The Brief

The Brief: Wealthy families warm to climate investing

ImpactAlpha · October 30, 2024

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In today’s Brief:

Generational shift in private wealth
Sustainable fish farming in Sri Lanka
Embedded finance in Indonesia
Catalytic capital for systemic impact

Featured: Institutional Impact

Global wealthy family offices are warming up to climate investment. One of seven global family offices see climate change becoming a top risk by early next year, according to UBS’s 2024 “Global family wealth” report. The clients, with an average net worth of $2.6 billion and $600 billion in collective assets, see sustainability driving opportunities for their operating businesses and investment portfolios, suggesting a greater role for private wealth in funding green solutions. UBS surveyed 320 family office clients across more than 30 countries earlier this year. On a five-year horizon, nearly 45% of family offices see warming temperatures caused by man-made greenhouse gas emissions as a major concern. “The inflection point of allocation is within line of sight,” Amantia Muhedini of UBS Global Wealth Management tells ImpactAlpha. “It’s not right now. It’s at some point in this rolling five years.”

Generational shift. More than $84 trillion will pass to younger heirs globally by 2045. That private capital is an undertapped source of impact, particularly for catalytic capital – given families’ patient, long-term focus that’s not tethered to outside shareholders or other pressure. Next-generation heirs are increasingly vocal about wanting to align their legacy fortunes with their values, through investments in funds, projects and startups that benefit the environment and society. But tense intergenerational discussions are stymieing a full scale shift to impact by all but the largest family offices. Most wealthy families are instead opting for incremental allocations, such as carve-outs or a tilt by asset class focused on specific areas of interest, such as climate or healthcare. They also want more sophisticated information and advice about new climate and sustainability regulations.

ESG resilience. US-based families, Muhedini says, are focused on economic mobility and economic development through investments in healthcare, education and other social themes. By contract, families in the Asia-Pacific “are not investing in social themes, and that’s largely because of regulatory difficulties, in particular in China. There are common themes. Muhedini cites an immunity to the anti-ESG backlash that has dogged retail mutual funds and exchange-traded funds. Wealthy families are having “very slow, very deliberate conversations,” she says. “But they are allocating, and they seem a little insulated from the broad market trend.”

Impact lens. Many global families also want to support emerging managers and early stage companies but struggle to justify the costs of due diligence for smaller investments. Impact-minded younger heirs are laying the groundwork for families to adopt an impact lens across their portfolios. Muhedini says the trend may grow “once you have more of the next gen taking control of the assets versus [simply] being invited into the boardroom.”
Keep reading, “Global wealthy family offices are warming up to climate investment,” by Lynnley Browning at ImpactAlpha.

Dealflow: Blue Economy

Global Fund for Coral Reefs backs Sri Lanka’s Oceanpick to expand climate-smart aquaculture. Blast fishing, overharvesting and other unsustainable fishing practices pose a threat to coral reefs and marine ecosystems in and around the South Asian island nation of Sri Lanka. Oceanpick created the country’s first offshore fish farm 12 years ago and today manages 28 farming cages that raise barramundi, also known as Asian sea bass. Its buyers include Hilton, Park Hyatt, Marriott and other hotel and resort chains. The company is certified by Best Aquaculture Practices and the Aquaculture Stewardship Council, two internationally-recognized certifications for responsibly farmed fish and seafood. The UN-backed Global Fund for Coral Reefs invested to help the company boost its sustainable aquaculture practices and bring more jobs and revenue to the region. “This partnership is about more than fish farming,” said Oceanpick’s Irfan Thassim. “It’s about envisioning and realizing a future where healthy oceans and empowered communities go hand in hand.”

Good jobs. The Global Fund for Coral Reefs’ invested in part because Oceanpick is providing well-paying jobs to former local fishermen. “Coastal areas, teeming with coral reefs and a rich diversity of marine life, are crucial for supporting the livelihoods of climate-vulnerable communities, particularly in the Global South,” Dale Gavin, who manages the fund at Pegasus Capital Advisors, told ImpactAlpha earlier this year (read the full Q&A). In August, the Global Fund for Coral Reefs backed Brazil’s Agrion to develop eco-friendly fertilizers to reduce chemical runoff in coastal waterways.

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Finfra nabs $2.5 million to propel embedded finance in Indonesia. Finfra, an Indonesian financial infrastructure provider, helps businesses in e-commerce, agriculture and logistics integrate lending services into their platforms. Its software helps onboard customers, assess borrower creditworthiness, process loan applications and compliance with regulations. The company’s early stage was round backed by Cento Ventures, a Singapore-based VC firm, Accion Venture Lab, Z Venture Capital and other investors. Matiss Ansviesulis, founder of the Mexican fintech company AvaFin, also joined the round. “Across all the markets we invest in, we consistently see small businesses and consumers on digital platforms have an unmet need for credit,” said Accion Venture Lab’s Rahil Rangwala. Finfra enables such platforms to offer more accessible credit solutions, he added. “With lower servicing costs and stronger governance, lenders can design new products to profitably and responsibly serve customers who are currently excluded from the financial system.”

Embedded lending. To bolster small business lending in Indonesia, Finfra is partnering with Tyme Group, a digital bank that also has operations in the Philippines and South Africa. The partnership will help scale its embedded loan products, like merchant cash advances. Finfra’s latest funding round follows a $1 million raise from DSX Ventures and other investors last year.

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Absa Bank secures $150 million to provide trade financing to Africa’s small businesses. Debt-laden countries in Africa, including Kenya, Ghana and Nigeria, face foreign currency liquidity issues, which hampers the ability of businesses to borrow affordably and transact throughout and outside the continent. Nearly 40% of Africa’s small businesses are denied trade finance applications by banks. UK development finance institution British International Investment provided the South African bank with capital for on-lending to other banks in Africa. “The facility combines BII’s long history of support in Africa with Absa’s cross-border expertise, which will help to make trade finance more accessible to African businesses and improve the vital flow of essential goods including food,” said BII’s Admir Imami.

Pandemic partnership. BII has provided Absa loans for small business lending in the past, including a $100 million investment in 2019, with follow-on funding in 2020 to help alleviate the economic impacts of Covid. The DFI claims this financing has supported more than $1 billion in trade in Ghana, Nigeria, Kenya, Uganda, Tanzania and Mozambique.
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Dealflow overflow. Investment news crossing our desks:

Climate and gender-lens investor Heading for Change backed The 22 Fund, an early-growth impact fund for export-oriented manufacturers led by women and diverse founders. (Heading for Change)
The Emerging Africa and Asia Infrastructure Fund invested $28 million in an oversubscribed $300 million public bond for Africell to scale digital communications infrastructure in Angola, the Democratic Republic of the Congo, Gambia and Sierra Leone. (EAAIF)
General Catalyst led a €4 million ($4.3 million) seed round for Munich-based startup Emidat, which makes software to help construction companies manage their carbon emissions. (EU Startups)
Sistema.bio acquired Inclusive Energy, which makes sensors for biogas and solar systems, to improve Sistema.bio’s digital monitoring, reporting and verification capabilities for its biodigester units. (Sistema.bio)
Nigerian banking and payments service Moniepoint landed $110 million in equity financing from Lightrock, Development Partners International and other investors. (Tech Cabal)
TPG Rise Fund, the impact investing arm of San Francisco private equity giant TPG, raised nearly half of the $10 billion target for its second climate fund, according to an SEC filing. (TPG)

Impact Voices: Catalytic Capital

Harnessing global momentum for catalytic capital. A strong catalytic capital community helps cultivate investable opportunities and attract new investors, MacArthur Foundation’s Urmi Sengupta writes in a guest post on ImpactAlpha. Sengupta will discuss the role of catalytic capital in fostering systemic impact at SOCAP24 today with Ceniarth’s Greg Neichin and Builders Vision’s James Lindsay. The two family offices, alongside Blue Haven Initiative and the Lemelson, Small and Walton Family foundations are providing a total of $4.3 million to extend the life of the Catalytic Capital Consortium, which had been expected to sunset at the end of the year (see, “C3 doubles down to scale up deployments of catalytic capital”). In their own accompanying guest post, Ceniarth’s Diane Isenberg and Greg Neichin say they provided field-building support “to focus firmly on mobilizing the kinds of higher risk and/or sub-market money that is needed to address issues of persistent poverty, environmental degradation and other global challenges that will not be solved with conventional, responsible investing philosophies.”

High leverage. MacArthur developed a $123 million portfolio of investments to demonstrate the power of catalytic capital. MacArthur’s C3-related investments mobilized 21 times the foundation’s original catalytic capital investment to support innovative social and environmental impact funds. An interim evaluation by New Philanthropy Capital, found strong (though still anecdotal) evidence that more catalytic capital is flowing, citing 44 examples of new investment funds, half of which have been implemented since 2022 (disclosure: C3 is a supporter of ImpactAlpha’s coverage of catalytic capital.)

Dealmakers roundtable. Ceniarth has been leading a group of catalytic capital practitioners that have met each quarter this year to share deals they are working on that need additional investors. “As transactions move into the ‘scaling’ and ‘sustaining’ phases of their lifecycles, the volume of impact-first money willing to invest at below-market rates becomes critical,” they write. The group’s database of more than 60 opportunities includes Lendable’s new Decarbonization Fund, Alder Point Capital, Mission Driven Finance’s Care Access Real Estate Fund, Acre Impact Capital, Groundwork, Trellis, Open Road Impact Fund, NESsT Lirio Fund, and Acumen’s Hardest to Reach Fund. In each, multiple investors have made commitments or are in active diligence.
Read, “Harnessing global momentum for catalytic capital,” by MacArthur Foundation’s Urmi Sengupta. And read the companion piece, “Why Ceniarth is providing grant funding to the Catalytic Capital Consortium,” by Ceniarth’s Diane Isenberg and Greg Neichin.

Agents of Impact: Follow the Talent

Amplify Capital adds Sohaib Siddiqui, previously with Medly Therapeutics, and Will Falk, previously with West Neighbourhood House, as venture partners… PaceZero Capital Partners welcomes Toronto Foundation’s Andrew Torres to its advisory board… Soros Fund Management is looking for an impact strategy intern in New York… Congruent Ventures has an opening for a principal in San Francisco… The University of Colorado Boulder is hiring a vice chancellor of sustainability.

The Nature Conservancy seeks an investment analyst in the Washington, DC area… Impact Shakers is on the hunt for an impact investment manager… Kauffman Foundation is recruiting impact officers and senior impact officers… Better Society Capital is looking for an impact manager on a maternity cover contract in London… Social Finance’s Tracy Palandjian will host a virtual conversation with Dwight Poler and Orlando Watkins of The Boston Foundation and Commonwealth of Massachusetts’ Melissa Hoffer on investing in climate careers to power the climate transition, this Thursday, Oct. 31.