Greetings, Agents of Impact!
Sustainability-linked debt is giving more companies incentives to do the right things. Greece’s largest power utility put itself on the hook to reduce its carbon emissions with its €500 million ($591 million) bond issue this week. The bond’s coupon rate will increase if the company fails to meet its carbon-reduction goals. The issuance by Public Power Corp. is the latest in a breakout year for “sustainability-linked bonds,” which tie interest payments to investors directly to environmental, social and governance targets. Corporations so far in 2021 have tapped bond markets for a record $72.8 billion in sustainability-linked debt and are expected to issue as much as $150 billion by the end of the year.
Corporations and governments have issued more than $575 billion in green, social, sustainable and sustainability-linked bonds so far this year, already topping last year’s total by more than $100 billion. Total issuances are expected to top $1 trillion in 2021 (see, “Countries and companies tap fixed-income market with ‘social bonds’ for COVID relief”). “What began with ‘Why should I issue?’ is now ‘Why aren’t you?’” Marilyn Ceci of JPMorgan Chase, one of the largest underwriters of sustainable bonds, told Bloomberg. “Your absence in the market says something now.”
- Opportunity and risk. Sustainability-linked debt can drive sustainable business practices “while introducing a new cohort of issuers to sustainable finance,” Lori Shapiro of S&P Global Ratings writes in a guest post. Sustainability-linked instruments are distinct from other types of sustainable debt in that they tie the coupon rate to sustainability performance. The bonds do not, however, require issuance proceeds to be allocated to defined projects. That flexibility has made the instrument attractive to companies at the beginning of their sustainability journeys or those in hard-to-abate sectors, such as industrials or materials, It also puts the instrument at “distinct risk of ‘ESG-washing’,” she says, and demands “greater transparency and refined reporting practices.” Read Lori’s full post.
- Growing footprint. Companies can use sustainability-linked debt even when they don’t have sustainability projects that would qualify for other green, social or sustainable bonds (see, “An incentive for companies that deliver on sustainability: lower-cost capital”). European healthcare companies, for example, have issued a raft of sustainability-linked bonds, at least €6.3 billion as of May, to finance the post-pandemic recovery. Boise, Idaho-based Micron Technology closed $3.7 billion in sustainability-linked loans in May. Italian energy major Enel and beer maker Anheuser-Busch InBev have each used sustainability-linked instruments to raise more than $10 billion in 2021. “We felt that the moment was right for us to be behind these instruments,” AB InBev’s Fernando Tennenbaum explained at a Bloomberg conference this week. “The market is maturing.”
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Dealflow: Follow the Money
Enterprise Community Partners launches $30 million racial equity bond. Minneapolis-based U.S. Bank purchased the first $10 million for the bond, which Enterprise says is the first to be issued by a community development financial institution specifically to address racial inequality. “With U.S. Bank’s support, the bond will enable Enterprise Community Loan Fund to lend to affordable housing and community development projects spearheaded by BIPOC-led developers across the U.S.,” Enterprise’s Lori Chatman told ImpactAlpha. The bond is part of Enterprise’s Equitable Path Forward Initiative, which provides capital to developers at the entity and project level.
- Social bond. Enterprise structured the bonds according to the International Capital Market Association’s social bond principles, said Chatman, and “applied them to the goals laid out by the Equitable Path Forward Initiative, specifically to address the extreme capital gap that BIPOC developers face from decades of systemic racism.”
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Indian agtech startups attract global investors. Entrepreneurs are helping streamline India’s $280 billion agriculture industry (see, “Digitization of smallholder farming draws investors to Indian agtech startups”). The latest: Hyderabad-based vertical farming startup Urbankisaan, which grows herbs, fruits and vegetables in urban India and sells them through franchised in-person and online stores. It raised an undisclosed amount of funding from the venture capital arm of agri-chemicals giant BASF.
- Financing fish. Chennai-based Aquaconnect helps more than 35,000 fish and shrimp farmers manage their farms, reach customers and access credit and insurance. The company raised $4 million in a pre-Series A round led by Rebright Partners and Flourish Ventures to scale up its AI-powered advisory and financial services and seafood marketplace.
- Local players. Mumbai’s We Founder Circle invested a combined $282,000 in food traceability tech startup Anveshan, fresh produce supply-chain platform Humus, and Hesa, a last-mile distribution company.
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Heart Aerospace gets backing for zero-carbon planes from United and Mesa airlines. Mainstream air carriers are getting on board electric airplanes – the latest hot topic in the decarbonization race (see, “Zero-carbon air travel takes flight with a wave of new investments”). United Airlines and regional carrier Mesa Airlines, alongside Breakthrough Energy Ventures, backed Heart Aerospace to build a 19-seat electric plane capable of flying 250 miles. United and Mesa each agreed to buy 100 of Heart’s aircraft. United has pledged to cut its emissions by 100% by 2050 without relying on offsets.
- Five-year plan. Heart is targeting a 2026 launch for its airplane. Hydrogen-electric airplane developer ZeroAvia, which has backing from British Airways, and Universal Hydrogen, which is retrofitting commercial aircraft with hydrogen-based powertrains, have similar timelines. The venture arms of Airbus and JetBlue invested in Universal Hydrogen. Other low- and no-carbon aircraft startups include Regent Craft and BETA Technologies, which has a partnership with the U.S. Air Force.
Dealflow overflow. Other investment news crossing our desks:
- India’s ride-hailing company Ola secures a 10-year, $100 million loan to build a manufacturing hub for two-wheel electric vehicles (see, “Shift to electric rickshaws and motorcycles is drawing investors to emerging markets’ e-mobility opportunity”).
- MPOWER scores $100 million to help international and U.S.-based undocumented students finance university studies in the U.S. and Canada (see, “MPOWER raises $25 million to help international students pay for a U.S. education”).
- Nigeria’s GetEquity raises pre-seed funding for its equity crowdfunding platform that allows for investments of as little as $10 in African startups.
- Accion Venture Lab invests in Brazilian small business-focused fintech Dinie’s $23.8 million debt and equity funding round.
Signals: Carbon Pricing
Carbon markets are set to expand in Europe and China. Prices on Europe’s carbon trading system jumped almost 5%, to €55 ($65), after the European Commission laid out plans to add the shipping industry to the world’s most established carbon market – and to ratchet down allowable emissions. Prices have climbed more than 65% this year (see, “That feeling when investors realize carbon is going to $100 a ton sooner than they expected”). Europe is also readying a parallel market to cover transportation and emissions from home heating and cooling. The expansion of the Emissions Trading System is part of “Fit for 55,” a dozen proposals to help Europe meet its ambitious goal of cutting greenhouse gas emissions by 55% from 1990 levels by 2030 (compared to the U.S. Biden administration’s goal of a 40% reduction from 1990). The E.U. measures must be approved by member states, some of which are already pushing back.
- Social climate fund. The political risks are significant. Rising costs for transportation and home heating could hurt low-income residents and spark a backlash, as a gasoline tax did in France. The Social Climate Fund proposed by the E.U. would help mitigate the costs for 34 million low-income Europeans and finance energy efficiency retrofits and other improvements. The fund would be financed by 25% of revenues from the heating and transport carbon market.
- China rising. China is expected to launch its oft-delayed carbon trading scheme as soon as Friday, creating the world’s largest carbon market and instantly doubling the volume of global emissions covered by such markets. The market will initially cover some 2,000 power companies, and then expand over five years to aviation, iron and steel, building materials, chemicals and other sectors. Those 10,000 companies emit around five billion tons of CO2 per year. Prices in market tests have hovered around 40 yuan, or $6 per ton, which may be too low to significantly change behavior. “We need a reasonable price to show both China’s determination to peak carbon emissions and reach carbon neutrality, and to give positive messages to enterprises that commit to cut emissions,” Zhao Yingmin, China’s vice minister of ecology and environment, told reporters in Beijing.
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Agents of Impact: Follow the Talent
Bridges Fund Management names Christoph Evain, ex- of Intermediate Capital Group, as chairman, and Clive Sherling, ex- of Apax Partners, as non-executive director… The Beeck Center for Social Impact and Innovation adds to its advisory board Phaedra Chrousos of Libra Group, Tara McGuinness of New America, David Park of National League of Cities, Eric Pallotta of Netflix, and Christina Martinez-Pinto of PIT Policy Lab. Shannon Felton Spence, ex- of Opportunity Insights, joins the center as director of communications and marketing… StepStone Group is looking for an ESG senior analyst in New York… Renewable Resources Group is hiring a sustainability/impact analyst in Los Angeles… Atlanta Wealth Building Initiative seeks a director of strategic programs in Atlanta… The Food Research & Action Center has an opening for a short-term impact investing fellowship in Washington, D.C.
Thank you for your impact.
– July 15, 2021