The Week in Impact Investing: De-risky Business

TGIF, Agents of Impact! 

🗣 De-risk premiums. Talk about catalytic capital. One of the most effective uses of the $27 billion Greenhouse Gas Reduction Fund, soon to be distributed by the US Environmental Protection Agency, will be to catalyze many times that amount of capital by taking junior positions in debt stacks and providing an equity layer in municipal bonds to finance community infrastructure. “You’re de-risking communities that have historically had risk forced upon them,” Inclusive Prosperity Capital’s James McIntyre said on this week’s Agents of Impact Call (see below). In a guest post, Anna Smukowski of the Enterprise Community Loan Fund explored recoverable grants, impact notes and other ways investors can help community lenders weather the risks of today’s high-cost environment. 

The risks of lending in low-income communities pale in the face of systemic risks in the financial system and the economy as a whole. Peter Green detailed how corporations systematically favor those already at the peak of the economic pyramid, with excessive executive pay, stock buybacks and other destabilizing strategies. In the upcoming proxy season, shareholders may get their say on the risks of artificial intelligence, biodiversity loss and even deep-sea mining, as Louie Woodall reported. But Texas and more than a dozen other states are increasing risks and costing their citizens hundreds of millions of dollars by banning state money from financial institutions that consider environmental, social and governance, or ESG, factors in investment decision-making. “Sustainability opponents do not support market-based decisions, but crony capitalism,” Sinclair Capital’s Jon Lukomnik said in a speech to the International Corporate Governance Network this month. “Now is the time to speak more truth” to such power, he said. “More often. More forcefully. Louder.” – David Bank

The Week’s Podcast

🎧 This Week in Impact. Podcasts are back! On This Week in Impact, Brian Walsh dives into ImpactAlpha’s top stories, with commentary from editor David Bank. Up this week: Jessica Pothering’s story about how carbon credits are promoting clean cooking, even when carbon reductions are being questioned. Plus, the cost of Texas’ ESG investing purge, and spoofing Vanguard’s climate (in)action. Coming soon: Our second show, Agents of Impact, which will feature interviews by David and by contributing editor Sherrell Dorsey.

• Listen to this week’s episode of This Week in Impact. You’ll get new episodes in your feed if you’re subscribed to ImpactAlpha’s podcasts on Apple or Spotify. What are you waiting for? Search for “ImpactAlpha” wherever you listen and hit “subscribe.” While you’re at it, leave us a review. 

The Week’s Call

How green banks are blending finance for community infrastructure and greenhouse gas reduction. The US Environmental Protection Agency is getting ready to announce the winners of hotly anticipated “national green bank” funding that will channel billions of dollars through local community lenders to finance green projects. ImpactAlpha’s Agents of Impact Call No. 60 explored the ways public funding is catalyzing a community-driven, equitable, green financial ecosystem – even before the money begins to flow. “This program is really focused on how to drive the [energy] transition and the benefits of clean technologies in low-income and disadvantaged communities,” Calvert Impact’s Beth Bafford explained on The Call.

• Risk capital. Finance New Orleans, the city’s longtime housing finance agency, has taken on a green bank role to infuse climate resilience across all of its lending, including through mortgages and green bonds for community infrastructure. “Our community demands this type of investment right now, so we don’t have time,” said Finance New Orleans’ Damon Burns. In Florida, the Solar and Energy Loan Fund, or SELF, is fast-tracking climate lending with technical assistance and plug-and-play products. “Being here in a red state that is largely opposed to what we’re doing, we had to develop some pretty interesting strategies,” SELF’s Doug Coward shared.
  
• Deploy! In a related guest post, contributing editor Rachel Reilly detailed how local lenders are already designing standardized financial products that can be deployed throughout the nation. Amy Cortese reported on how stakeholders in Cleveland have mobilized to establish a green bank to install cost-saving rooftop solar on 25,000 low- and middle-income homes from West Virginia to Missouri.
  
• Read Amy’s roundup of Agents of Impact Call No. 60, and watch the video replay.

The Week’s Short Signals

♻️ Batteries get a second life in Latin America. Second-life companies acquire used clean energy assets and redeploy them in environments with lower performance requirements. Mexico-based Butoni is developing second-life energy storage for regions prone to energy outages. The Inflation Reduction Act in the US is accelerating the replacement of clean energy assets; some of the old stuff is going to Latin America. (CREO)

💧 Water management solutions. Latin America’s population is forecast to reach 717 million by 2030. Brazilian waste management company EcoCircuito and Atlanta-based onsite hydro systems startup Emrgy are among the cleantech solutions addressing water treatment and management challenges in the region. (EHI Corp)

👷🏽 Startups plugging Europe’s green jobs gap. Berlin-based Smalt is upskilling and deploying workers for green energy installations. London-based Greenworkx’s talent portal recruits applicants and exposes them to green opportunities. Like a coding bootcamp, Paris-based La Solive trains workers in green skills. (Sifted)

🌿 Catalyzing nature-based solutions. The UK government’s Partnerships for Forests has  leveraged £112.5 million ($143 million) in private capital with £18.7 million in grants for land-use businesses and nature-based solutions in Brazil, Colombia and Peru, with a focus on gender inclusion. (Partnerships for Forests)

🏢 Tipping point for building decarbonization. Demand for low-carbon buildings is outstripping supply. The “growing need to show progress against carbon commitments will lead to price friction and a race for low-carbon buildings,” said JLL’s Guy Grainger. (Reuters)

⚡ Private vs. public climate funds. New public and private funds with climate-related names have surged in recent years. More than 40% of the net asset value in private funds comes from renewable electricity. Public climate funds are dominated by information technology. (MSCI)

The Week’s Deal Spotlight 

World Water Day: Turning on the capital tap to finance water and sanitation in Africa. As climate change makes water supplies and management more critical than ever, public budget allocations for water access and treatment in Africa are declining. The continent faces a $45 billion annual financing gap for water and sanitation. To bridge the capital gap, Tanzania is tapping the bond market with one of East Africa’s first green bonds for water. The city of Tanga’s utility floated a $20.8 million bond to deliver universal water access in the city and near-universal access in surrounding townships. “Water for Peace” is the theme of this year’s World Water Day. “When we cooperate on water, we create a positive ripple effect – fostering harmony, generating prosperity and building resilience to shared challenges,” according to the UN. 

• Water bonds. Tanzania has a few models for water-related green bonds in other emerging markets: municipalities and water utilities in South Africa, Egypt, India and Georgia have issued green bonds to finance water and sanitation. Just 2% of private financing in Africa goes to water and sanitation. Derisking mechanisms, such as catalytic grants and guarantees, are needed to prove out investment strategies and opportunities (see, “Catalyzing capital for Africa’s water and sanitation infrastructure“). 

• Dive in.
  
• The full roundup of our deal reporting this week is up on ImpactAlpha.com. Go with the dealflow. 

The Week’s Talent and Jobs

💼 See and share more than two dozen impact jobs posted this week on ImpactAlpha’s Career Hub and view hundreds of more jobs in impact investing and sustainable finance. Have a job listing to post? Submit it here.

Danish development finance institution IFU reappointed Lars Korgsgaard as its chief investment officer. Korgsgaard served a three-year term as IFU’s CIO from 2019 to 2022. IFU’s top leadership is also changing, with Lars Bo Bertram, the CEO of Bankinvest, taking on the DFI’s CEO role in June… Charlotte Magee, formerly with the Joan and Tim Fenton Founders Fund and Sorenson Impact Institute, joined Enable Ventures as principal.

World Education Services promotion Smitha Das to investments senior director… The Washington Area Community Investment Fund appointed Shannan Herbert, former inclusive credit executive vice president at Stratyfy, to CEO… Matthew Mulrennan, formerly with XPRIZE, joined the Sustainable Ocean Alliance as investments director for its venture fund Seabird Ventures… 

Impax Asset Management promoted Charles French as co-chief investment officer of listed investments. Sana Kapadia stepped down from her full-time role as director of strategy at 2X Global to become senior strategic advisor… Tariye Gbadegesin, a former investment committee member of Climate Policy Initiative’s Catalytic Climate Finance Facility, became CEO of Climate Investment Funds.

Eugene Lewis, formerly with Every and Republic, joined the Robin Hood Foundation as senior program manager of venture acceleration and impact investments… Amir Rizwan, director of London Social Venture Fund and fractional investment director for Daring Capital, became Scotland-based impact investor SIS Ventures’ investment committee chair and joins its board. 

That’s a wrap. Have a wonderful weekend.

– March 22, 2024