Greetings, Agents of Impact!
Featured: Political Risk
Is a green transition the cause – or the solution – in Sri Lanka’s crisis? It was an irresistible meme: A crash transition to organic farming tanked Sri Lanka’s agricultural sector and sent the country into an economic and political tailspin. Except it’s not true. Scenes of protesters swimming in the presidential mansion’s pool, burning the prime minister’s residence – and the departure of President Gotabaya Rajapaksa, who fled to the Maldives – are the result of years of poor economic policymaking and corruption. The mess that was made of the country’s organic policy was part of a long series of mistakes, and says more about the country’s governance than it does about organic agriculture. “We’ve known this was coming,” one former investment banker and impact investment officer told ImpactAlpha.
- Farming failure. President Rajapaksa promised to phase-in all-organic agriculture in Sri Lanka. But last spring, his government imposed an overnight ban on synthetic fertilizers in what appeared to be a cost-saving move amid the country’s increasing financial hardship. It takes years to convert and certify organic farmland. Sri Lanka’s farmers were largely left to figure out how to grow crops on nutrient-depleted land with little resources, training or assistance. Crop yields plummeted. Then came inflation, currency devaluation, the war in Ukraine, and soaring fuel prices. “Fuel shortages and long queues have severely disrupted daily life,” said Jonathan Abeywickrema of Impact Investment Exchange, who is based in Colombo, Sri Lanka’s capital.
- Models to watch. Prospects for near-term relief from high food and fuel prices seem poor. Longer-term, “there are a lot of obvious solutions,” says Abeywickrema. Adoption of solar power and electric vehicles would buffer Sri Lankans against fuel price hikes. Precision and organic farming (implemented with the proper training and support), and better linkages between farmers and buyers would reduce Sri Lanka’s dependence on food imports, as dehydrated produce exporter Dryzy has been doing for years. Organizations like Social Enterprise Lanka and Lanka Impact Investing Network are building a pipeline of solutions that “can be self-sustaining,” says Abeywickrema, “and a hedge against whatever the government is doing.”
- Keep reading, “Is a green transition the cause – or the solution – in Sri Lanka’s crisis?” by Jessica Pothering on ImpactAlpha.
Dealflow: Green Transition
Apollo Global Management takes a $175 million stake in community solar provider Summit Ridge Energy. The investment in the Arlington, Va.-based owner and operator of community solar projects is the latest move by Apollo, with $513 billion under management, to expand its sustainable investing platform. The private equity firm earlier this year said it would inject $50 billion into renewable energy and decarbonization plays over five years. Summit Ridge’s Steve Raeder told ImpactAlpha that Apollo’s stake “fits in line with their investment thesis.” Summit Ridge expects to operate more than 500 megawatts of solar and 100 megawatt-hours of battery storage projects by the end of 2023, said Raeder, which is enough to serve around 175,000 residential and commercial customers.
- Impact makeover. Apollo, like other private equity firms, has been burnishing its green credentials. Last year, the firm assembled an impact advisory committee led by impact investing veteran Lisa Hall (for background, see “Private equity giant Apollo Global invites agents of impact inside”). Apollo has tied its impact team’s compensation to performance indicators developed in part by the new committee.
- Everybody in. Community solar is attracting interest from deep-pocketed players as a way to expand solar access to lower-income residents who might not be able to afford rooftop solar and to create local jobs. “There’s a whole education and awareness dialogue around, ‘Hey, you can get the benefits of solar through community solar without having it put on your rooftop,’” said Bruce Stewart of Perch Energy, which spun out of BlueWave Solar last year. In January, impact asset manager Lafayette Square joined with Blackstone-backed renewable energy developer Invenergy to create Reactivate, a joint venture that is looking to invest a half-billion dollars in dozens of community solar projects (see “Solar proves a pathway for private capital to flow into low-income communities”).
Five Black tech founders join Northwestern Mutual’s accelerator. Among the startups in the new cohort are Nashville-based Xcellent Life, which helps identify health issues through an AI-based digital health platform; Atlanta-based Pruuvn, which is developing blockchain-based tools to support gig workers; and New York-based SnapRefund, which processes digital claims for insurers and small businesses. The common thread: “Drive to help people live longer, better and healthier lives across financial services, insurance and digital health,” said Northwestern Mutual’s Craig Schedler. Each founder will receive an investment of $100,000, participate in a 12-week program, and get access to Northwestern Mutual’s network of venture partners and mentors.
- Returns on inclusion. The accelerator program, launched last year by Northwestern Mutual and gener8tor, so far has backed 10 founders. Northwestern Mutual tapped its $270 billion general account to create a $100 million impact fund to support Black fund managers. Earlier this year, the financial services giant invested in a pair of Black-led lenders in its hometown Milwaukee.
Dealflow overflow. Other investment news crossing our desks:
- Agtech startup Blue Ocean Barns raised $20 million in Series A financing for its seaweed-based feed that reduces methane emissions from cattle. Last week, Fyto raised $15 million to reuse farm waste for duckweed-based animal feed, which also reduces “cow burps.”
- Crossroads Impact raised $180 million in equity from Conversant Capital and Enhanced Capital Group to boost climate finance, impact real estate investments, and small business lending in underserved U.S. communities.
- Tosca Debt Capital secured £20 million ($23.8 million) from British Business Investments for an impact fund to lend between £1 million and £5 million to small businesses in the U.K.
- VECKTA snagged $3.3 million in seed financing to expand a digital energy marketplace that connects companies with capital, equipment and distributed energy services.
Series: Frontiers in Social Innovation
Six strategies for crossing the valleys of death and scaling social innovations. Innovation is celebrated. But it is the hard work of implementation that makes the difference between a world-changing product and a great idea collecting dust on a shelf. “The art of scaling is a vast and complex undertaking,” writes Steve Davis of the Bill & Melinda Gates Foundation. In the latest in ImpactAlpha’s series, “Frontiers in Social Innovation,” Davis, a lecturer at Stanford’s Graduate School of Business, says the Covid pandemic, climate crisis and widening inequality have put new attention on the art and science of scaling. Such work, he says, “involves developing, adapting and financing an innovative product or service. Then securing the necessary approvals, generating demand on the ground, building channels for distribution, and ensuring that the innovation reaches its intended users.”
- Recent efforts. Davis points to the emergence of “big bet philanthropy,” in which major donors join to fund solutions from conception to implementation in education, energy, agriculture and health (see: Gavi, the Vaccine Alliance). But such well-funded initiatives are the exception. Davis offers a half-dozen strategies that can help social enterprises cross “valleys of death” along the way to large-scale success. “Ideating an innovation and bringing it to the world are entirely different skillsets,” he says.
- Scaling innovations. Scaling an innovation almost always requires that founders cede control of the original idea and turn it over to others for distribution. Regulatory and distribution challenges can trip up young companies. Davis stresses the importance of showing stakeholders the impact of the work via impact metrics aligned with their needs. Says Davis: “We are at a moment in history – one of simultaneous urgency and technological ability – that portends a new era of commitment to bringing more solutions to scale.”
- Keep reading, “Six strategies for crossing the valleys of death and scaling social innovations,” by Steve Davis on ImpactAlpha. Catch up on earlier posts in our “Frontiers in Social Innovation” series.
Agents of Impact: Follow the Talent
TerraCarbon, Ejido Verde, Rally Assets and Beneficial State Bank are among this year’s Best for the World B Corps… Leon Saunders Calvert, ex- of LSEG, joins ESG Book as chief product officer… E, S and G are prominent themes at this year’s virtual Municipal Finance Conference, July 18-20… Boundless is hosting “A new fold: Reshaping the solar module industry,” with University of California Berkeley’s A. Petek Gursel, Origami’s Gregg Patterson and Boundless’ Andreas van Giezen, today at 2pm ET.
Thank you for your impact!
– July 14, 2022