Instant Karma Newsletter 7.30.20
  • Catalytic capital is a cost curve bender in impact investing. 

This article is part of the daily Karma newsletter. To get the whole newsletter delivered to your email free every morning, subscribe here.

Like so many 21st century buzzwords, “catalytic capital” sounds like it was birthed in a perfectly curated tweetstorm. (As far as I know, it wasn’t.) It’s an alliterative investment term for “taking one for the team” by using debt, equity, guarantees, and other investments that accept disproportionate risk and/or below-market-rate returns to clear the way for other investments to be made.

The term comes up a lot in impact investing because of the principle behind the “carbon cost curve”: in short, we’re not 100% powered by clean energy right now because the upfront costs needed to make a lot of those investments profitable are still pretty high.

That is set to change in the long term, especially with policy incentives. But in the meantime, putting (say) a wind farm in a coal-powered, emerging-market country is going to be expensive. 

Impact investors may want to go in and make that investment, but there is almost no chance of turning a profit. An infusion of catalytic capital from philanthropy and/or development finance (which, when combined with private capital, is “blended finance”) or another investor cool with taking the hit can pave the way for a wave of impact investments. 

In Other News: Russian permafrost, African TikTok

Thawing permafrost is tanking Russia’s energy companies. TikTok’s unexpected role in geopolitics could mean its future is in Africa. Just 22% of German companies reported results from their voluntary monitoring of supply chains for human rights violations. Charity Navigator’s new measurement tool for nonprofits is worth a look for impact investors. Can Black-owned tech incubators close the racial wealth gap? Indian farmers are embracing solar-powered irrigation

Levity Break

Meet Mary Mallon: the “masks are dumb” equivalent of 19th century New York City!