Our December 2024 Newsletter
12 Sources of Hope for the New Year
Despite the year’s challenges, we are hopeful that 2025 will bring new waves of opportunity to make the world a better place.
Optimism is one of our values here at Impact Engine, and one we find crucial to be intentional about, especially during trying times. As this year comes to an end and a new one begins, we are sharing a list of small things that give us hope, and support you to find your own.
Ander: The new Netflix documentary Will & Harper - Despite what the modern world tells us, humans have an unique ability to connect, emphasize, and love each other no matter how foreign a situation might appear.
Cara: From Ann Friedman:
““Hang out with a kid…Their enthusiasm for the tiniest thing is a microdose of hope. They are growing, so is everything else.””
Demetrius: From Michelle Obama:
““So you may not always have a comfortable life. And you will not always be able to solve all the world’s problems all at once. But don’t ever underestimate the impact you can have, because history has shown us that courage can be contagious, and hope can take on a life of its own.””
Jessica: From The Marginalian:
““Don’t just resist cynicism — fight it actively. Fight it in yourself, for this ungainly beast lies dormant in each of us, and counter it in those you love and engage with, by modeling its opposite. Cynicism often masquerades as nobler faculties and dispositions, but is categorically inferior.…Like all forms of destruction, cynicism is infinitely easier and lazier than construction. There is nothing more difficult yet more gratifying in our society than living with sincerity and acting from a place of largehearted, constructive, rational faith in the human spirit, continually bending toward growth and betterment. This remains the most potent antidote to cynicism. Today, especially, it is an act of courage and resistance.””
Leslie: Puerto Rican alternative hip hop band Calle 13’s song La Vuelta al Mundo:
Maggie: From Soul of a Citizen: Living With Conviction in a Cynical Time by Paul Rogat Loeb:
““We all have our own distinct gifts, strengths, and opportunities to make our lives count. No one person is responsible for healing all the wounds of the world. The challenge is to ask what we want to stand for, and to do our best to act on our beliefs. For our choices will create the world that we pass on.””
Mohit: I have been reading this poem by the Dalai Lama - Never Give Up.
“No matter what is going on, never give up.
Develop the heart.
Too much energy in your country is spent developing the mind instead of the heart.
Be compassionate, not just to your friends, but to everyone.
Work for peace in your heart and in the world.
Work for peace and I say again, never give up.
No matter what is happening, no matter what is going on around you, never give up.”
Priya: From What If We Get It Right: Visions of Climate by Ayana Elizabeth Johnson:
““Sometimes the bravest thing we can do while facing an existential crisis is imagine life on the other side.””
Rahul: A useful reminder that we can decide how much optimism we want to bring to bear:
“I’m a pessimist because of intelligence, but an optimist because of will.””
Roger: Amanda Gorman, excerpt from “An Ode We Owe”,
“For preserving the earth isn’t a battle too large
To win, but a blessing too large to lose.
This is the most pressing truth:
That Our people have only one planet to call home
And our planet has only one people to call its own.
We can either divide and be conquered by the few,
Or we can decide to conquer the future,
And say that today a new dawn we wrote,
Say that as long as we have humanity,
We will forever have hope.”
Sophia: I come back to this piece on hope often. It’s a good reminder that in spite of all we hear and see that is negative in the world, we must not lose hope:
““It’s really a wonder that I haven’t dropped all my ideals, because they seem so absurd and impossible to carry out. Yet I keep them, because in spite of everything I still believe that people are really good at heart.””
Tasha: I share this quote with my students every year since it really captures the entrepreneurial spirit:
““Pessimists are usually right and optimists are usually wrong but all the great changes have been accomplished by optimists.””
Let's Zoom in on Climate Funds
Elevating Impact: Are all climate-tech investors impact investors? We don’t think so.
By Mohit Jindal and Ander Iruretagoyena
In recent years, an unprecedented number of funds have emerged in the climate and sustainability space. After a record $83.3B in new AUM in 2023; 2024 is expected to be even bigger. As an impact asset manager that has conducted over 2,200 calls with GPs since 2018, we wonder: Are all climate funds truly impactful?
Aren’t all these funds helping mitigate emissions in some way through their portfolio companies? Yes, emissions are being avoided and some are even expanding into climate adaptation, but is that enough? Is there a line we need to draw to create a bare minimum threshold for a climate fund to be considered impactful? If so, where is that line?
Source: Sightline, CTVC
Defining Impact: Impact Engine’s Perspective
Let’s take a step back. At Impact Engine, we believe an impact fund must embody these three characteristics:
Intentionality: The team’s authentic, long-term commitment to impact through their professional and personal track record.
Strategy & Process: The fund has a clear plan, relevant expertise, and alignment across the team to integrate impact and financial goals effectively.
Accountability & Measurement: Systems to define success, track impact, and maintain transparency, ensuring aligned incentives for achieving both returns and outcomes.
From Cleantech 1.0 to Climatetech 2.0: A Maturing Opportunity Set
The landscape of climate investments has come a long way since the early days of Cleantech 1.0. Between 2006 and 2011, fueled by rising energy costs and public campaigns like An Inconvenient Truth, investors poured $25B into clean energy solutions. However, nearly half of that capital was lost or impaired during the ensuing bubble collapse.
Today, the picture is vastly different. Falling cost curves have driven the widespread adoption of renewable technologies, and the investment community has evolved. While Cleantech 1.0 was largely dominated by generalist investors, the current wave includes a growing pool of specialists—investment professionals with battle scars in cleantech investing and some with a commitment to measurable impact. The opportunity for climate investments is also broader, allowing for more diversification by theme, industry, and business model.
How We Evaluate Impact in Climate Funds
With both an impact framework and the climate opportunity set in mind, we can now explore the nuances of what makes for a compelling impact climate fund.
At Impact Engine, we go beyond frameworks and reports. Here’s how we distinguish climate-aligned funds from impact climate funds:
Intentionality: We assess the fund manager’s understanding of climate change’s key drivers. Are they aiming to measurably address critical challenges, or are they simply aligned with climate trends? We explore their motivations, the problems they are solving, and the measurable impact they intend to create.
Strategy & Process: We evaluate whether their actions reflect their intentions:
Sourcing: Are they focused on high-impact areas (e.g. major greenhouse gas emitting industries) or do they have a “checks the box” mentality?
Diligence: Do they analyze and project GHG avoidance or reduction metrics, or do they rely on general claims about climate benefits?
Management: Do they provide strategic support to ensure portfolio companies deliver on both financial and impact goals?
Accountability & Measurement: We look at why and how they measure impact. Are they using robust systems to track GHG reductions, climate adaptation outcomes, and broader environmental or social impacts? Do these systems ensure transparency and aligned incentives?
Illustrating Impact in Action: Portfolio Examples
To bring our philosophy of intentionality, strategy, and accountability to life, here are some examples from our portfolio of fund investments:
Ara Partners, an industrial decarbonization buyout firm, is clear about their intention and strategy of investing in companies that can deliver or enable at least 60% or greater GHG emission reduction versus the market alternatives. It is a clear line in the sand and requires upfront diligence to gain conviction that a company can meet this goal. For example, its investment in Polar Performance Materials is helping scale the company’s proprietary High Performance Alumina (HPA) production method, which achieves more than 90% reduction in carbon intensity vs. conventional HPA sourced from China. HPA is relevant in the semiconductor industry, where more than 75% of overall carbon dioxide (CO2) emissions are created during the semiconductor manufacturing phase.
In growth equity, Carbon Direct Capital utilizes the resources and scientific expertise of Carbon Direct Inc., a sister company that offers science-backed carbon management services, including carbon measurement, emissions reduction, and high-quality carbon removal, to build robust life cycle assessments as part of deal assessment. Too often we have seen other funds accept assertions from companies about the effectiveness of their climate technology. We believe that Carbon Direct’s evaluation by climate scientists ensures that the fund invests in solutions that have the right scientific fundamentals to successfully scale and reduce CO2 emissions. Over the last two years, we have seen the team enhance their accountability beyond the pure focus on CO2 emissions abatement by tracking the impact of its work on wider racial and gender equity through their work in climate and environmental justice.
At times, we also see signs of what not to do. We’ve seen a few fund managers, with no background in climate research, investing or operations, hesitate to measure impact or only do so if mandated from a regulatory perspective or for marketing purposes. This lack of intentionality is often evident. There have been instances when data is recorded, but the measurement systems don’t track data over a period of time to understand how congruous business key performance indicators (KPIs) are with impact KPIs.
As we continue to invest in this space, we’re learning that intentionality and strategy manifest in different ways across fund managers, as does nomenclature. Some may reject the label of "impact investor" despite embodying the core traits of one, while others fully embrace the term. What’s clear is that the impact is never found in the label; it's a commitment to invest with a strategy that generates defined outcomes, and it is important for investors to deeply understand and evaluate the myriad of approaches that can be effective.
Note: References to portfolio holdings are intended for illustrative purposes only, and inclusion in this material is not indicative of performance or other metrics.
