Based on our early experience, strengthening environmental conservation projects, forest production chains and economic restoration initiatives, we identified the need to connect the social and environmental agenda with impact investments and venture capital.
Thus, we dived into the field of social finance, prototyped and experimented with different economic arrangements, participated in collective investment experiences and modeled financial vehicles to understand how to leverage this sustainable economy using the capital provided by Fundo Vale.
We now operate on a spectrum that ranges from philanthropic resources for business promotion to impact investments, with an expected financial return, as shown in the figure below.
The Vale Fundo’s impact investments businesses are based on four criteria, referenced according to the Alliance for Impact Investments and Businesses:
1) Intentionality of solving a social and/or environmental problem.
2) Impact solution is the main activity of the business.
3) Search for financial return.
4) Commitment to monitoring the generated impact.
Within these criteria and across the spectrum of investment possibilities, Fundo Vale proposes a protocol of innovative financial solutions with the possibility of future scale. The investment strategy can be implemented through financial instruments that adopt hybrid models between philanthropy and investment, known as blended finance. *
*Hybrid capital (or blended finance) is a composition between philanthropic capital and impact investing originating from various sources, such as companies, multilateral agencies, traditional investors or even the government. The model allows the relationship between risk, return and impact to be better adjusted due to the characteristic of the invested socio-environmental impact business. Since 2017, the Vale Fund has been studying and experimenting with these hybrid financial mechanisms and in 2020 made its first reimbursable contributions.
Our long-term impact investing strategy seeks to increase the contribution of Fundo Vale to this type of asset. In addition, the allocation of resources is guided by parameters of the impact ecosystem and prioritized by management and measurement, which are fundamental elements in this process.
Created by the Conexsus Institute, this fund channels investments to community businesses associated with value chains, which improve land use and avoid deforestation. The first offer of resources, launched in 2020, was the Emergency Credit Line, aimed at serving family farming and extractive community enterprises affected economically by the COVID-19 pandemic. The credit line had the following conditions: loans of R$50,000 to R$200,000; use of resources for working capital or as surety to access Pronaf credit; organizations with annual revenue of at least R$1.2 million; annual interest rate of 6%; grace period of up to 12 months; and repayment in 24 months. By the end of 2020, R$6.5 million had been lent to 84 community businesses. Furthermore, the beneficiaries received a package of non-financial benefits, such as mentorship, advice and actions to foster networking and access to markets, as part of the COVID Social and Environmental Response Plan.