Year after year, the effects of climate change accelerate their way into our lives across the globe. As we seek to adapt to and mitigate this disturbing momentum, we must recognize that while climate change affects us all, it affects some groups more than others. And unfortunately, those affected most often face systemic barriers to achieving greater climate resilience.
For example, low-income communities worldwide tend to experience the brunt of climate-related disasters, made worse because such communities generally lack the resources to adequately prepare for, respond to, and recover from such events.
Because our impact investment strategy focuses on improving the lives of low-income populations in Latin America (with a focus on Colombia and Peru), we recognize that if we didn’t incorporate a climate strategy into our approach, we would be missing a fundamental catalyst in their path towards equality.
This blog outlines our climate strategy, exploring its relevance in Latin America, and detailing how, via our recently announced second fund, we will be investing in climate solutions which contribute to climate justice for low-income communities in the region.
Climate resilience challenges and opportunities in Latin America
In Latin America alone, projections by the World Bank indicate that by 2050 there could be upwards of 17 million climate migrants, in addition to a 300% increase in poverty by 2030 due to the effects of climate change. In Colombia, as of 2021, there were 3.7 million internally displaced people who face constrained resilience to climate vulnerability.
We remain hopeful, however, because out of this surging crisis has come a wave of climate innovation. There were more than 600 startup deals in Climate Tech in Latin America in just the first half of 2021. And a total of $50B has been committed (as of 2022) for climate and green financing in Latin America and the Caribbean through 2026, helping finance renewable energy, transportation and land-use projects.
Amidst this landscape, ALIVE sees climate change not just as an environmental crisis, but also a social one. As not just a business risk, but an opportunity. And that catalytic impact capital has a significant role to play in scaling climate innovation across the region.
Tackling climate vulnerability through our climate investing strategy
Low-income populations in the region are and will continue to be disproportionately affected as climate extremes put at risk the accumulation of physical and human capital.
Those extremes will also increase their healthcare expenditure, limit labor productivity, and exacerbate difficulties accessing and/or producing quality food and water.
ALIVE’s second fund invests in companies tackling these challenges, and more, while also applying a climate lens across our investment processes; from sourcing and screening through due diligence and post-investment accompaniment.
Our investment approach can be broken into two main categories, Mitigation and Climate Resilience
Mitigation:
Given its geography and economic makeup, experts have called Latin America home to “more carbon reductions per USD invested than any other region in the world”. Our investments in mitigation may include, but are not limited to, companies focusing on positively and directly impacting low-income communities through:
Decarbonizing processes
Ecosystem restoration
Biodiversity solutions
Automatization and digitalization
Circular economy
Nature-based solutions
Renewable energy
Resilience: There exist a bevy of commercial opportunities to help low-income communities prepare for, respond to, and recover from climate-related events, including but not limited to the following areas:
Construction
Transportation
Foodtech
Climate-smart Agriculture
Mechanisms for responding efficiently and effectively to climate-related disasters
The above areas are just an example of the many sectors and sub-sectors we have identified which have immense potential for positive climate impacts in low-income communities.
Doubling down not just on impact but on the business opportunity
There is also a clear business opportunity in climate tech driven by increasing stakeholder demand – from consumers and governments to financing capital holders.
Furthermore, according to Latitud’s 2022 Latam Tech Report, Climate Techs have been shown to have better product performance compared to other sectors and competitive unit economics, and they tend to be community driven with high network effects. That same report also notes that because they tend to receive funding from both within and outside of the VC world, investors in Climate Tech’s are more likely to have a successful exit.
PitchBook estimates that by 2027 the climate tech market will surpass US$1 trillion. According to IDB Invests, climate investments in Latin America represent a $5 billion opportunity in urban areas alone.
Taking on the challenge
If we did not incorporate a climate strategy into our approach, we would be missing a fundamental piece to tackling inequality in the region.
Recognizing that low-income communities in Latin America are disproportionately affected by climate change, through our second fund we hope to contribute to changing that reality, while also constructing a high performing portfolio.
In the next months and years, stay tuned to our newsletters and blogs as we announce our second fund’s new investments and share how these game-changing companies are helping to build a more climate resilient future for some of the region’s most vulnerable communities.