The Brief | November 24, 2021

The Brief: Spinning off ReNewCos, wildfire reinsurance in California, community solar in New York, impact startups in Latin America, corporate political activity

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Greetings, Agents of Impact! We’re taking a Brief break for the Thanksgiving holiday here in the U.S. We’ll be back in your inbox on Monday, Nov. 29. As always, please send news, tips and scoops to [email protected]

🏦 Exclusive Briefing: Capitalism Reimagined. In their first public briefing, participants in the New Capitalism Project will explore the steps needed to redesign the rules, practices, narratives and power relationships of our broken economic system. Join Meredith Sumpter of the Coalition for Inclusive Capitalism, Carol Anne Hilton of Indigenomics Institute, Eli Kasargod-Staub of Majority Action, Amit Bouri of the Global Impact Investing Network and Omidyar Network’s Chris Jurgens, in conversation with ImpactAlpha’s David Bank, on Agents of Impact Call No. 35, Tuesday, Nov. 30 at 10am PT / 1pm ET / 6pm London. RSVP today.

Featured: Climate Finance

Accelerating net-zero transition pushes incumbents to spin off green ‘ReNewCos.’ From Shell to Ford to General Motors, investors are clamoring for companies to spin off their high-growth green businesses from their stodgy legacy operations. The thesis: Such NewCos – or better yet, ReNewCos – will be able to reap the rich valuations and easy access to capital enjoyed by clean energy providers and electric vehicle makers at the forefront of the transition to a low-carbon economy. The OldCos can be milked for profits while they last. Already, General Electric is breaking up, as its German competitor Siemens AG has already done. A growing chorus is demanding the same from automakers GM and Ford, which are worth less than pure-play EV makers Tesla and Rivian despite far higher sales. “The risk and return is totally different for the new business than the old business,” says UC San Diego’s David Victor. “The more the new businesses thrive, and the old businesses die, the more they must be managed distinctly.”

But if incumbent automakers are scrambling, most fossil-fuel companies are strolling into the low-carbon future. Climate laggards Exxon and Chevron have doubled down on oil and gas production. BP and Shell are making significant investments in wind and solar, but see a continuing role for oil and gas. Last month, Daniel Loeb, the billionaire founder of hedge fund Third Point, laid out the rationale for breaking up Shell. The standalone legacy energy business could reduce spending, sell assets and return cash to shareholders, he said. A carved-off natural gas and renewables unit could aggressively invest in carbon-reduction technologies and benefit from a much lower cost of capital. At COP26, BlackRock’s Larry Fink floated a different idea: managed decline. Oil and gas companies would put portions of their hydrocarbon businesses into “declining trusts” – much like financial institutions parked toxic assets in “bad banks” – and put the proceeds toward green energy, Fink said. “We need to create new vehicles, new thought processes.”

Keep reading, “Accelerating net-zero transition pushes incumbents to spin off green ‘ReNewCos’,” by Amy Cortese on ImpactAlpha.

Dealflow: Conservation Finance

Kettle secures $25 million to provide wildfire reinsurance for Californians. The San Francisco-based company is looking to fill a gap in the $400 billion-a-year reinsurance industry: accurately pinpointing and underwriting climate risk. With seven billion rows of weather and satellite data and ‘deep learning,’ Kettle says it can predict wildfires and accurately price the cost of reinsuring businesses and homes in California. By “understanding exactly where the risk is, we can bring stability back to the California insurance market,” Kettle’s Nathanial Manning said. The company is also looking to create products to predict the patterns and risks of floods, wind and hurricanes.

  • Wildfire risk. More than three million acres burned during California’s recent wildfire season, after four million acres burned last year (for context, see “Wildfires bring to the fore financing for forest resilience”). Kettle said it was able to predict the location of last year’s 14 largest fires, which accounted for nearly all of the damage.
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A $55 million credit facility will help Urban Energy develop community solar in NYC. The Brooklyn-based solar developer is accelerating clean distributed energy for the city’s buildings, which account for more than 70% of New York’s carbon emissions. Urban Energy offers rooftop solar products for multifamily residential and small commercial-building owners, including solar canopies for pre-war buildings used for low-income and public housing. It also enables building owners to lease unused rooftop space to solar developers.

  • Solar portfolio. The credit facility from New Jersey-based Scale Microgrid Solutions will help Urban Energy scale up community solar projects in all five boroughs. “We intend to acquire the projects they develop over a fixed period of time so we can own and operate them in the long-term,” Scale’s Julian Torres told ImpactAlpha.
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Dealflow overflow. Other investment news crossing our desks:

  • Seaya Ventures and Cathay Innovation close a $125 million fund for impact tech startups in Latin America.
  • DiviGas raises $3.6 million to produce clean hydrogen in a round co-led by Energy Revolution Ventures and Mann+Hummel.
  • Nigeria-based gender lens investor Aruwa Capital backs Agroeknor to export dried hibiscus flowers sourced from female smallholder farmers. 

Impact Voices: Policy Corner

Congress must keep path clear for SEC to require corporate political spending disclosure. The climate around corporations’ political engagement in the U.S. has shifted. Investors and consumers are increasingly attuned to companies’ election spending and lobbying, and how that lines up with their corporate values. Those that care about disclosures of political spending should be watching the upcoming federal budget debate in Congress closely, writes Rachel Curley of Public Citizen. Her guest post is part of ImpactAlpha’s Policy Corner coverage, sponsored by the U.S. Impact Investing Alliance.

  • Fine print. Several years ago, a rider in a spending bill stopped the U.S. Securities and Exchange Commission from requiring corporations to disclose political spending. Negotiations in Congress to keep the government funded beyond Dec. 3 offer a chance “to pass a clean budget free of this pernicious provision,” Curley argues. The significance: Without direction from the SEC, there are no rules to ensure that shareholders are “informed of decisions around spending their money in politics,” she explains. “Now is the critical time for Congress to hear from stakeholders.”
  • Keep reading, “Congress must keep path clear for SEC to require corporate political spending disclosure,” by Rachel Curley on ImpactAlpha.

Agents of Impact: Follow the Talent

Jeroen Bos, ex- of NN Investment Partners, joins Credit Suisse as global head of sustainable investing for asset management… Kurt Morriesen, ex- of United Nations Development Programme, joins Legal & General Investment Management as head of investment stewardship… CapShift is recruiting a director of public impact investments… The Fuqua Career Management Center at Duke University is looking for a sector director for sustainability and social impact.

Thank you for your impact.

– Nov 24, 2021