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GreenMoney Journal - publishing since 1992
Fall 2010 issue
Socially Responsible Investing – Better Companies, Better Communities
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Bringing Clean Energy to the World One Investment at a Time
by Tracy Smith
Nationwide power shortages cause rolling black outs in Nepal, but many remote Nepalese villages in
the Himalayas have a continuous supply of electricity. In El Salvador load shedding hampers simple
activities like working at night, yet small rural towns have a constant stream of light. South
Africa, where the energy crisis is by all accounts worsening, is still home to retirement
facilities and orphanages that have enough power to consistently provide hot water for their
residents.
In almost every country in the developing world, the lack of energy remains a major impediment to
daily activities and economic productivity. But, in almost as many of these countries, rural and
remote villages and towns are receiving energy from sources other than their under-producing
national electricity grids. The energy they are using is not only consistent and cost effective,
but also clean.
Where is the energy coming from? In each of these disparate countries the
source is the same - small, locally owned and operated energy enterprises. In El Salvador, where
more than 2.3 million people live without access to electricity, the provider is SEESA, an
electrical supply store turned solar system shop. SEESA's solar systems will provide lighting and
electricity to 7,500 people, saving approximately 15,000 tons in carbon dioxide emissions over the
next 20 years. No small feat for a family-run business.
Hundreds of such businesses
throughout Africa, Asia and Latin America deliver vital clean energy to households and businesses
in their communities. Many of these businesses, 199 to be exact, have something in common: E+Co. A
non-profit investment company that provides services and capital to businesses in developing
countries, E+Co has spent the last 15 years investing in cleaner energy companies. With almost
US$35 million of capital placed - $220,000 of which went to SEESA; four million people served with
access to energy; and over three million tons of carbon dioxide offset; the E+Co model of combining
services with capital to develop clean energy worldwide is working.
Using the Markets to
Provide Greater Access to Cleaner Energy
As one of the first non-profit investment
companies, E+Co served as an early advocate for the idea that critical issues can be approached
through the market and that government and civil society are not always the most efficient
providers of public good. Particularly in the area of energy provision, where despite massive
public investment in energy research and production, over two billion people lack basic access to
electricity and cook with fume-emitting fuels such as charcoal and firewood that are dangerous for
health and degrade the environment.
By focusing on cleaner energy services in developing
nations, E+Co finds itself at a crossroad between environment and poverty. "Energy is an
unequivocal determinant of quality of life and a fundamental requirement for development," says
Phil LaRocco, Founder and CEO of E+Co, "at the same time clean energy protects the planet and
health." Energy, however, was not always LaRocco's business. As a consultant for the Rockefeller
Foundation, he originally set out to determine how public and private funds could best be utilized
to have a positive impact on the environment. LaRocco concluded that having this impact would mean
looking at the way energy is produced and consumed not only in the U.S. and Europe, but also in
rapidly growing developing countries. Faced with the "old energy paradigm" involving a top-down
approach to energy provision and an unabashed approach to fossil fuel usage, LaRocco decided that
working in developing countries through local, small businesses would be the most efficient way to
establish a new paradigm of clean energy production and distribution.
"Local
entrepreneurs are the untapped resource we must bring to the center stage in order to solve the
energy crisis and its resulting impact on poverty and the environment," says LaRocco. "It is the
men and women who decide to make their living from producing and selling clean energy that know the
energy needs and preferences of their communities and their ability to pay."
Peter
Goldmark, the Program Director for Climate & Air at the Environmental Defense Fund and long time
supporter of E+Co agrees with the approach. "Amidst accelerating global warming, economic
uncertainty and an energy squeeze, there are two very different energy paradigms in contention,"
notes Goldmark. "One is large, clumsy, dirty, often heavily subsidized, oriented to the past and
ultimately destructive and completely unworkable. The second is lean, nimble, clean, affordable,
future-oriented, reaches the poor and is ultimately constructive and sustainable. The first is
old-style Energy Inc., the second is E+Co."
By investing in hundreds of clean and modern
energy entrepreneurs and their businesses, E+Co helps increase access to clean, modern energy while
protecting the environment. Along the way, it also manages to generate financial returns.
The Investment Model
To generate E+Co's "Triple Bottom Line," or
social, environmental and financial returns, the organization combines public and private capital
to provide business development services and investment capital to small and growing energy
businesses in approximately 25 developing countries. Public funds are utilized to provide business
services, because entrepreneurs can rarely afford the full cost of this support. A blending of
public and private funds is used for direct capital investment in the energy businesses.
"It is the combination of business development services and capital that forms the foundation
of E+Co's success," states LaRocco. He says the services, which include market validation,
technology assessment, financial structuring and business plan development, are central to the
investment itself. Christine Eibs Singer, Co-founder and Executive Vice President calls these
services "E+Co's number one risk mitigation strategy" as they allow the organization to more
comfortably invest in small clean energy companies often considered too risky by most traditional
investors.
To implement its model, E+Co has investment officers in the field that both
identify new business opportunities and provide one-on-one business support to new and existing
entrepreneurs. Once an enterprise is groomed for success, the investment officers complete formal
investment recommendations, which are then reviewed by an independent investment committee made up
of international experts in the fields of finance, energy and technology.
"E+Co's
investment process is rigorous," says LaRocco. "Even though our goal is to tackle poverty and
protect the environment, we still have investors to repay and we take that very seriously."
Having just announced our five year business plan at the 2007 Clinton Global Initiative, which
involves investing $190 million in approximately 200 new enterprises, providing access to cleaner
energy to 20 million people while offsetting nearly 17 tons of carbon dioxide emissions, E+Co is
poised for growth.
Recently named the 'Sustainable Investor of the Year' by The Financial
Times, E+Co is reflective about its achievements. "We see our success due in part to our deep
knowledge of clean energy markets, the business models and technologies that will work in these
markets and the close relationships we establish with local networks that support clean energy
businesses," notes LaRocco. "But most of all, our success comes from the entrepreneurs devoting
their lives to providing better energy solutions for their communities. We supply some direction
but these men and women are the engines and the drivers."
A Model Investment
"With E+Co's support, we pioneered a decentralized business model," explains
E+Co entrepreneur Suraj Wahab. "We subcontract with local market vendors who purchase our product
on credit for sale in their shops. This helps our company expand its distribution base without
bringing on new staff. Free marketing helps our business sell its products -- satisfied users are
appointed as canvassers. We call them 'Evangelists' because they are believers in the efficiency of
our products and they are spreading the word to others. We allow them to offer their customers the
opportunity to pay in installments, so they can pay over a period of a few weeks or months."
Reinventing microfinance and packaging their franchise, commission-based model into a lean,
decentralized sales force, the entrepreneurs behind Toyola Energy Limited are one of E+Co's recent
success stories. Founded by Suraj Wahab and Ernest Kyei, Toyola sells cook stoves that are 40
percent more efficient than their traditional counterparts in Ghana. In less than one year the
company has sold over 20,000 stoves and offset more than 30,000 tons of carbon dioxide emissions.
"Their innovative model has the potential to deliver cleaner cooking technology to nearly every
Ghanaian household within a matter of years," predicts Erik Wurster, Carbon Finance Officer for
E+Co.
Amazingly, about half of the world's population still cooks with wood, dung and
other solid fuels on open fires or simple stoves. Indoor air pollution from burning solid fuels is
the largest cause of disease and death after malnutrition, AIDS, and lack of safe drinking water.
The World Health Organization estimates that 16,600 people die each year from indoor air pollution
in Ghana alone. Moreover, traditional cooking practices exacerbate deforestation and emit
greenhouse gases and other pollutants, leading to both regional and global environmental
degradation. In addition to its traditional approach of investing services and capital to establish
energy businesses, E+Co is piloting an innovative new financial mechanism: carbon finance. E+Co has
partnered with Toyola to harness carbon revenues from its efficient stove technology. A single
stove, which costs $10 USD to manufacture, abates a lifetime of greenhouse gases equivalent to
between $15-30 USD when offsets are sold in voluntary carbon markets. Revenues from the sale of
carbon offsets will be used to subsidize stoves to end users and fund business development services
that will ensure partner companies are able to expand their businesses and reach remote markets.
Subsidized stoves will ensure that even the poorest members of society can afford this life saving
technology.
These carbon projects represent the early stages of a trend that will expand
many fold in the coming years. For the first time, it has become profitable to cook using cleaner
technology in the developing world. The offsets of Toyola, for example, will find their way to Wall
Street, where the emission reductions from E+Co's portfolio companies will be sold to Goldman Sachs
both to reduce its own footprint as well as for sale to private clients.
These days it is
easy to feel pessimistic about the future - environmental degradation, poverty and a worldwide
energy crisis topped off with unimaginative governmental solutions could leave one feeling
dispirited. But there is reason for optimism: a movement of social entrepreneurs aiming to change
the world. The limitless supply of bright men and women in Africa, Asia and Latin America, when
given the chance through a combination of capital and business development services, can have a
tangible impact on some of the world's most pressing issues - all while generating financial
returns for those inventive enough to invest in them.
For more information go to
http://www.eandco.net
Article by Tracy Smith, the Communications Officer for E+Co. She
holds a law degree from the University of Wisconsin Law School and an undergraduate degree in
economics.
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