TGIF, ImpactAlpha readers!
The stock market plunged nearly 1,400 points in two days this week – and the reasons didn’t even include the coming climate catastrophe forecast by the U.N.’s Intergovernmental Panel on Climate Change on Monday. Did we say ‘coming’? Hurricane Michael was already tearing through Florida and Georgia. As the rebuilding begins, so too must must the transformation to a carbon-zero future. The disruption is here.
–David Bank, editor
Featured: The Brief’s Big 10
1. The heat is on…for financing climate action. This week’s report made abundantly clear that climate change is a systemic risk of the first order. The full-scale mobilization to keep global temperature increases below 2 degrees Celsius, much less 1.5 degrees, needs at least another $320 billion to $480 billion a year in clean-energy and energy-efficiency investment. Climate action requires innovation in finance even more than in technology. “Not enough capital is flowing,” warned Michael Bloomberg, who is heading a one-year Climate Finance Leadership Initiative aimed at delivering private capital commitments at U.N. Secretary-General António Guterres’ climate finance summit next September.
- Finance laboratory. Bloomberg is looking to the Global Innovation Lab for Climate Finance for solutions. The Lab has launched nearly three dozen financing vehicles that have mobilized $1.15 billion for climate-change mitigation and resiliency. “The instruments are already on their way to making significant impact on the ground,” says the Climate Policy Initiative’s Barbara Buchner, “at a time when swift and catalytic solutions for climate action are needed more than ever.”
- Will investors answer the call?
2. Accelerating institutional impact investing, Pt. 1. Why the slow shift to impact? Among the challenges facing institutional investors: uncertainty around returns, costs, track record, growth capital and expectations. “Either the bar is too high—impact must outperform. Or the bar is too low—impact is expected to sacrifice returns for outcomes,” write Marc Diaz, who most recently headed The Nature Conservancy’s NatureVest impact investing platform, and Imogen Rose-Smith, an investment fellow with the University of California (and a regular on ImpactAlpha’s Returns on Investment podcast). Too important to fail.
3. Accelerating institutional impact investing, Pt. 2 (podcast). The onus is on impact-oriented asset managers to develop repeatable, large-scale investment opportunities with risk-return profiles that fit the portfolios of pension funds and other institutional investors. “At the end of the day, they have to preserve the capital and generate a set of returns,” said Equilibrium Capital’s Dave Chen. The latest episode in the “Institutional Shift” series on ImpactAlpha’s Returns on Investment podcast took on debt capital, China’s prospects and long-term pressures. Pension funds “have obligations to a million teachers, or a million public employees, to whom they’re obligated for 30 or 40 years,” Chen said. “That hasn’t stopped.” Institutional shift.
4. Impact investing’s global steering group anoints leaders and funds. Sir Ronald Cohen convened the Global Social Impact Investment Steering Group in New Delhi, or GSG, a kind of United Nations of impact investing. Honors for impact asset owner and asset manager of the year went to, respectively, the U.S.-based family office Blue Haven Initiative and LeapFrog Investments. Devi Shetty of the Indian low-cost hospital network Narayana Health, is the “Impact Entrepreneur of the Year. The “market builder” award went to the Impact Management Project.
- Wholesale capital. Among the new funds launched at the Delhi summit were the India Education Outcomes Fund, which is looking to raise $700 million to invest in pay-for-success programs for learning and workforce development. The India Impact Fund of Funds is focused on long-term debt for renewable energy, financial inclusion and healthcare. The Africa and Middle East Education Outcomes Fund will leverage development finance capital for pay-for-success initiatives in education. The LATAM Impact Fund of Funds aims to blend finance for infrastructure and social initiatives in Latin America.
- ImpactAlpha’s report on the GSG.
5. Agent of impact: Christiana Figueres. “Exponential” is a favorite word of the former U.N. climate chief, who shepherded the Paris climate deal into existence and now leads Mission 2020, a global campaign to curb greenhouse gas emissions – fast. You’ve heard of Moore’s Law? Get ready for the Global Carbon Law. The exponential shift toward clean energy, battery storage and electric vehicles and other climate solutions makes it possible to peak emissions by 2020 and halve them every decade thereafter, a reduction of about 7% per year. “We are already on an exponential trajectory to a clean economy future but it’s going to take all of us to ensure it,” says Figueres. This is no time for defeatism. If a global mobilization to ward off the most drastic effects of climate change succeeds, optimists like Figueres could well be not only prophetic, but decisive. We all have to be optimists now.
6. Deals of the week. Drink from the deal firehose all week long on ImpactAlpha.com. A few that stood out:
- Inclusive fintech. Financial Solutions Lab zeros in on U.S. workers’ financial health… First Circle raises $26 million for online small-business lending in Southeast Asia.
- Innovative finance. Australia social impact bond tackles youth unemployment… Near East Foundation plans $21 million Islamic impact bond for refugees.
- Food tech. Centaur Analytics secures $3 million for sensors that cut food waste… Meatable raises $3.5 million to make faster, cheaper cultured-meat.
- Growth markets. Aavishkaar backs Indian logistics tech firm GoBolt… Investisseurs & Partenaires raises $25 million for impact funds in Africa.
- Impact corporate VC. Alphabet’s venture arm GV backs Lambda School.
- Private equity watch. Bain Double Impact fund acquires two in-home health companies.
7. How impact investors are overcoming obstacles to back a new crop of makers. There are few dedicated hardware venture funds of any kind and even fewer that back products targeted at low-income customers or frontier markets. Some impact investors are finding ways to bridge the gap. Menterra Impact Fund in Bangalore, for example, invests in companies backed by government grants for innovation in agriculture, healthcare and energy. “The DNA of hardware investors is different,” says Menterra’s Mukesh Sharma. “The load we carry is much heavier.” Hardware is hard.
8. Bridging a capital gap for solutions to neglected diseases. The Global Health Investment Fund, launched by the Bill & Melinda Gates Foundation and JPMorgan Chase in 2012, is nearly fully invested. The $108 million fund made its 12th investment in Alydia Health, which developed a low-cost device to treat postpartum hemorrhage. The fund, created to bring to market promising late-stage drugs, vaccines and diagnostic tools for diseases that disproportionately burden low-income populations, nearly didn’t get off the ground. How they do it.
9. Impact investors pressure GE to lead the clean-energy transition. A collective effort is urging incoming General Electric CEO Lawrence Culp to revive the company by focusing on wind, batteries and solar. “For GE to become a leader again, the company must further scale back investment in and deployment of fossil fuel technologies and focus on clean technologies,” wrote investors from Capricorn Investment, Encourage Capital, RS Group, McKnight Foundation, Rockefeller Brothers Fund, and others in an open letter. Show of force.
10. Re-plumbing business financing with alternative capital structures. Capitalism is like a 100-year-old house with plumbing that’s not fit for 21st-century needs, Kauffman Foundation’s Victor Hwang told participants at last month’s Alternative Capital Summit in Denver. Alternative structures such as revenue-based finance and recapitalization schemes, report Sphaera Solutions’ Astrid Scholz and Candide Group’s Aner Ben-Ami, are part of a “broader agenda of alternative ownership and governance, which would support mission-first businesses.” When you replace the plumbing, they say, “you need to do everything.” Alt-capital.
— October 12, 2018.