‘Impact Investing’ Countering Indoor Air Pollution

With companies moving from philanthropy to social investment, is the scorecard on social impact getting any better? MIT and Social Capital Markets (called SOCAP) explored answers to these questions in a special series of Innovations Journals on Impact Investment.

The authors, Ann-Kristin Achleitner, Andreas Heinecke, Abigail Noble, Mirjam Schöning, and Wolfgang Spiess-Knafl in their prefatory note sound a note of caution while opening the discussion:

"Social investment is neither a silver bullet to close the funding gap in the social entrepreneurship space nor a suitable solution of growth.The social

enterprises that are best served by social enterprise at every stage every social for investment are those that have clear and realistic plans for how they will address their short and medium-term needs and are open to inviting outsiders into their decision-making processes and, in some cases, to ceding decision-making rights on their strategy and operations to outsiders."

One of the keys to effective “Impact Investing” seems to be just that: clear and realistic plans.

Narrating Envirofit’s tale from 2007 till today on how it has identified problems and tapped various markets to sell cookstoves and become scalable and sustainable, Tim Bauer of Envirofit International in his case study “Enabling Market-Driven Technology” says:

“Shell Foundation took the lead investor role with an initial $3.5 million investment designed to enable Envirofit to raise the total $25 million investment required to grow and scale a global cookstove business. Envirofit’s demonstrated commercial track record, its history of including key stakeholders in strategy and planning, and its transparency in sharing results and lessons learned with its partners has been the key to finding this funding.”

“We strongly believe that a market-driven approach is a necessary backbone to helping solve the problems we focus on—at any level of scale. The company’s vision is larger than the number of lives saved or tons of emissions reduced by implementing a particular technology. With innovative products, services, and financial mechanisms, we are creating a new global standard for cookstoves, thereby addressing problems and challenges that affect half of the world’s population. At a very basic level, the efforts and results of Envirofit have always been and will continue to be made possible by impact investment.”

Commenting on Tim’s case study, Pradeep Pursnani, Business Director of Shell Foundation’s program to tackle Indoor Air Pollution, says the key lesson learnt was that:

“After five years of pilot projects from 2002 to 2007, we realized that a problem as large as IAP can only be solved through market thinking and private sector involvement. Following a number of pilot projects, in 2007 we selected Envirofit as our global strategic partner, and since then we have supported the establishment and growth of their cookstove business in India and Africa.”

Shell Foundation, says Pursnani, learnt a number of lessons from the pilot projects. The key five lessons which have shaped the strategies and innovations to counter IAP were:

1. Biomass should be focused upon as the fuel used in the stoves as it is in sync with the cooking habits of   maximum households around the world.
2. Centralized manufacturing of stoves helps in scaling the project and ensures consistency in quality and performance.
3. SF needs commercial partners to grow. It found out through its pilots that NGOs cannot focus on manufacturing a sustainable global solution at scale as they run on     donations which are limited and thus have to compromise on number of stoves or its quality.
4. The solution must meet certain performance benchmarks around fuel efficiency,  carbon and particulate  matter (PM) emissions and must be technology driven, well engineered, durable and affordable as low quality cookstoves are often discarded and face lapse behavior.
5. Monitoring, evaluation and social marketing are vital for a successful program.

These five lessons have helped Envirofit and Shell Foundation become sustainable and scalable. As of today, Envirofit is funded by Shell Foundation, but, given the rate at which it is growing, Pradeep foresees financial sustainability. He identified three game changers for Envirofit being: commercial partnerships, carbon finance, and the start of large-scale local assembly operations.

Shell Foundation And Envirofit Leverage Carbon Credits To Cut Costs Of Cleaner Cookstoves

A recent story in The Hindu Business Line explores how Shell Foundation and Envirofit are reducing the cost of cookstoves for end-users by leveraging the sale of carbon credits.

Providing improved cookstoves affordably is a challenge for all organisations working in the IAP space. As Shell Foundation and Envirofit learned in the Indian and African markets, simply building awareness of the problem and providing a strong product offering aren’t enough. If the stoves aren’t priced competitively relative to the traditional alternatives, they simply won’t sell.

Manufacturers need to lower costs of production but price sensitivity is so great that this may not be enough, certainly not in the short-term. So how else to reduce the price to end-users? Government and charity subsidies are helpful – but to operate at scale a more stable form of cost offset is required. By leveraging carbon credits to offset manufacturing costs, Shell Foundation and Envirofit aim to provide a reduction in the retail price of cleaner cookstoves.

Pradeep Pursnani, Business Director of Shell Foundation’s cleaner cookstoves programmes, explains:

“In Africa, we found a lot of demand for the clean charcoal burning stove, but affordability was a big question. So, to help bring down its cost, we started a Shell Foundation Envirofit Carbon Fund with a corpus of up to $1 million. The Fund is independent and technology agnostic and will provide tailor-made solutions to stove manufacturers, women's groups and MFIs to make sale and purchase of stoves affordable. The fund will now be enhanced to $5 million to cater to India as well. A stove that costs around Rs 1,500 would be available for around Rs 1,000 to rural families."

Explaining how the carbon credits model for offsetting cookstove costs works, Pradeep continues:

“Stove manufacturers sell the reduced emission stoves at a discounted price, and recover the difference from sale of carbon credits. Though the stoves have the advantage of product quality, manufacturers are likely to see carbon revenues only flow in after 2-3 years. This means the manufacturers are left short of working capital. This is where Shell Foundation will step in. Its carbon fund for stoves will fund the subsidy and later recover it from carbon credits sales that it generates on the same stoves.”

This new method of partially offsetting manufacturing costs should make cleaner cookstoves accessible to a much wider market. This will allow more households to benefit from a reduction in IAP and more efficient cooking, while providing wider environmental benefits for all in terms of reduced emissions.

Read the full story on: Carbon credits to bring down cost of clean stoves for rural poor

Addressing Africa’s Affordability Challenge: Is Carbon Trading The Answer?

In early 2010 Shell Foundation and Envirofit, long-standing partners in the battle against IAP, decided the time was right to expand the geographical focus of their work to Africa.

What they found was a very different situation to the one they faced in India. People in Africa already knew about the benefits of improved cookstoves and, what’s more, they were keen to buy them. The problem, almost exclusively, was the issue of affordability.

Pradeep Pursnani heads Shell Foundation’s programme to tackle Indoor Air Pollution. In the last two years he has been working to overcome the main barriers to growth of the nascent cookstove market in India, living and breathing the IAP challenge.

Pradeep says:

"India poses a complex set of challenges, and high amongst these is the issue of demand. Indian consumers in rural areas still struggle with the idea that purchasing a better cookstove is a good use of their limited resources. The impacts of IAP need to be spelt out at all levels, and consumers need help to understand the efficiencies and savings that improved stoves can offer. On the other hand, for quite some time, Africans have been giving up on three-stone fireplaces in favour of metal stoves,largely because the depletion of forests and scrubland has forced them to purchase the wood and charcoal they use as kitchen fuel."

In fact locally built stoves such as the Joki, a metal stove with a combustion chamber made from mud, were introduced in Africa nearly 20 years ago. For Pradeep this meant that there was less need to spend time, effort and resources building awareness about the problem of IAP and the need to use improved stoves. As he scouted markets in Kenya and Tanzania it became clear that the economic benefits of a stove that consumed less fuel appealed greatly to consumers.

Pradeep explained:

“We soon realised that people in Africa were comfortable buying a stove as a household product. This meant that our biggest challenge was to deliver a value proposition that would displace the existing, less efficient but very cheap stoves. We needed to make efficient cookstoves available via a strong distribution system, but at a price that matched or bettered the existing alternatives.”

Pradeep discovered a continent awash with stove sellers. With the market highly elastic (price-sensitive) some of these businesses had started to sell carbon credits in order to reduce their prices. Herein lay tremendous potential to use carbon revenues to subsidise the price of improved clean cookstoves or to invest in technological development to lower costs.

“Carbon credits are a key enabler for clean cookstoves in the African market”,said Pradeep.

“They can help overcome the barriers of affordability by taking advantage of the fact that cleaner cookstoves offer environmental as well as health benefits.”

[Early research shows that improved stoves can save up to 3 tonnes of carbon per year from entering the atmosphere. Over the five year life span of a stove this figure can be substantial.]

Unfortunately taking advantage of these carbon savings proved far from simple; the main problem, it turned out, was one of timing.

“For a clean cookstove business to be competitive in the wider market place they must be selling stoves at around $10. If they can reach this price point they’ll have the edge on product quality. But at the moment this price is far lower than the cost to make the stoves. Trading the future carbon savings from each stove could subsidise much of this shortfall, but this revenue won’t be seen until two to three years later.”

Carbon savings need to be measured and validated in the field before credits are issued and trading can take place. Clean cookstove manufacturers simply lack the working capital to cover this gap.

Catalysing sustainable growth

“After a great deal of market analysis and research we came to the conclusion that although we could find the right partners to distribute stoves and maximise the value of carbon revenues, we needed to help them bridge to the point in time at which this system would be self-sufficient” continues Pradeep, his excitement clear in every word.

“We launched the Shell Foundation Envirofit Carbon Fund in at the end of 2010. The idea is to have a $1 million fund to support different kinds of high-quality clean stove businesses, regardless of the technology they use, and facilitate new distribution channels by making appropriately structured finance available to them on a temporary basis to help them become sustainable.”

Through the new fund the partners hope to subsidise the sale of over 100,000 stoves over the next 2 years in countries such as Kenya, Tanzania, Nigeria and India. The subsidy will be replaced with earnings from carbon revenues over time. The fund will also work with other organizations, such as women’s groups and MFIs, to make the sale and marketing of improved stoves more affordable.

The Carbon Fund has announced three deals to work with distributors in Kenya, Nigeria and Tanzania. The first, announced in the third quarter of 2010, is a partnership with Paradigm, a voluntary carbon network in Kenya. The plan is for Envirofit to sell improved stoves to Paradigm for $10 to $12 (approx $20 less than their usual retail price) with Shell Foundation providing a subsidy to Envirofit to make up the difference. Paradigm will sell these at cost to a range of distributors in the country and the stoves will eventually be sold to consumers for roughly $15. Over time Paradigm will trade the carbon credits it receives for each stove sold and use this income to subsidise further stove purchases.

By early 2011 similar deals had been struck with C-Quest, a US-based carbon financier, that aims to sell two million improved stoves in Nigeria within the next five years, and E+Co, the clean energy investor, in Tanzania.

Just one piece of the jigsaw

Whilst the new fund will provide a much-needed spur to help the clean cookstove industry realise the value of carbon revenues, Pradeep knows that further cost-efficiencies and technological developments are needed.

“Carbon credits will part-subsidise the price of the improved stoves but more savings are going to be necessary for these stoves to be competitive in the mature stove markets of Africa. The next step will be for Envirofit to start local assembly operations in Kenya where they will benefit from tax waivers. The cost of an imported Envirofit G3300 is roughly $30 but local assembly would bring down the cost to around $15. Once you factor in the income from trading carbon credits this makes a final retail price of $8 much more realistic. If they then start using local paint and parts such as handles, costs could be reduced even further. Then you have the boost to local employment that this would provide.”

This development would see Kenya become the hub of Envirofit’s East African operations and enable duty free export to Tanzania and Uganda. Generating carbon revenues from the sale of clean cookstoves is an important route to achieving this; a sustainable, scaleable win-win for stove manufacturers, distributors and the customers they serve.

Case Study: Cleaner Cooking Makes Business Sense in Ramnagar

Suresh is a self-employed tavern owner from Ramnagar, Karnataka – a small but rapidly growing town between Bangalore and Mysore made popular by the legendary Bollywood film Sholay.

For years Suresh relied upon a three-stone traditional chulha to prepare sambar (Indian lentils), rice, tea and coffee for his customers – a broad mix of local townsfolk and travellers on route to Mysore. Business was good but behind the scenes Suresh was paying a big price. Whilst his customers enjoyed the aroma of freshly brewed coffee, Suresh was inhaling dense toxic fumes from the chulha that left him with sore eyes and a sore throat. At the same time he was spending Rs100 a day for firewood to feed the stove.

Three months ago, an officer from Grameen Koota, a micro-finance organisation, saw Suresh cooking over his traditional chulha.  A short discussion between the two led to Suresh being introduced to a bright orange cookstove that consumed less firewood and emitted less smoke. Suresh saw the value immediately but although he liked the idea of having the stove – one of Envirofit’s G3300 models – he worried about getting the money together. The Grameen Koota officer stepped in with a loan for Suresh’s mother, Thayamma, to buy the stove.

Today, Suresh stirs his sambar without coughing or crying and his customers are happy to sit in a smoke-free space. The Envirofit stove has helped Suresh cut down the time he spends cooking. By using the stove for two to five hours a day (two to three hours every morning, one hour in the afternoon and another hour in the evening) he can cook rice and sambar on five-litre pots to feed his customers throughout the day. With his old traditional chulha the same amount of cooking used to take Suresh between eight and 10 hours.

Suresh requires less wood for his new improved cookstove and this saving has already allowed him to repay the loan from Grameen Koota.

“In less than a month, I’ve recovered the stove’s cost from the savings I make on fuel”, Suresh told us. “I’m now only spending between Rs 20 and 30 on wood each day – that’s a daily saving of Rs 70 to 80. I don’t have to breathe in dirty smoke and even the food tastes better.”

Envirofit stoves reduce harmful emissions up to 80% and require up to 60% less fuel compared to traditional cookstoves. They are manufactured to last longer than traditional chulha stoves whilst being easy to use, clean and maintain.

Various MFI financing schemes, like the one from Grameen Koota, help to make the stoves more affordable. Grameen Koota officers make the most of their familiarity in the villages and the understanding of the socio-economic conditions of their customers to raise awareness about the benefits of clean cookstoves.

Suresh’s new stove has made his life easier, more comfortable and saved him money. While his customers enjoy their piping hot coffee and sambar-rice, Suresh is now cooking safely in his smokeless kitchen.

Envirofit India Selling A 'Smoke-less' Future

Traditional firewood cookstoves are not just appliances for cooking food. They are cultural products that have evolved over centuries to serve the needs of the local community according to local cuisine, average family sizes and availability of fuel. 

Taking on the challenge of redesigning a product so firmly embedded in the community is not easy. In an interview for Smoke in the Kitchen, Harish Anchan, Managing Director of Envirofit India, details the company’s story so far in the improved cookstove space.

Designing the product

“We feel that a cookstove should reflect the voice of the consumer” explains Harish. To hear this voice, Envirofit assessed the needs of 120 families in South India, tracking their cooking habits extensively. This research shaped the design of the first Envirofit stove launched in 2008.

“We did not stop there. Over the years we have constantly made changes and improvements to the stoves. The Envirofit stove that was developed in 2008 is very different from the stove being marketed in 2011.”

Why India?

This local research-based approach to design has been key to the success of Envirofit, and explains why the company has focused operations in the South of India so far.

“120 million households in India cook their daily meals by burning biomass fuel (wood, animal dung or agricultural waste)”Anchan says, outlining Envirofit’s reasons for choosing India as its launch market. 

“Most meals are cooked on open fires or rudimentary, inefficient stoves that release high levels of toxic emissions into people’s homes. The World Health Organisation estimates that this Indoor Air Pollution kills over half a million people in India each year, with 56% of these deaths occurring in children under 5.”

Getting to market

Choosing the launch market and designing the perfect cookstove were only the first pieces of the puzzle for Envirofit. Marketing the cookstoves to an audience unused to investing in such appliances, and ensuring adequate distribution networks were in place, were both vital factors to guaranteeing success.

Envirofit made use of multiple existing networks to reach customers, including “traditional retail distribution networks, Government, NGOs, MFIs, institutions, village entrepreneurs and self-help groups”. Each of these routes offers Envirofit different opportunities. “Distribution networks service customers by providing stoves to their doorsteps at a very low margin, whereas NGOs spread the social message of the company and build awareness of the general issues surrounding IAP.”

Traditional retail networks have proven very effective in getting Envirofit stoves to end users. Anchan identifies utensil shops as being particularly effective retail spaces in this capacity. 

A common misconception is that affordability remains one of the biggest barriers to increased sales of improved cookstoves. Envirofit’s experience does not tally with this: “Affordability has only been perceived as an issue when the product is marketed solely as a solution that deals with health hazards. When people realise the cost savings improved cookstoves offer, as well as their aspirational value, they are less concerned about affordability.”

Success so far

Envirofit stoves reduce harmful emissions by up to 80%, and require up to 60% less fuel. They have an average operational lifespan of 5 years, compared to the six months offered by traditional clay cookstoves. These factors have enabled Envirofit to sell over 200,000 units so far, which Anchan estimates means they have impacted the lives of one million people. He is not content to stop there: “A far larger challenge exists and we are therefore building distribution alliances, micro-finance partnerships and tapping into rural networks to take cookstoves to more customers.”

Looking Ahead

What does the future hold for Envirofit? Anchan identifies carbon finance as a key activity for the company over the coming months, and something that has the potential to drastically increase the reach and social effects of Envirofit’s work. “Envirofit is working with Eco-Securities to provide carbon finance in India. We have submitted documents for registration to the voluntary carbon programme, making us the first domestic stoves carbon trading programme in India. Once we have access to carbon finance, we can offset it against the cost of manufacturing stoves and raising awareness.”

Role of Government 

“The Government has a crucial role in addressing India’s development challenges and we look to support this in every way we can. With regard to clean cookstoves, they can help in three major ways. First, by creating an eco-system for stove manufacturers through awareness campaigns which will enable rapid creation of markets for stoves. Second, the Government can utilize and mobile networks to solve the problem of last mile access by creating better distribution channels. And third, by enabling low interest loans akin to farm loans, the Government can enable the poorest of the poor to buy improved cook stoves. The new Government cookstoves initiative is delivering progress in each area and we want to form deeper partnerships to enable this work to benefit the people most impacted by IAP”.

Exciting times lie ahead for Envirofit India.

Sustainable Energy Access for Africa: Cleaning Up Homes And Climate

Focusing on Energy Access as a means of delivering health benefits for millions is also increasingly being seen as a way of combating the challenge of climate change. Initiatives such as the Energy for All 2030 Project, an EU-wide initiative for more and better funding for energy access projects in Sub Saharan Africa, is now part of a broader trend of trans-national initiatives that not only develop strategies but also drive action on the ground.

Swedish researchers from the Stockholm Environment Institute (SEI) in Stockholm, Sweden, Fiona Lambe and Patricia Tella, say the Institute is playing a leading role in highlighting the issues for Swedish and European Policy makers. They are working to create a platform for dialogue between African and European civil society as well advocating more policy focus and financing at the EU level for the goal of universal energy access.

According to the authors, “Supporting developing countries to scale-up access to sustainable energy for cooking will not only bring positive effects for climate change; it will improve the health and economy of the world's most vulnerable households. What's more, the cost of achieving universal energy access in the coming decades is surprisingly low.”

The initiatives on Energy access are focused on developing viable alternatives in critical areas such as improved cook stoves that can make a significant difference.

Indoor Air Pollution and the impact of soot from cook stoves on the climate are both issues that have a ready solution in improved cook stoves.

The researchers point to the success of the ethanol fuelled “CleanCook” stove, originally Swedish technology, in Ethiopia. Ethiopian NGO, Gaia Association has pilot tested these stoves in households in Addis Ababa and in a number of refugee camps with very positive results. Commercial distribution of stoves will start soon as Ethiopian households have shown readiness to switch completely to ethanol.

A study by Bailis, Ezzati and Kammen says that without systematic changes, household biomass use will result in an estimated 8.1 million Lower Respiratory Infection (LRI) deaths among young children in sub-Saharan Africa alone between 2000 and 2030.

The projected number of people who use traditional biomass as wood and manure would rise from 2.7 billion today to 2.8 billion in 2030 (according to International Energy Agency (IEA) and reported by InDepthNews) and this, will only exacerbate the situation even further.

IAP causes health hazards on one hand and on the other is afflicting climate change. Black carbon or soot from stoves is thought to be the second biggest contributor to global warming after CO2.

Read the full story on: Sustainable energy access for Africa: a win-win solution for climate and development
Photo Courtesy: Project Gaia

Organisations Join Hands Across Borders To Encourage Clean Cookstoves

Concerted action on the ground is enabling global players in the improved cook stoves space to propagate awareness of the issues associated with Indoor Air Pollution. It also means they increasingly tap into local communities to better understand behaviour, cooking methods, fuel economics and challenges of access and affordability.

From Africa to Asia, international organisations, alliances, regional and local experts and institutes, along with global and local research entities, are joining hands to transfer knowledge and technology. They also gain valuable experience on the ground that they can then take back to their labs for further analysis and a view to solving the holy grail of cook stoves – how to create quality product that sell for less than $10.

One such recent effort was in Vientiane where 34 experts, academics and entrepreneurs from around the region got together to discuss and test cleaner, more efficient cookstoves.

The Stove Design & Testing Workshop, the first of its kind in Lao PDR, bought together participants from Laos, Cambodia, Vietnam, and Thailand, as well as trainers from Aprovecho Research Center.  The workshop was organised by SNV and the Lao Institute for Renewable Energy (LIRE) and funded by USAID and US EPA as part of their innovative Lower Mekong Initiative (LMI).

The Vientiane workshop helped build networks between major regional stakeholders working on combating indoor air pollution through deployment of improved cook stoves. The workshop also sought to set the ball rolling on a process that is expected to eventually lead to the distribution of half a million stoves over the next eight years, impacting the lives of at least two million people in Laos. Participants shared methods to design, evaluate, and commercialize improved-stoves that use less fuel and produce less smoke.

Such congregations take on added meaning when the national governments are themselves key players in finding solutions. In the Lower Mekong Regional, governments and NGOs are actively invested in efficient cookstove project.

According to WHO estimates, there are over 6,000 premature deaths in Laos every year due to the use by 69 per cent of rural Lao people of wood and charcoal. According to a WWF study, 70 per cent of Lao’s greenhouse gas emissions are a result of deforestation.

Read the full story on: Recipe for Success: Improving Cook Stoves in Lao PDR  and                               U.S. Embassy Supports First Clean Cookstove Workshop in Laos

Raising Cook Stove Awareness And Funding On Facebook

In the words of Lisa P. Jackson, Administrator of the Environmental Protection Agency (EPA), clean cookstoves in the developing world is a women's issue, a childrens' issue, and an economic issue. As this significantly affects the lives of the women and children, who sit near cooking hearths for hours together and risk their lives, International Women’s Day seemed to be the perfect day for Entrepreneurs of the World to raise money for clean cookstoves by reaching out to people on Facebook.

Where Burkina Faso would possibly be just another country on the map of Africa to remember from school room days, it became for Facebook users a place where they could make a difference to the lives of women and children by donating a small sum.

The Foundation L’Occitane in partnership with Entrepreneurs of the World - Burkina Faso (EoW – BF) raised funds through Facebook with the operation “1 fan = 1 € ” between March 8 and March 16.

The operation collected € 6976 which EoW-BF used to fund training of 1380 women in Burkina Faso on forest preservation. These funds were also used to subsidize 50 per cent of the cost of improved cook stoves.

According to Armel, Social Business Manager at Entrepreneurs du Monde in Burkina Faso, “In 2010, over 70 bricklayers were trained by GIZ to build 3-stone improved cook stoves. This stove helps fight deforestation, while respecting local customs and the health of its users.”

EoW-BF actively uses medium of mass communication and social networking sites to not only raise awareness but to invite participation for their cookstove initiative in Burkina Faso.

Radio as a medium has higher number of audience in women owing to their routine, where they listen to radio programmes while attending to their house chores. EoW-BF has intelligently used this medium to raise consciousness on one of the hard pressing global issues of smoke in the kitchen and its consequent hazards.

Entrepreneurs of the World is working in nine countries presently and supports micro-entrepreneurial initiatives with five different tools.