Giovanni Amodeo welcomed Edo Pfennings, Co-founder and Partner at Mentha Capital, to discuss the latest trends in impact investing and sustainability. The conversation delved into Mentha Capital’s journey, their focus on environmental impact, and the challenges and opportunities in the impact investing landscape.

Background of Mentha Capital: Edo Pfennings shared the history of Mentha Capital, which he co-founded 17 years ago. The firm has traditionally focused on the lower end of the mid-market, targeting companies with EBITDA between 3 and 10 million euros, primarily in the Benelux and Scandinavia regions. Two years ago, Mentha Capital launched its first impact fund, driven by a long-standing commitment to ESG principles and charitable initiatives.

Launching the Impact Fund: Pfennings discussed the intrinsic motivation behind starting the impact fund, emphasizing the importance of leveraging their existing expertise. Initially, the fund had a broad definition of impact but later narrowed its focus to environmental impact due to the significant opportunities and needs in this area. The fund targets smaller deals to avoid conflicts with their flagship fund and aims to nurture companies through international expansion, fast growth, and transitions to greener operations.

Addressable Market and Deal Flow: While quantifying the addressable market proved challenging, Pfennings expressed confidence in the deal flow based on their existing network and early successes. The fund has already completed its first deal and is close to finalizing a second.

Brown to Green Transition: A significant portion of the discussion centered on transitioning “brown” companies to “green.” Pfennings highlighted the importance of having a committed senior team to drive this transformation. He acknowledged the challenges, including the need for substantial investment and longer transition periods, but emphasized the potential for significant impact.

Measuring Impact: Mentha Capital has developed its own methodology to measure impact, comparing the positive effects of their investments to the environmental footprint of Dutch households. This approach helps in internal discussions and ensures that investments meet their impact criteria.

Aligning Interests and Avoiding Greenwashing: To align interests and avoid greenwashing, Mentha Capital links part of their carried interest to the impact achieved. Pfennings stressed the importance of balancing financial returns with impact to maintain credibility and attract investors.

Collaboration with Public Sector: Pfennings praised the European Union’s regulatory efforts and the support from institutions like the European Investment Fund. However, he noted the challenges posed by local, short-term politics, which can create uncertainty.

Future of Impact Investing: Looking ahead, Pfennings expressed hope that impact investing will become mainstream, with no distinction between traditional and impact funds. He emphasized the need for continued hard work to achieve both financial returns and significant environmental impact.

Conclusion: The fireside chat concluded with Pfennings reiterating the importance of sustainability and impact in the investment landscape. He remains optimistic about the future, driven by regulatory support and a growing recognition of the value of impact investing.

Key Timestamps:

00:08 Introduction
01:11 The Evolution of Menta’s Impact Fund
01:53 Fundraising Considerations for Impact Investing
02:39 Focusing on Environmental Impact
03:59 Investment Strategy: Grow Green and Brown to Green
04:39 Assessing the Addressable Market
05:37 Transitioning from Brown to Green Companies
07:49 Metrics for Measuring Impact
10:29 Standardizing Impact Measurement for LPs
12:32 Aligning Interests with Founders
13:57 Supply Chain Compliance in Impact Investing
16:05 Communicating Returns on Impact Investments
17:22 Investment Philosophy and Team Background
18:54 Navigating Brown to Green Transitions
22:43 Concerns Over US Election Outcomes
24:20 Maintaining Separation Between Funds
25:20 Future of Impact Investing