By Harriet Lamb, Ashden CEO
Every year, our team of expert professionals and judges trawl the world for leading businesses worthy of winning an Ashden Award for their innovation in renewable energy. Every year, the quality is so high that we struggle to choose between the sparky enterprises we uncover. All of them are tackling the climate emergency with solutions that reduce emissions and improve lives today. They’re giving us greener buildings, transport, jobs and healthcare, as well as energy access for some of the most marginalised people.
Globally, we already have many of the solutions we need to tackle the climate crisis. And yet we are falling far short of our carbon reduction targets. The most recent reports show the world is still increasing emissions and adding to global warming. So how can we take what works and scale it up?
As ever, it’s all about the money. Too often, brilliant and ambitious innovators are scrabbling about chasing the funding they need to grow. We need more impact investment – investment that creates positive social change, as well as financial return. This money plays a unique role in the sustainable energy ecosystem.
At its best, impact investment can drive fast systemic change by allowing businesses to test out what was previously thought impossible. But while the wider world can do more to get the money flowing, today’s impact investors need to raise their game too.
So, what impact could sustainable energy have, given the right support? Two Ashden Award winners, both from India, show the potential for change.
The country’s poor rural silk workers (mostly women) endure long hours in a physically arduous trade, with few chances to grow their income. Ashden winner Resham Sutra has developed a range of affordable electric reeling machines, many powered by solar energy, that have vastly improved working conditions and created a predictable, dramatically higher income for more than 9,000 silk workers. But the silk industry employs 7.9 million people in India alone so the potential for growth is huge.
In four Indian cities, rickshaw start-up SMV Green is creating fair working conditions, with electric rickshaws and reliable contracts, empowering drivers to buy their vehicles and earn more money, while reducing the air pollution that kills thousands every year. Its Vahini programme is training India’s first women rickshaw drivers, creating secure incomes for them and improving safety and security for their female passengers.
Environmental tech analyst IQAir reports that 22 of the world’s 30 most polluted cities are in India. Rickshaws are big business in the country, with the market in three-wheeled vehicles worth $1.5bn. The potential for growth, and social impact, is huge. Just like Resham Sutra, SMV Green has a proven solution ready to take off. So, can it find the investment it needs?
Businesses seeking impact investment often work with such new technologies and business models and serve marginalised customers without credit history or reliable income. These factors raise the risk level for investors, which is why companies find investment from traditional sources so hard to come by. But backing the same old solutions won’t solve the climate emergency.
And in a fast-changing world, their products and services can transform markets. In just a few years, a clutch of businesses have helped create and grow Africa’s off-grid solar market, plugging millions of people into energy for the first time. Impact investment helped take these businesses from small start-ups to international operators, attracting multi-million-pound funding.
One innovator taking this revolution to the next stage is the Ashden Award-winning Renewable Energy and Energy Efficiency Partnership (REEEP). Its Beyond the Grid Fund for Zambia has offered companies financial incentives that make it less risky for them to enter the country’s off-grid energy market; in return they must offer quality products that reach customers who might otherwise miss out, but who don’t have the funds to pay upfront for solar.
We need a diversity of solutions, but currently investment is concentrated in too few companies. Over the last five years, the world’s three biggest off-grid solar businesses each received at least as much funding as all their peers outside the top 10 combined ($120m).
In future, we need to make sure that the kind of brilliant incentives offered by REEEP are available to a wider network of businesses. This will build that crucial clean energy ecosystem and give impact investors the confidence to back a wider range of companies, not just those at the top of the pile. Or if they want a really big impact, they could invest directly in projects such as the Beyond the Grid Fund for Zambia.
Effective impact investment is driven by passion and optimism – individuals, trusts or institutions joining forces with innovators to solve a particular problem, often helping people left behind by markets and policies. Of course, there are still tough business decisions to be made. Impact investors don’t expect the biggest returns, and they always accept a high level of risk, but they do expect to protect their money.
In return, they must show courage and be prepared for difficult moments. Among a host of brilliant impact investors, too many wear the badge but don’t embrace the values. Some enterprises complain that impact investors don’t have a clear enough focus on the social good their money could do. They need a longer-term commitment, rather than investors who seem keen to flee when the inevitable challenges arrive. To get renewable energy to the so-called “last mile” customers is more difficult. Those enterprises need impact investors to step up to their names as reliable partners for the long haul.
Other enterprises complain about how hard it is to get relationships started, or even a foot in the door. That’s why we run projects and host a range of events helping motivated investors meet the brightest sustainable energy outfits – our Ashden Award winners.
So, is the pursuit of social good through sustainable energy compatible with the investor mindset? The two have more in common than you might think. It all comes down to growth. Investors of every kind want to see the companies they back doing more business, reaching new markets and customers. And the challenge of scaling up is also at the heart of the climate crisis: the solutions that could save us from climate disaster exist right now, but are simply not reaching enough people, fast enough. The pursuit of growth is where the two motivations of impact investors (financial returns and social good) meet.
We face a crucial moment for impact investment in sustainable energy. More people and institutions are pulling their money out of climate-damaging businesses, partly because they realise the danger of stranded assets as the world inches towards rejecting fossil fuels. There is a golden opportunity for these funds to be redirected into the dynamic new companies building our low-carbon future. We need to make sure those divesting are investing in solutions too.
But for this to happen the financial community needs to offer new products and services tailored to encourage investment in sustainable energy. A company bringing solar panels to thousands of homes that can’t pay upfront installation costs will have very different investment needs to a business opening a single coal-fired power station.
Impact investors can lead the way for other, larger financial institutions to follow – including governments. For too long politicians have subsidised the fossil fuel and nuclear industries; it’s time they followed the smartest impact investors and threw their support behind sustainable energy. The time for excuses is over – the time for courage is here.
This piece first appeared on Ethical Corporation