Posts Tagged ‘sustainability’

Impact Investing 3.0: Climbing the Slope of Enlightenment

December 11th, 2013

Impact IQ — Emerging technologies follow a path to market adoption so well worn that it is known simply as “the hype cycle.” A hot new product category reaches the “peak of inflated expectations” only to inevitably crash in the “trough of disillusionment.” After a reset, the survivors climb the “slope of enlightenment” to the “plateau of productivity.”

“Impact investing” is an emerging set of financial practices more than a new technology, but it has also suffered a backlash of disillusionment after exciting sky-high expectations. Where are the deals? There’s no track record of exits or returns. Social impact is too tough to measure. Impact investing is just dressed-up philanthropy. And so on.

But just as some early champions of impact investing have begun to feel fatigued by the challenge of adequately explaining its potential, new institutions and individual investors are stepping forward to adopt a range of impactful approaches.

At the risk of again inflating expectations, impact investing’s climb up the slope of enlightenment stands to catalyze hundreds of billions of dollars over the next decade for investments in smallholder agriculture and food security; access to basic services such as water, electricity and sanitation; small business and economic development in both developing countries and U.S. inner cities; businesses led by and serving women and girls; sustainable real assets such as timber, energy efficiency and wastewater treatment; and many other sectors.

As global population approaches nine billion, the emerging global middle class is creating unstoppable demand for food, water, energy, education, healthcare, financial services, housing and sanitation. Resource constraints and climate change demand disruptive innovation and radical efficiency.

That makes impact a signal for long-term outperformance. And makes impact investors pioneers in a new global economy.

Call it impact investing 3.0…

The growth of dedicated impact venture-capital or private equity funds won’t be enough. To really climb that slope of enlightenment, impact investing will have to attract the mass market of smaller “retail” investors and the “real money” of major pension funds, insurance companies and sovereign wealth funds. That shift has barely begun ­— but it has begun.

The frontier for impact investing, then, is to match different kinds of investors with the deals that give them the kind of returns they are looking for, in terms of upside opportunities, downside risks and social and environmental benefits. David Chen of Equilibrium Capital Partners suggests that represents an opportunity for the financial industry to rebuild its reputation through financial innovation aligned with environmental sustainability and economic inclusion.

Just as financiers in recent decades have learned to dissect and repackage risky assets — say, turning subprime mortgages into investment-grade instruments — so too can they dissect and repackage benefits, so that positive social and environmental impacts can be valued and priced and sold to investors with those expectations for their portfolios.

“When the economics are aligned, when the incentives are aligned, when the language is aligned,” Chen says, “the capital markets can react at a blindingly fast speed.”

Read the full story in Freshwater, the magazine of the Freshwater Trust.

Author’s note:

Impact industry insiders will notice that putting “3.0″ in the headline represents a rapid acceleration of the field, given that the impact investing industry’s leading trio of researchers last month released another excellent report ushering in the new era of impact investing, 2.0.

I’m not trying to incite an arms race, nor a debate on fine points of nomenclature. I have already saluted Cathy Clark, Ben Thornley and Jed Emerson for crisply laying out the successes and challenges of a dozen impact funds that are plowing the hard ground of actual practice in these early years. (See “Impact Investment Performance: Tiptoeing Toward Transparency.”)

There’s no disagreement: a new stage is coming — must come — when capital at scale flows to compelling investments in the sustainable and inclusive future. At that tipping point, nobody will care about the version number.

We all do care about the flow of capital. Impact IQ, and our sister site ImpactSpace.org is tracking that flow through the companies, the investors and the deals that are creating value in this emerging era. So I accepted eagerly when Joe Whitworth, Adrian McCarthy and their team at Freshwater Trust invited me to do a kind of year-end look-ahead for Freshwater, their fresh and appealing magazine.

The evolution of Freshwater Trust itself is a microcosm of the industry’s. Freshwater’s innovative water quality trading mechanism finances water-cooling stream restoration projects through “credits” bought by industrial users. (Full disclosure, Impact IQ and Freshwater share a board member, David Chen, co-founder and principal of Equilibrium Capital Partners in Portland, where Freshwater is also based.) In the coming year, Impact IQ will be tracking that kind of shift from philanthropic or government funding to commercial financing for conservation projects, a major Impact 3.0 trend.

The full issue of Freshwater is well worth reading, with an excellent feature by Julia Bond on high-tech solutions in water, deforestation and energy efficiency, and Brad Kahn’s good description of the Bullitt Foundation’s new “net zero” headquarters building in Seattle, which itself pioneered an innovative new kind of project financing (see “MEETS: Generating ‘Non-Energy’ to Drive Revenues from Efficiency.”)

Impact IQ provides original reporting and analysis for investors and entrepreneurs pursing social, environmental and financial returns. 

 

Stocking the Investment Pipeline in Sustainable Seafood

November 21st, 2013

Impact IQ – There’s now a good answer for impact investors who wonder where to look for deals in sustainable seafood and ocean preservation: Fish 2.0.

Last week’s two-day event to cap the year-long business competition showcased 20 finalists and semi-finalists with a wide range of seafood businesses from distribution and marketing systems to tracking and data technologies to aquaculture production schemes. The ventures varied in both social and environment impact and investment-readiness, but the many investors in attendance seemed to find at least some deals of interest.

“Awareness about sustainable seafood has increased and continues to rise,” said Mitchell Lench of Treetops Capital, a New York fund that invests in microfinance, green housing and small business development. “It was useful to see so many different types of sustainable seafood companies all in one place.”

The three winning ventures, which split $75,000 in prize money, typified the breadth of the entries. The winning company, Blue Sea Labs in San Francisco, operates a direct-to-consumer seafood e-commerce site and logistics service that helps fishermen gain higher profits by eliminating middlemen from the distribution chain. “It’s an area ripe for disruption and new technology,” said Martin Reed, Blue Sea’s CEO, who says the company’s logistics system saves 25 percent on shipping but, more importantly, reduces late delivery by 65 percent.

The runner-up was Cryoocyte, a Cambridge, Mass., startup that is developing a way to freeze fisheggs, a longstanding challenge. By freezing eggs when they are abundant, fish farms could produce at full capacity year-round, improving their own profits and productivity. The technology, if proven, would have a host of other applications as well, such as the creation of a genetic egg bank to preserve endangered species, helping fish farms to recover more quickly from floods and disease outbreaks, and enabling hatcheries to ship eggs further than they can currently send fingerlings.

In addition to the prize money, Cryoocyte found potential customers at Fish 2.0. “We met people here telling us they want to use our services because we can make their businesses better,” said Dmitry Kozachenok, the company’s CEO and recent graduate from Harvard Business School.

The third-place finisher, Ho’olulu Pacific, based in Oahu, Hawaii, is a local operation, with a network of 70 backyard aquaponic systems that provide fish and vegetables to native Hawaiians to improve their diets and boost their incomes. The $1,500 kits include everything needed for the systems, as well as a contract for the company’s representatives to collect the surplus for sale to grocery stores and restaurants.

The semi-finalists attracted attention as well. Each of the 10 contestants in the 90-second “fast pitch” competition received multiple votes from the audience. The result was a tie, between Smartfish, previously featured on Impact IQ, and Inland Shrimp Co.

“What was most inspiring for me was to see over 150 impact investors, technical experts, grant-makers, experienced business leaders, and emerging entrepreneurs share ideas for the future of seafood,” Monica Jain, the longtime sustainable seafood advocate who masterminded every aspect of Fish 2.0, wrote on National Geographic’s Ocean Views blog. “I expect that connections made last week will contribute to multiple new investments and business relationships in the sustainable seafood sector.”

Impact IQ provides original reporting and analysis for investors and entrepreneurs pursing social, environmental and financial returns. This article is part of Impact IQ’s series on Oceans and Sustainable Fisheries, in association with SOCAP, the annual Social Capital Markets conference in San Francisco.

Impact Fund Invests in Aquaculture to Preserve Oceans

November 15th, 2013

Within a few years, most of the fish we eat will be farmed, not caught.

That could be a boon for already over-stressed oceans. But the worldwide explosion of aquaculture since 1970 has left its own trail of environmental destruction, from toxic concentrations of waste, to outbreaks of disease, to the continued over-harvesting of smaller ocean fish for feeding their penned brethren.

A wave of aquaculture startups are trying to tackle those challenges with better technology and management. Aquaponic, or closed-loop, systems use fish waste to fertilize vegetables. Alternative sources of proteins, from insects to microbes, can substitute for fish meal. Farms are beginning to grow fish safely with fewer chemicals and antibiotics.

Aqua-Spark, a new fund launching this week, is likewise taking a different approach to financing such aquaculture ventures, with the aim of reducing environmental risks and boosting output to feed a protein-hungry world. Aquaculture now produces about 60 million tons of seafood, or 41 percent of global supply. The UN’s Food and Agriculture Organization estimates that at current rates of consumption, an additional 23 million tons of seafood will be needed by 2030.

“The only way to go up is farming,” says Mike Velings, the Dutch founder and managing director of Aqua-Spark. “If we don’t do it in a good way, the pressure on the oceans will only get bigger and bigger.”

Aqua-Spark, based in Utrecht, Netherlands, grew out of A-Spark Good Ventures, a broader investment company Velings founded after after building a successful human resources outsourcing firm. Also managing the new fund is his wife, Amy Novogratz, former director of the TED Prize, which is awarded at the well-known innovation conference. Socially responsible investing runs in Novogratz’s family; her sister is Jacqueline Novogratz, the head of Acumen, an early impact investment fund.

They are seeking to build a network of small- and medium-sized companies that meet sustainability criteria and can share technology, feed and distribution. Aqua-Spark is looking to make up to 10 investments per year of between 250,000 and 5 million euros ($336,000 to $6.7 million), in both developed and developing countries.

“The big issue is coordinating the efforts of all the organizations to orchestrate this rapid growth,” Novogratz says. “Right now, that’s not happening.”

Velings and Novogratz met in 2010 aboard the Mission Blue, a 10-day voyage to the Galapagos Islands organized by ocean advocate Sylvia Earle, a National Geographic explorer-in-residence and TED Prize winner, to build support for protecting sensitive marine areas. At the time, many conservationists were hostile to aquaculture because of well-documented problems with farmed salmon and other species.

“Everybody was very negative,” Novogratz recalls. “There’s been a huge switch in the past three years.”

To find its deals, Aqua-Spark has partnered with WorldFish, a Malaysia-based spinoff of the “green revolution” pioneer CGIAR (Consultative Group on International Agricultural Research), which gives commercial support to promising ventures. It also scouted for ventures at this week’s Fish 2.0 business plan competition at Stanford University, where Velings was a judge.

Aqua-Spark is structured specifically for the aquaculture industry, in which companies often require intensive capital investment to develop production and distribution capabilities. Typical venture funds aim to return capital to partners within seven to 10 years, via acquisitions, public offerings or follow-on financing of their portfolio companies. Aqua-Spark will be an evergreen, or open, fund that intends to stay involved with companies for the long term. Valuations will be determined every six months, letting new investors get in and old ones recoup their capital, after an initial lock-up period. Aqua-Spark expects to pay dividends after an initial investment period of five to seven years. The couple has committed 2.5 million euros ($3.36 million) of their own to cover management costs and will charge investors a management fee of 1 percent, lower than typical venture funds.

“It takes a long time to build. It’s risky,” Velings says. “But once you have built an aquaculture business, there are steady, quite high returns.”

Private investors are increasingly interested in other segments of the $390 billion global seafood market, and other investors have done individual aquaculture deals. Aquacopia, a $16 million venture capital fund, made five seed and Series A aquaculture investments through 2009 and is now looking for exits, says co-founder David Tze, now managing director at Oceanis Partners, which advises investors and entrepreneurs on aquaculture deals.

But Aqua-Spark is unique in seeking to build a network of companies and shape aquaculture’s future. Aqua-Spark’s first hurdle is lining up its own investors. To launch successfully, the fund is seeking a first closing of 15 million euros ($20.3 million) from high-net-worth individuals, family offices and foundations drawn to the funds social and environmental benefits. Over the next decade, Velings and Novogratz hope to place as much as 200 million euros ($270 million),  which will require the participation of more mainstream investors.

“Everybody realizes you have to do it in a sustainable way or the seafood business will end,” Velings says. “There’s still a big battle to be fought.”

(Notes: Impact IQ provides original reporting and analysis for investors and entrepreneurs pursing social, environmental and financial returns. A version of this story first appeared on Bloomberg.com under the headline, “New Fund Lets Investors Fish for Returns in Farmed Seafood.”

This article is part of Impact IQ’s series on Oceans and Sustainable Fisheries, in association with SOCAP, the annual Social Capital Markets conference in San Francisco.

Photo: Fish farmers at a hatchery in Gazipur, Bangladesh. Photo by Finn Thilsted, 2012, via WorldFish.)

SmartFish: Catching Gold in the Fish Market

November 4th, 2013

Photo credit: Annie Waller

The Japanese fisherman caught a goliath grouper and began to cry. That was when Hoyt Peckham knew things had to change.

Peckham had been in the fishing industry for decades, fishing and advising fishing communities in Maine, the Caribbean, Mexico, Polynesia, and Southeast Asia. He had organized exchanges among Japanese, Hawaiian, and Mexican fishermen to share practices by hosting each other in their home waters.

The Japanese fisherman cried in part because he would never be able to catch a fish like that at home. Old, slow-growing groupers the size of a person are long gone in Japan. But even more, he said, he cried for how poorly the fish was handled. In Japan, even the smallest fish is handled and packaged with care on the boat to preserve quality.

In Mexico, even a prize like the goliath grouper was not killed properly, bled, iced, or even kept out of the sun. It had deteriorated considerably by the time it got to port. Destined to have a fishy taste, it would be sold at a low price.

The fisherman’s tears moved Peckham to found SmartFish, a for-profit company that rescues value in the fish market by helping fishermen deliver better-quality fish to the docks and sell those fish in premium markets. By helping fishermen get more for each fish, SmartFish aims to reduce overfishing while improving local livelihoods.

They’ll Pay for Quality

Last year, Peckham partnered closely with the Mexican nonprofit Comunidad y Biodiversidad (COBI), which formed in 1999 to promote marine conservation in the Gulf of California. COBI actually helped to develop the model and co-write the business plan. SmartFish is a semifinalist in the Fish 2.0 business competition at Stanford University November 12 and 13.

Los Cabos in Baja California Sur is home to many high-end restaurants, catering to the world’s elite, where hotel rooms can run up to $5,000 a night. The one thing that hasn’t been elite in Baja is the seafood.

The hotels are situated right next to some of the best fishing seas in the world, or the “world’s aquarium” as Jacques Cousteau called it. Yet, the seafood these hotels serve isn’t sourced fresh locally. The fishing communities are disconnected from the hotels, some of which displaced locals when they were built. Until now, local seafood has been considered low-quality.

This isn’t a reflection on the fish itself. Rather, poor handling delivers the fish to market in bad shape, ash-colored, flaky, and smelly. Such poor handling, Peckham says, turns “golden fish” into lead in a kind of reverse alchemy that reduces fishing income and in turn necessitates higher catch-volumes.

“They’re catching fish that’s worth gold in the market,” says Peckham. “But in the ways that it’s caught, it’s worth less than lead, less than plastic.” Recycling a plastic bottle in Mexico fetches 9-10 pesos, he says; poor-quality fish sells for 5-7 pesos a kilo. “How can you get less for a good-eating fish than a dirty, plastic bottle that’s been cooked in the sun and run over by cars on the side of the road?”

So Smartfish is working with local fishermen to preserve their bounty with higher quality, higher prices and lower volumes. SmartFish has found that the high-end hotels are more than willing to pay a premium for excellent quality fish. While paying for quality, they receive sustainability as a bonus. The value of sustainable seafood is becoming well-understood in the U.S., but has not yet become a significant factor in Mexico.

COBI has been working in artisanal fishing communities across Mexico, with the aim of promoting ecological sustainability and reducing overall catches.  If its work is to succeed longterm, COBI knew it needed to offer communities alternative financial models. While trying to foster new connections between seafood buyers and fishing coops, the organization realized that fishermen really need market orientation. SmartFish helps COBI provide its communities with opportunities to capture a greater profit, says Amanda Lejbowicz, COBI’s Program Coordinator for Baja California and Science.

“If SmartFish is a success, it helps all of us because we have the same goal,” she says.

Scaling Up with Tech

Community-embedded organizations like COBI currently make it easy for SmartFish to teach and ensure best fishing and sustainability practices.  But Peckham knew that, as the business scaled regionally and eventually globally, they’d need to systemize their verification processes. SmartFish has struck a partnership with Shellcatch, a catch-verification technology company.

Shellcatch’s software allows the company to monitor catch method and by-catch in an automated manner. This information is shared with the rest of the supply chain. The verified and traceable seafood caught on Shellcatch-equipped boats can thus be differentiated from the rest of the market.

The company’s devices are the size of a paperback novel and are waterproof and impact resistant. They require no user input from the fishermen, so there is very little maintenance involved. Shellcatch passes along the cost of these devices to retailers concerned about the origin and sustainability of their fish.

Launched in Chile in 2008, Shellcatch spent three years gaining the trust of Chilean fishermen. By 2011, fishermen realized that Shellcatch helped them better compete in the international marketplace and allowed them to translate responsible practices into access to higher premium markets and prices.

Previously, such markets were mainly available to large companies who could pay for certifications or create their own branding and marketing.  The fishermen are now so invested in the idea that they promote Shellcatch’s product on Chilean TV.

“We wanted to empower [the fishermen] with technology so that they could be the main characters in [driving] sustainability and traceability in the industry,” said Alfredo Sfeir, Shellcatch’s founder.

For SmartFish, the Shellcatch partnership allows them to expand to small fishing communities regionally, and eventually globally, and to places where partner organizations like COBI don’t yet exist. By 2015, Peckham says, “Our fish will be fully traceable.”

Editor’s Note: This article is part of a series on Oceans and Sustainable Fisheries, in association with SOCAP 13, the Social Capital Markets conference in San Francisco, Sept. 3-6.

Do You Know Who Caught Your Fish? Direct Relationships Cut Seafood Fraud and Boost Fishing Income

October 1st, 2013

When it comes to sustainable seafood, barcode identifiers and environmental certificates only go so far. The real key is genuine relationships with the people who hauled in the catch.

From Alaska to Boston to San Francisco, conservationist Native Americans, nonprofit organizers, and seafood entrepreneurs are developing ways to safeguard consumers and empower fishing communities.

The first selling point for the new approach is reduced fraud, which is rampant in seafood markets, costing consumers money (by paying more for lower-quality products) and endangering their health (by mislabeling species that may contain high levels of mercury).

2012 study by Oceana, an international nonprofit, found king mackerel and tilefish labeled as “safer” species, despite FDA warning they should be avoided by mothers and young children because of high levels of mercury. The study found one-third of the 1,200 DNA-tested seafood samples to be fraudulently labeled.

Dune Lankard, a native Eyak tribe member and founder of the Copper River Wild Salmon Company in Cordova, Alaska, says the key to eliminating fraud is “creating the new business economy.” He believes relationships – between harvester and customer, fisherman and nature – are as valuable as the products being bought, and can provide consumers with true trust and traceability and ensure responsible stewardship of natural resources.

Copper River Wild Salmon Company plans to work with 50 trained and trusted fishermen (about 10 percent of the total Copper River fleet) to create fishermen profiles. Consumers will be able to see who their wild salmon purchases are supporting.

Lankard has developed plans that combine this for-profit venture with plans for a nonprofit LEED-certified community processing and cold-storage facility in Cordova. He anticipates the facility would process around 10 million pounds of the Copper River Wild Salmon Company’s salmon per year. The plan, which won third place in the 2007 Alaskan Marketplace Competition, calls for opening the facility to the community at an affordable rate by using the Company’s bulk processing to bring down costs on equipment usage.

He is currently in negotiations for a facility and, if successful, hopes to start upgrading in 2014. The nonprofit facility would give the local community economic and physical control over the processing, labeling and distribution of its high-value Copper River wild salmon, which retails for a higher price than other Alaskan salmon (this year’s price for Copper River sockeye: $23 per pound). More than two million fish, or almost 13 million pounds of Copper River salmon were harvested last year. However, 80 percent of the salmon labeled “Copper River” doesn’t come from the watershed, says Lankard.

The facility would help artisanal, multigenerational fishermen catch less fish but generate more income by using higher quality, sustainable methods. Currently, as with fishing ports nationwide, artisanal fishermen are beholden to dockside processors who in most cases are the only buyer for their highly-perishable catch and can thus dictate prices. Fishermen usually don’t know what price they will receive for their catch at the time of offloading, so can’t plan their catch quantity or schedule.

What’s the name of the boat?

Niaz Dorry, coordinating director of the nonprofit Northwest Atlantic Marine Alliance (NAMA), says a hospital she advises was shocked when they investigated the source of their “sustainable fish.” The wild stock levels of the fish delivered to the hospital qualified it as “sustainable,” but the fish were harvested in massive numbers. “By-catch” of non-targeted species were killed and wastefully discarded in the process. The large factory trawlers scraped the ocean floor, damaging habitats in the Bering Sea. The harvested fish were sent to China, processed, and then back across the US to the East Coast — a huge and unnecessary carbon footprint.  The hospital cancelled its purchases.

Dorry says sustainability certifications are helpful concepts, but that the most important question to ask a distributor is: “What is the name of the boat that caught this fish?” If the distributor cannot answer that question, she says, then it has no ability to trace and verify the catch.

NAMA works with hospitals to purchase seafood that is truly sustainable, measured not only by stock level and harvest technique, but working conditions and carbon footprint. The hospitals, including Beth Israel Deaconess Medical Center, Boston Children’s Hospital, and Boston Medical Center and Vermont’s Fletcher Allen, also want their purchases to positively impact the health of their communities and local economies.

With its strong connections to local fishermen, NAMA helps to connect these hospitals’ purchasing departments and distributors with local-sourcing options and designs programs that give hospital staff and community affordable access to locally-procured fish.

For instance, NAMA assisted most of its partner hospitals in setting up a Community Supported Fisheries (CSF) program, a variation on the popular Community Supported Agriculture (CSA) farm-to-consumer model. The hospitals also run Community Health Centers, many in Boston’s low-income neighborhoods, and have been operating farmers’ markets, as a way to support their communities’ access to fresh, healthy food.

Last year, NAMA helped facilitate a pilot seafood vendor program in farmers’ markets. Each vendor was screened for sustainability, sourcing, and price points that are both fair to fishermen and affordable for these low-income communities.

Through these fish vendors and hospital programs, Boston and NAMA hope to revitalize the fresh, local, dayboat fish market and broaden the palates of Bostonians beyond the usual fare. At least one item in the vendors’ inventory must be priced “affordably,” as determined by each community center market manager, according to Edith Murnane, Boston’s Director of Food Initiatives. Part of the success of the program is the availability of species recognized by neighborhood residents, such as scup, which resembles a red fish popular in the Caribbean.

“This work enables the fishing industry to revitalize fishing communities and introduces a wider range of fish to consumers and in restaurants,” Murnane says.

Ready for Prime Time? 

In San Francisco, i love blue sea has created a logistics system that drop-ships fresh seafood overnight from docks to customers’ doors. Consumers can browse the catches of individual fishermen in 13 domestic ports, from Morro Bay, California to Montegut, Louisiana to Milbridge, Maine.

Since the company launched four years ago, it has increased profits for its fishermen by giving them more control over pricing and catch volumes, and generated tens of thousands of dollars of orders per month.

But that hasn’t been enough to sustain the company. To stay afloat, the company is expanding sales of their proprietary shipping logistics software, which ensures that overnight shipments of perishable goods are not lost or delayed.

“Sustainable seafood is a little ahead of the curve with consumers,” says founder Martin Reed. “It’s sort of a waiting game until enough consumers catch up.”

Editor’s Note: This article is part of a series on Oceans and Sustainable Fisheries,  in association with SOCAP 13, the Social Capital Markets conference in San Francisco, Sept. 3-6.

Photo courtesy of Eyak Preservation Council