The Week in impact investing: Generalized reciprocity

TGIF, Agents of Impact! A reminder that we’ll be off Monday for the US holiday. We’ll be back in your inbox on Tuesday, Sept. 3. 

In today’s Brief: 

• Roundup: Paying it forward
• Podcast: Water infrastructure, climate VCs and LatAm families  
• Call: Impact investing in water – let it flow
• Spotlight: Climate resilience deals in Africa and Latin America

🗣 Paying it forward. There was consensus on this week’s Agents of Impact Call that the enormous co-benefits of clean drinking water for healthy communities and thriving economies far outweigh even the historic US capital outlay for water infrastructure upgrades that has just started to flow (see the Call roundup and replay, below). That public goods are chronically underinvested reflects the shortcoming of current financing mechanisms to value such positive externalities. “I’m all for a water tax,” said Radhika Fox, who as the EPA’s assistant administrator helped secure $50 billion for water in the bipartisan infrastructure law. In her stage-setter, Amy Cortese detailed the growing range of high-impact water investment opportunities available to help communities seize this generational moment.  

The climate crisis may be reinforcing the observation that, in nature, there are no externalities, as contributor Louie Woodall wrote. That’s equally true for social systems. The venture capital firm SJF Ventures is confronting the challenge of “bending the curve,” or generating more impact than its limited partners reap in financial returns. For, say, a 6x financial return, “can we do more during that five-year holding period to make it a 12x impact return?” as SJF’s Dave Kirkpatrick put it to me in our Agents of Impact podcast conversation – for example, by having a deeper impact on low-income beneficiaries. (Dave and SJF’s Kelsey Jarrett laid out the firm’s new approach to impact measurement and management in an accompanying guest post). As Dennis Price reported in this week’s ImpactAlpha Latin America, wealthy families in the region that are increasing their allocations to impact investment themes are responding both to the push from younger generations to pay it forward, and the pull of attractive, risk-adjusted returns.

That push-pull may suggest the limits of what anthropologists call “generalized reciprocity,” aka paying it forward. The climate VCs rallying behind Vice President Kamala Harris are no doubt looking to protect the planet, but their portfolios stand to benefit as well, reported Lynnley Browning. “If you spend time gleefully poring over the IRA, infrastructure bill and CHIPS bill, surely you have a few hours to help elect the people who delivered it,” as Overture Climate’s Shomik Dutta said. “Balanced reciprocity,” in which an equal exchange of value is expected, still characterizes most transactions (in another type of reciprocity – negative – one party seeks to extort or extract from the other). It takes leadership to bring together diverse players, to spur them to aim high and to build the trust required to sustain generalized reciprocity and thus the greater good. Back in 2022, Harris helped launch a small-business financing initiative that is now being repurposed to stand up the new ecosystem of green lenders. “We not only advance economic justice,” Harris said at the Freedman’s Bank Forum. “We strengthen our economy as a whole, creating prosperity and opportunity for all – together.” – David Bank

The Week’s Podcasts

🎧 This Week in Impact: Water pipeline. Host Brian Walsh takes up ImpactAlpha’s top stories with editor David Bank. On tap this week: Sound bites from Radhika Fox, Shaun O’Rourke and Rogelio Rodriguez from this week’s Agents of Impact Call on water infrastructure investing; why climate VCs are rallying for Harris; and how and why wealthy families in Latin America are investing for impact.

• Listen to the new episode of This Week in Impact. Get the podcast in your feed by subscribing on Apple or Spotify. And if you like what you hear, please leave a rating and review. 

😎 Agents of Impact: How SJF Ventures seeks to bend the impact curve. The Durham, NC-based venture firm has been a leader of what might be called the “alpha in impact” wing of the impact investing market – how to derive unique financial value “that is driven by and integral to the impact of the companies” one invests in, as SJF’s Dave Kirkpatrick explains on the latest episode of ImpactAlpha’s Agents of Impact podcast. Kirkpatrick was joined by SJF’s Kelsey Jarrett to discuss how the firm is unlocking portfolio value with better impact measurement and management. 

• Listen to the Agents of Impact podcast, “How SJF Ventures seeks to bend the impact curve.” And catch up on all of the podcasts on the ImpactAlpha Podcast Network.

The Week’s Call

Water, long overlooked, is increasingly investable (video). For something that underpins every aspect of our lives, water has long been “out of sight, out of mind” when it comes to investment, says Radhika Fox of North Star Strategy. Agents of Impact Call No. 63 made visible and top of mind the opportunities to finance water infrastructure for water quality, community health and climate resilience. The US bipartisan infrastructure law’s historic $50 billion allocation for water infrastructure is sparking excitement in communities large and small that are eager to upgrade their drinking and wastewater systems and lay a foundation for economic growth. Investors, green banks and foundations are identifying strategies and investable opportunities to maximize the government funds. “We see a lot of willingness to do things that communities have never done before,” said Rogelio Rodriguez of Water Finance Exchange, who joined from Lufkin, Texas, where he and colleagues were hosting a water workshop for local water systems. WaterFX has stood up funds to enhance the credit of disadvantaged communities, make low-cost loans for pre-development project work, and provide grants for disadvantaged communities. 

• Water pipeline. In addition to the infrastructure funding, the Greenhouse Gas Reduction Fund counts clean water infrastructure among its eligible projects. When Quantitative Ventures issued a public request for information, the nonprofit turned up $7 billion worth of water and green infrastructure projects – with a need for $4.5 billion in financing. Quantified Ventures’ Shaun O’Rourke called it “the most robust pipeline of investable, nature-based solutions and water-based projects that has been compiled.” The firm is screening the projects for investability in order to bring them to green banks across the country. “Now that we’ve been able to demonstrate that the deal flow is out there, we’ve been having really productive conversations with a variety of different investors,” said O’Rourke.
  
• Investable opportunities. The Call spotlighted opportunities for impact investors to participate in credit enhancement and insurance pools to boost the ability of disadvantaged communities to tap capital markets. There are also opportunities to invest in specific projects, such as water reuse and desalination. Fox pointed out the imperative for investing behind new EPA regulations on PFAS, the “forever chemicals” that have infiltrated water supplies, and a forthcoming rule on copper and lead. Providing solutions for drinking water agencies around the country to test, report on and remediate PFAS translates into “a huge market opportunity with a huge return on the other side,” said Fox.
  
• Keep reading, “Water, long overlooked, is increasingly investable,” and watch the replay. ImpactAlpha’s “Muni Impact” is sponsored by Robert Wood Johnson Foundation.

The Week’s Deal Spotlight

Mercy Corps Ventures highlights opportunities for climate resilience in Africa and Latin America. For nearly a decade, Mercy Corps Ventures has been ahead of the curve in backing emerging market impact technologies. With multiple vehicles and pots of capital, the venture investing arm of humanitarian NGO Mercy Corps can be more experimental and risk-taking than other early stage impact investors. It’s not too late for Mercy Corps Ventures to be early to the next trend: climate adaptation. “Climate resilience isn’t the only shock and challenge facing underserved communities, but it’s a significant one,” Mercy Corps Ventures’ Dan Block told ImpactAlpha. “We see a lot of intersectionality between climate challenges and other issues.”

• Tech transfer. Mercy Corps Ventures notched its 50th investment this year. Early portfolio companies in Africa are finding growth opportunities in Latin American markets facing similar issues. Kenya-based crop insurance provider Pula is offering policies to protect farmers in Latin America from drought and other extreme weather events. Ghana-based Ignitia, which offers hyper-local weather forecasting in tropical environments, expanded to Brazil. The organization is deepening its engagement in Latin America’s climate tech scene. Last month, it invested in Mexico-based solar software company Popular Power. It has also backed Argentinian wildfire detection startup Satellites on Fire, and El Salvadorian climate fintech venture Abaco. In both Africa and Latin America, the “stickiest” and most scalable solutions “are the ones that directly solve climate problems affecting users financially,” said Block.
  
• Resilience framework. Mercy Corps Ventures’ tackles climate resilience through three themes: adaptive technologies for the food and agriculture system; climate data and insight systems; and green and inclusive fintech. The organization is coming out with a taxonomy to help investors navigate early stage adaptation technologies for underserved communities (for a related taxonomy, see, “A market map of tech solutions for climate adaptation and resilience”). “We have seen a lot of models focused on the Series B, C and D stages of growth, but less for early stage climate solutions,” Block said. “That’s an area where we think we can be helpful.”
  
• Share this story, and check out the full roundup of ImpactAlpha’s deal reporting this week.

The Week’s Talent and Jobs

💼 See and share more than a dozen new 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.

Dave Zellner, who retired in August as chief investment officer of Wespath Benefits and Investments, was named executive chair of FaithInvest… Amy Nelson of Rethink Education became the firm’s third managing partner… Colorful Capital’s Megan Kashner and William Burckart ended their efforts to raise an LGBTQ+ focused investment fund… Kenan Fikri, ex- of Economic Innovation Group, joined the US Department of Commerce as director of the regional economic research initiative.

That’s a wrap. Have a wonderful weekend. 

– Aug. 30, 2024