Greetings, Agents of Impact!
👋 Hop on The Call. Join hundreds of other Agents of Impact on today’s Call to explore opportunities in high-impact municipal finance. Special guests Ryan Bowers of Activest, Diane Manuel of Adasina Social Capital, Eric Glass of Justice Capital, and Dana Bezerra of Greater Share will explore ways to proactively engage cities, reprice risk and build investable fixed-income impact strategies, with ImpactAlpha’s David Bank and Dennis Price, today at 10am PT / 1pm ET / 6pm London. Zoom right in (no RSVP required).
Call context. Get the scoop on our special guests in these ImpactAlpha posts:
- “Activest’s FIRE strategy seeks to bend the arc of municipal finance toward ‘fiscal justice’.”
- “What Adasina learned about advancing ‘fiscal justice’ by investing $60 million in muni bonds.”
- “‘You can’t do impact on a passive basis’: Q&A with activist muni-investor Eric Glass.”
Featured: ESG in VC
How Europe is recalibrating tech, one ESG step at a time. A crisis is usually followed by learning. If in 2022 tech private markets were defined by the crashes of some of the highest-valued and most-hyped companies, “2023 will be a year of recalibration,” write VentureESG’s Johannes Lenhard and Hannah Leach for ImpactAlpha. Take crypto. Enforcing the most simple governance principles – transparent leadership structures, conflicts of interests, board oversight, rigorous accounting (all of which FTX was missing) – would have helped to prevent some of the crashes, Lenhard and Leach argue. Lax governance has long been brewing across startups and private markets. That makes the “G” in ESG especially pertinent for VCs who find it hard to “get started” with ESG. “Installing boards, HR processes, grievance procedures and conflict-of-interest checks should always have been part of VC practice and due diligence,” write the authors.
- Carrots and sticks. The adoption of a broader ESG agenda is also being driven by regulation, especially for European investors and startups. The SFDR, for “sustainable finance disclosure regulation,” comes into force this year, and CSRD, for “corporate sustainability reporting directive,” takes effect in 2024. The disclosure requirements are a starting point for VC portfolio companies, too, say Lenhard and Leach. In Germany, a new “supply chain law” goes further, requiring companies to check human rights adherence across their supply chains. In the U.S., S.E.C. rules are in the making.
- Hype insurance. Now comes “generative AI” and other new things. “Preventing another unchecked hype-industry to mushroom and crash,” the authors say, “is the responsibility of investors.” Integrating ESG as part of due diligence and portfolio management provides a toolkit to tackle such challenges. Forward-looking venture capitalists are building essential ESG expertise, they add. “This is what we hope 2023 will bring to the VC industry, starting in Europe.”
- Keep reading, “How Europe is recalibrating tech, one ESG step at a time,” by VentureESG’s Johannes Lenhard and Hannah Leach on ImpactAlpha.
Dealflow: Financial Inclusion
MNT-Halan raises $200 million to expand access to financial services in Egypt. MNT-Halan’s evolution into an Egyptian “super-app” is long and complex. The quick version: In 2019, founder Mounir Nakhla merged his microfinance and digital wallet businesses with his ride-hailing business Halan after seeing the writing on the wall for Halan’s growth opportunity. “I told my co-founder this ride-hailing business is not going to go very far. What we need now is to really focus on digitally banking the unbanked—it’s a huge market in Egypt,” Nakhla told ImpactAlpha last year. MNT-Halan now offers business loans, digital payments, consumer finance and e-commerce services to five million Egyptians. The company uses its own banking software to reach customers who are both online and offline and handle transactions in multiple currencies. MNT-Halan is on a fundraising tear to finance its growth. Chimera Abu Dhabi invested $200 million for a 20% stake. MNT-Halan has also raised $140 million by securitizing loans on its book through two bond offerings.
- Repeat customers. The majority of MNT-Halan’s lending is to small business owners. Rates are comparable to credit cards, but far below what informal lenders charge, Nakhla said. Many of its customers are seventh, eighth and ninth-time borrowers, he added. “It really shows that the customer came, grew his business and came back for another loan.”
- Human touch. To expand services, like buy-now pay-later, to unbanked customers, MNT-Halan relies on micro-loan officers around the country (the company leverages its old ride-hailing tech to connect officers with customers.) “You need feet on the street to do it,” Nakhla explained. “But once you have this, renewals can be done automatically.”
Startups raise green to reduce the carbon footprints of buildings. Buildings account for 40% of total global carbon emissions, because of how building materials are produced, what materials are used, and properties’ energy efficiency once they’re up and running. A raft of recent deals show growing investor interest in greening the built environment. Michigan-based LuxWall raised $33 million in Series A financing for its energy saving windows. The company says its method of making double-paned windows can cut heating and cooling costs by up to 45% and 20% respectively. U.K.-based urban tech VC 2150 led the round, joined by Khosla Ventures, Breakthrough Energy Ventures and Prelude Ventures.
- Building-grade grass. North Carolina-based Plantd is developing a process for turning grass into a plywood-like alternative for home building. The company says using grass instead of trees ensures that carbon largely remains stored in the plants and soil. American Family Ventures led Plantd’s $10 million Series A round.
- Recycled flooring. U.K.-based NeverWaste is developing a greener option for furniture and construction-grade paneling using recycled cardboard and other types of packaging. Elbow Beach Capital backed its £1.5 million ($1.9 million) seed round to help the company set up manufacturing in Northern Wales.
- Greener homebuilding. Austria-based housing developer Gropyus secured backing from German real estate company Vonovia to build sustainable, prefabricated housing complexes. The company uses sustainably-sourced timber, automated manufacturing to reduce material waste, and software to manage energy efficiency in the homes.
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Dealflow overflow. Other investment news crossing our desks:
- Lowercarbon Capital and Collaborative Fund backed a $12 million equity round for Floodbase, a company that provides “parametric” or incident-based flood insurance, making it easier and more cost-effective to process and pay-out claims. Last week, Brazil-based Newe raised more than $5 million for its parametric climate insurance offerings.
- Portugal agreed to direct the roughly $150 million Cape Verde owes it in debt to a fund the island nation can use to invest in the clean energy transition and climate change mitigation and adaptation.
- Africa-focused private equity firm Adenia Partners’ secured $300 million toward its $400 million target for its fifth fund, drawing backing from several development finance institutions.
- Netherlands-based Naarden raised €4.1 million ($4.5 million) for its low-cost, low-temperature solvent that can absorb CO2 from industrial plants, including waste-to-energy, steel and materials manufacturing.
- Paris and Singapore-based VC firm Shift4Good, which focuses on sustainable and green mobility in Europe and Asia, raised more than $115 million for its targeted $300 million fund.
Signals: Energy Transition
S-curves and tipping points are accelerating the low-carbon future. The future of energy is S-shaped. Adoption of technological innovations is typically slow until hitting a tipping point, typically at 5% to 10% of market share, after which they grow like gangbusters until they become mainstream. “S-Curves by their nature are disruptive and rapid,” writes CarbonTracker’s Harry Benham. In a research note exploring growth patterns in the energy transition, Benham explains that manufacturing technologies (think EVs, batteries, solar and wind systems, and heat pumps) benefit from declining costs as knowledge and expertise grow with scale. Extraction projects like fossil fuels, says Benham, “are almost the opposite: one-off, large-scale, complex efforts that are difficult, potentially impossible, to replicate and improve.”
- Proof points. In the U.K., electric vehicle sales are surging: from one in 100 cars sold in 2016 to one in every three cars sold this year, CarbonTracker forecasts. Global EV sales could hit 14 million, or 20% of auto sales this year. Wind and solar now account for more than 75% of all new growth in power production. Next could be “green” hydrogen, as innovation and falling prices kick in for electrolyser technologies, as well as heat pumps, which Benham says are poised to scale. Oil major BP in its latest energy outlook declared the surge in renewables to be “quicker than any previous fuel in history.”
- Trillion-dollar tipping point. Investors are riding the S-curve. The amount invested globally in renewable energy and other transition technologies last year surpassed $1 trillion for the first time (and that doesn’t include equity investments in climate tech startups). Also for the first time, clean energy investments matched the amount invested in coal, gas and oil, according to BloombergNEF’s “Energy Transition Investment Trends“ report. The data should “put to bed any debate about how the energy crisis will impact clean energy deployment,” said BloombergNEF’s Albert Cheung. “Investment in clean energy technologies is on the brink of overtaking fossil fuel investments, and won’t look back.”
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Agents of Impact: Follow the Talent
Julie Gorte of Impax Asset Management and Neuberger Berman’s Daniel Hanson will join US SIF’s board of directors and its foundation board… Noel Kinder, chief sustainability officer at Nike; Stacy Kauk, head of sustainability at Shopify; Emma Stewart, chief sustainability officer at Netflix; Vanessa Miler-Fels, vice president of climate at Schneider Electric; and Nate Gorence, chief of staff at Impossible Foods, will join Collaborative’s sustainability board.
Brenda Loya, ex- of Amalgamated Bank, joins BlueHub Capital as its first chief operating officer… BlackRock promotes Caroline Brady to director of impact management and research… Mars is recruiting an associate director for sustainable cocoa sourcing in Chicago… The World Business Council for Sustainable Development seeks an energy and equity senior associate in London… Laudato Si’ Movement seeks a remote director of operations.
The Hive Fund for Climate and Gender Justice is looking for two senior program officers for climate and economic justice… Imaginable Futures is hiring a remote U.S. associate… Georgeson is recruiting an ESG advisory director in New York… The Climate Policy Initiative has an opening for a senior communications associate for content and editing… The World Bank’s water team will host a virtual event on the future of water storage, Monday, Feb. 6.
Thank you for your impact.
– Feb. 1, 2023