a 150% surge in carbon and climate-focused investors with a seven-plus year horizon in 2021, and a 65% increase in investors prioritizing impact. One-fifth of investors are willing to accept lower returns or higher risk for impact.
  • Suck it up.

Agents of Impact: Where to Meet

Don’t miss these ImpactAlpha partner events:

  • AVCA is convening “Private Capital in Africa at a Crossroads,” featuring Franklin Amoo of Baylis Emerging Markets, Hany Al-Sonbaty of Sawari Ventures, and Gozie Chigbue of British International Investment (formerly CDC Group), in Dakar, Apr. 25-29. Register today.
  • Island Innovation is hosting its online Island Finance Forum, Apr. 25-29, including Onika Benn of Linden Fund USA, Silvia Garrigó of The Royal Caribbean Group, and Robert Persaud, foreign secretary of the government of Guyana. Register now.
  • BlueMark is hosting “Raising the Bar: Aligning on the Key Elements of Impact Performance Reporting,” with Fran Seegull of the U.S. Impact Investing Alliance, Elizabeth Seeger of KKR, Tamar Pashtan of Vital Capital, Bhavika Vyas of StepStone Group, and BlueMark’s Sarah Gelfand, Wednesday, Apr. 27.
  • ImpactPHL is convening “Total Impact: Investing for New Economies,” featuring Adriana Abizadeh of Kensington Corridor Trust, Amelia Nickerson of First Step Staffing, and Erika Seth-Davies of Rhia Ventures, in Philadelphia, May 16-17. ImpactAlpha subscribers get $300 off with code IMPACTALPHA. RSVP today.

Thank you for your impact!

– Apr. 25, 2022