International Impact Investing Summit: Impact Theme: Energy

I'm attending an International Impact Investing Summit in New York and will be attaching my raw notes from the conference. here are the notes from the 11 a.m. panel titled "Impact Theme: Energy."

Moderator: Mark Campanale, Halloran Philanthropies

Panelists:
Nicola Armacost, Co-Founder and Managing Director, ARC Finance, Ltd.
Herta Von Stiegel, Partner, Executive Chairman, Ariya Capital LLP
Christine Eibs Singer, Co-Founder and Chief Executive Officer, E+Co: http://eandco.net/
Anish Thakkar, Co-Founder, Greenlight Planet

Positive energy video with music: http://www.youtube.com/user/cleanenergyinvest
video for impact investing
positive energy feeds liberates illuminates educates produces
services + capital + entrepreneur = solution

E+Co: Energy through Enterprise

Christine Eibs Singer
We have been investing in this space since 1985. I understand the role that clean energy was playing in the developing world. I felt the best way to show this impact was to show it visually. All of the pictures with positive impact are coming from existing E+Co businesses. I actually do go to this video, and it inspires me.

E+Co is a 15-year-old U.S.-based nonprofit organization that invests in clean energy businesses. It is an asset when talking to people who understand the role of energy, and a liability of you don't. The role that energy plays in poverty alleviation, climate change, health and education means that it is being seen more and more as an underlying platform for development. We have brought in philanthropic capital, capital from bilateral organizations, and provide business development services in the many disparate countries where we work.

We utilize public support to provide capacity-building and strengthening the entrepreneur and his team so they are bankable. We place that capital in the form of debt with these very businesses that we are helping groom. We are a one-stop shop of business and capital. It needs to be environmentally superior to what is being used. It needs to be available in the marketplace. We do not need technology risk on top of the other risks we manage. Most importantly, it has to be affordable to that customer, whether it is a utility (an industrial waste-to-energy product) or a company that is selling

Affordable, available and appropriate. That is our technology screen. In our world, technology is not the issue. This isn't about technology. It's about 50 years of implementation. The issue is access to the technology and access to the finance.

We're kind of a pioneer in impact investing. We've been tracking triple bottom line for 15 years. We realized that if we were going to bring in investment capital we needed to be able to tell the full story to investors of what impacts we were delivering.

Two concerns I have from E+Co's perspective: (1) The reporting on it. There's a lot of work going on on metrics, surveys, standards. Who's going to bear that cost? We are involved in GEARS. It's 65 questions. We have 385 entrepreneurs who are going to say, "What?" When you're a $600 million fund, spending a little more on reporting is OK. If you're smaller, it becomes another cost of investing that can be a hardship. (2) Where does the philanthropy and public dollar fit on the spectrum. Are people going to get so excited about the world about investing that they are going to drift from the philanthropy?

Nicola Armacost
ARC Finance was founded two years ago. We're focused on expanding access to finance for clean water and clean energy for low-income people. We're interested in the space just below where Christine is. Christine's organization has supported a whole bunch of different energy enterprises. On the other side you have finance of one kind or another.

My background is in microfinance. The challenges that people on the energy side talk about are: end user finance and distribution. How do you get those things happening in order to get to scale? In microfinance when you talk about scale, you're talking about millions of people in institutions. In energy when you talk about scale, E+Co has invested in the largest organizations, so they're not in that category. Why is it so different? Because these two organizations started at more or less the same time.

Microfinance organizations started out as NGOs with grants. There is an issue there about matching capital to the stage of the organization.

In microfinance, the organizations that were able to scale rapidly had standardized products. That's more difficult with energy.

Story: I asked X, if you want to increase the use of LPG, what's your solution? He said, "We need subsidies. Subsidize the canisters. The stoves. The gas." I said, "Where are you going to pay for the subsidies?" He said, "It's no problem. We'll increase the tax on petrol." You can imagine the consequences. There needs to be thought around what moves the market forward, without undermining the market in the future.

Our thought initially was that microfinance was going to be the way to do it. But that may not be the easiest way to do it. It may be quite complicated in some cases. There's a lot of nurturing that has to happen to adapt their products for energy.

Other mechanisms, such as remittances for example, might be more effective. You don't have to do anything, any engineering to increase them. It's about pulling out a little lever so that they can flow toward renewable energy. That's one of the projects we're doing in Haiti. You have people who are living in the Washington Heights area who send back home typically about $150/month. About 25% of that is being used for energy-related uses: buying charcoal, kerosene, etc. So the challenge then became to devise a business model that would allow us to channel that set of remittances into the purchase of a more sustainable type of energy form, such as a solar lamp. We discovered that there are goods remittances companies where you can instead of sending your mom $100 you can send her 3 bags of rice, a bag of beans, etc. The advantage is that then you know she's using it for food and not to throw a party for your niece, and there's less risk because there is less cash flowing around, so people are used to doing it. They've been doing it for a long time. These are goods companies. They do import/export/warehousing. They have got the distribution side down, and the finance side. We said, "How about you add another button, which is for products, the devices?" So we can put solar panels, solar charges that also charge cell phones, efficient cookstoves on the platform. Instead of sending your mom $50 you can send her an efficient cookstove. That kind of model.

Anish Thakkar
We make one of the most popular solar lights for south Africa.

Affordability, accessibility and what we call liquidity are our focus. We started off with great products. Affordability includes products that last.

We were relying on traditional distribution channels to reach customers. We found that these don't work very well. 4 or 5 intermediaries, each taking a pound of flesh. Products ended up in shops that weren't in the village, and people had to come and get them. This was what was preventing these companies from reaching meaningful penetration. Over the years we've filled this gap.

We do something like what tupperware or Mary Kay sells. We're the tupperware of rural India. We enable rural villagers to earn extra money for their families by selling our products, and in the process creating a very large network that helps people feed their families and provide affordable solutions to their neighbors. It helps us achieve incredible penetration and offer products at lower cost.

The most profound thing we're finding is that this channel is so useful for products other than energy too. Child education. There's lots of BoP product opportunities. Last mile.

The next hurdle for us is the third issue. We've got affordability, accessibility. Liquidity is the part we need to solve. We've seen some interesting models.

Herta Von Stiegel
I'm from Transylvania. Don't worry. I'm fine until midnight. (Laughter.)

Used to work for Citibank, JP Morgan.

Shows a slide on Africa and Climate Change. Africa's population is expected to double by 2050.

If we are going to make an impact, what are the consumer-like growth industries that are at the core of poverty alleviation. We concluded that there are three: finance (not just microfinance), enabling telecommunications, and energy.

Thomas Edison quote advocating solar energy.

As investors, we don't have a lot to go by, but demographics is life. We have to accept that the center of gravity has shifted. China is going to plateau around 1.4 billion people. India at another half billion people. Europe is goig backward. In the United States we are barely growing. But Africa has 1 billion people right now and will have 2 billion by 2050.

I find it ironic that the parts of the world that have contributed least to climate change, like Africa, are going to be affected the most by the consequences: malaria malnutrition, diarrhea, and inland flood-related fatalities.

We are looking at energy and a clean energy fund specifically focused on sub-Saharan Africa.

Nicola Armacost
Remittances flow in all sorts of ways. There is a real range in which it works. We ended up developing seven different business models that use seven different types of institutional structures. I thought initially that we would be developing a startup business tied to a bank. We were thinking maybe there could be a voucher tied to that to an energy product. When we talked to clients, we found that they didn't mind that, but it was really complicated. They just wanted to be able to give their mother a gift. So we discovered that what they wanted the most was to have as direct a connection as they could have with the energy vender on the receiving side. So you could have different models around that. You could have an Amazon-like model.

Anish Thakkar
A major issue in this space today is, if you want products to cost less so people can afford them, let's make them lower quality. I think that philosophy is very dangerous. It's important to value products that don’t sacrifice on quality.

From products companies, they think, let's dump those through microfinance. That model has been tried and doesn't work. Microfinance doesn't do distribution or after-sales support. Asking a bank to become a WalMart is very difficult. How can we combine the ability of microfinance to combine who should get loans with a network like ours that can distribute products? Combine our sales function with their lending capabilities.

Question
What can we as donors do to facilitate this space?

Anish Thakkar
Grants to developing businesses. Partnerships with groups that have existing products, distribution channels.

Nicola Armacost
Convene people. Not just the investors, but the practitioners. Discuss what went wrong, what you learned, what you discovered serendipitously.

Herta Von Stiegel
Capacity-building at the government level is also very important. We meet with government ministers who have no understanding about the importance of carbon credits or how to get the benefit from them. They also didn't know what they needed to do to attract investments in sustainable energy into their country. This is another area where donors and NGOs can play an important role.

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