Investment

Families, entrepreneurs and their family offices have committed more than $1 trillion into impact investment

Family offices are backing energy group Arcadia in its construction of a social network which nudges US consumers into switching their electricity supply from fossil fuel to clean energy.

In turn, its backers have become part of a more informal global network of families and entrepreneurs who have put $1 trillion into impact investment, in a determined bid to combat climate change.

Arcadia extracts big data from energy providers to show their clients they can get a better financial, and environmental, deal by switching away from fossil fuel suppliers. It nudges them to cheaper, cleaner, energy providers by using nearby solar farms as well as rooftop panels. 

This cascade of green VC investing is becoming more frequent, as family offices keen to back green entrepreneurs multiply and institutions follow their lead

Arcadia’s lively website is full of hints and tips for its clients. It even helps individuals to contact local governments to create community solar farms. It has raised $200 million in its latest fundraising to put a notional value of $1.45 billion on the company.

Founder Kiran Bhatraju started Arcadia 8 years ago. A born communicator from Kentucky’s coal region, he has invested in seven other green businesses in his own right, including smart meter provider Amperon, which has just raised $7 million from a funding round led by HSBC.

This cascade of green VC investing is becoming more frequent, as family offices keen to back green entrepreneurs multiply and institutions follow their lead. An important Arcadia investor is Broadscale, an investment business led by Andrew Shapiro, once dubbed “the green business go-to guy”. He has financed a stream of green deals for hundreds of large US corporations and family offices. Broadscale presents itself as a proactive network, harking back to Bill Gates’ Breakthrough Energy Ventures whose adviser Dan Leff is operating partner at Broadscale.

It has joined forces with the ubiquitous Cohen family to form a listed SPAC planning to merge with Voltus whose software buys electricity from places in surplus and sells it to users where supply is short.

Sustainable investing is important to another investor, Reimagined Ventures, a family office led by Alec Litowitz, founder of $14 billion hedge fund Magnetar Capital. On his website Litowitz says: “I enjoy seeking out complex opportunities”. And you don’t get opportunities more complex than climate change.,

Other backers include Triangle Peak Partners, co-founded by Michael Morgan who built $43 billion energy group Kinder Morgan. Co-founder David Pesikoff previously worked for Egyptian billionaire Fayez Sarofim for twenty years.

Drawdown Fund was set up by Erik Snyder who previously worked for South African family office adviser GLE Capital. His advisers include climate entrepreneur Paul Hawken, Isaac Pritzker, a principal at Tao Capital Partners; Peter Rive, ex-Tesla, and US Saudi ambassador Princess Reema.

MCJ Collective’s Jason Jacobs has developed a network of climate investors. He was the founder of digital running tool Runkeeper, sold to ASICS Corporation.

BoxGroup is a more broadly spread VC firm led by David Tisch, grandson of the late entrepreneur Laurence Tisch and Adam Rothenberg, a former hedge fund manager.

Despite the challenges currently facing VC, Tiger Group has added Arcadia to its stable of deals which currently total 1,026, according to Crunchbase.

The rest of Arcadia’s backers are a mixture of emerging VC firms and institutions led by JP Morgan Asset Management Wellington Management Company and Australian bank Macquarie. JP Morgan, which led the fundraising, has targeted $2.5 billion over ten years to tackle climate issues.

 

Why impact scores over ESG investing

In 2010, JP Morgan and Rockefeller Foundation heralded the arrival of impact investment with a prediction that the sector would see inflows of $400 billion to $1 trillion over ten years.

The gains came in towards the upper end of expectations, following strong support from family offices who have always been reluctant to pay fees to asset managers to run ESG funds of dubious quality.

In new research, published by Citi, impact investment leader Sir Ronald Cohen said: “ESG has the intention to create impacts but lacks the ability to measure them. Impact measures the impact created.”

ESG managers buy stocks and bonds whose value is driven by traditional accounting which takes little account of environmental factors. Their bets away from the index are rarely brave. The S&P 500 index has fallen 16% so far in 2022. And so did the same index, supposedly adjusted for ESG factors. 

In a speech at a recent ESG conference at Bloomberg, hedge fund manager Chris Hohn said managers have failed to engage with companies effectively: “There’s obviously a collective failure happening.”

One explanation is that traditional accounting sets the wrong parameters for ESG. Cohen points out oil majors Exxon, Shell and BP each reported similar revenues of $180 billion in 2020.  But these figures were skewed in favour of management. They took no account of environmental costs totalling $39 billion at Exxon, $23 billion at Shell and $14 billion at BP. 

“The problem is directing capital effectively to where it can bring the greatest improvement, ” says Cohen. “Impact-weighted accounting provides the compass we need.”

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