WRI Stories Feed: Markets & Enterprise

Small Companies, Big Impacts

Maggie Barron — Mon, 19 Oct 2009 11:37:18 -0400

The New Ventures directors answer questions about what small, sustainable companies can do to boost local economies and protect the environment.

One company supplies solar lanterns to communities without electricity. Another refurbishes discarded copy machines and resells them to companies that couldn’t otherwise afford them. Another turns coffee waste into ethanol. Small and medium enterprises (SMEs) are the engines of local economies. They drive innovation, spur equitable growth, create jobs, and supply poor communities with better products and services. But many small entrepreneurs have trouble bringing their ideas to fruition, and most will fail within the first few years. For sustainable SMEs – those that manufacture and market environmentally friendly products and serve low income communities – the challenges can be particularly daunting.

WRI created New Ventures to help sustainable SMEs build their capacity, learn key management skills, and connect with investors. Working in six of the worlds’ emerging economies – Brazil, China, Colombia, India, Indonesia, and Mexico – New Ventures helps these countries develop their economies while protecting their environment.

I recently sat down with the six New Ventures country directors at their annual meeting in Washington, DC and asked them to explain why these small companies can have such a big impact:

What challenges do small and medium enterprises (SMEs) face?

Sanjoy Sanyal, India: In the developing world, SMEs lack one very critical resource: credit and financial resources to grow. They may also have access challenges, such as access to markets, access to the right kind of talent, but fundamentally the lack of access to credit and financial resources can be a debilitating obstacle.

Diyanto Imam, Indonesia: There’s also the challenge of capacity building. In terms of technical knowledge, these people know what they are doing. They know how to develop efficient machines, they know how to create a formula for an organic pesticide or herbicide. But many of them don’t know how to run a company, they don’t know how to develop a balance sheet, or they don’t even know what a balance sheet is.

Diyanto Imam

They don’t have the business skills to begin with, and for green SMEs in particular, they also need to educate their customers about their products. Most people in Indonesia don’t really differentiate between green products and conventional products. They equate green products with a premium price and don’t understand the other benefits.

Andre Carvalho, Brazil: In Brazil, it’s very difficult to attract investment. Many companies don’t know how to market themselves. They don’t know what “green” means exactly, or they’re green and they don’t even know it. These companies need investment, they need resources, they need networking opportunities, and they need media attention.

Why is it so important to help SMEs?

Sanjoy Sanyal, India: In developed countries like the US or in Europe, SMEs contribute a substantial percentage of the gross domestic product. So vibrant SMEs, when they’re well managed, have the ability to radically reshape a country’s economics. At the same time they have these challenges. So it’s really fertile ground for intervention.

Diana Gaviria, Colombia: It’s not only important to help SMEs, it’s important to help green SMEs. In many ways, in our country, SMEs are the motor of the economy, and by having green SMEs that are successful, we’re promoting more sustainable societies and showing the world in general that having a sustainable business model is something not only viable but that can also promote economic development.

Can helping SMEs also help the poor?

Andre Carvalho, Brazil: Yes, definitely. SMEs can work more directly with smaller suppliers than big companies can. The majority of suppliers to big companies have to be big themselves in order to keep up. If we help SMEs develop, they can act as suppliers to big companies and also develop relationships with smaller and local suppliers and bring more business to them. The business model is more inclusive.

Andre Carvalho

Diyanto Imam, Indonesia: They provide employment, which is particularly good for Indonesia because for the last thirty years, the center of economic activity has been in the capital in Jakarta. 70% of the money circulates in Jakarta, and that’s not good for the economy. So SMEs can really help develop the economies of smaller cities.

Sanjoy Sanyal, India: Most of our SMEs have base-of-the-pyramid strategies, where they either provide services to poor communities or low-cost products. They do help the poor, not necessarily because they are small, but because of the nature of the business they do.

Sanjoy Sanyal

The type of companies we work with are the ones that sell solar lanterns, or energy efficient cooking stoves for poorer people, poorer women in particular. These products help bolster local economies in both a socially and environmentally constructive way.

What does New Ventures do to help?

Weijia Ye, China: We help sustainable SMEs grow by getting them the right type of funding. We work with them to develop their business plans and help them network with a range of mentors whom they could not access by themselves.

Rodrigo Villar, Mexico: We are also trying to convince people that being an entrepreneur is better than just having a regular job. We don’t really have any entrepreneurs in Mexico. There is a negative connotation to what “businessman” means there; usually it makes people think of rich men who have stolen money. So no one wants to be an entrepreneur. Everyone wants to get a university degree and then work for a big company. And when you talk about environmental entrepreneurs, it’s even harder. We have to convince people to go into environmental areas and industries, because they can make a profit and help their society develop.

Diana Gaviria

Diana Gaviria, Colombia: One of the most important things we do is act as an honest broker and help these companies get to investors and institutions that can aid them in their process of acceleration. We’re trying to promote a climate where individuals of high net worth can invest in companies rather than just big institutions that come in and do all these very demanding due diligences and long processes for riskier business.

What are some examples of the companies in the New Ventures portfolio?

Sanjoy Sanyal, India: One company that comes to mind is called Sumaya HMX Systems. They make energy efficient air conditioning systems. India and large parts of the developing world are hot and tropical, and air conditioning is by now a mandatory requirement for most workplaces, but at the same time they consume loads of energy, and are a big source of carbon emissions. This company uses a technology that allows adaptive cooling – a more efficient cooling system – which brings the temperature to only a couple of degrees above what you’d expect in a conventional air conditioning system. It’s still comfortable, but it obviates a lot of the energy usage and carbon emissions in more conventional AC systems. It’s a great technology; it’s very useful and appropriate for large parts of both the developing world and the developed world. I think New Ventures’ intervention in this company was at a very interesting point. We were able to get the company a corporate investor, which took on a simple majority stake in this company, and helped the innovation reach a very large audience because of their marketing and technical service operation.

Diana Gaviria, Colombia: In Colombia we work with a man who had his own water treatment company that mainly served affluent neighborhoods. He wanted more out of his business, and so he investigated technologies and came up with one that would provide water to communities that currently don’t have any access to water at a very low cost, much less than what people were already having to pay. When he first came to us we weren’t sure if his proposal was viable. He wanted the communities to manage the whole operation, so he not only wanted to sell to them but he wanted them to be involved in the management of the business. We had many discussions with him and finally we were convinced. And so with the help of students from the Cornell MBA program and business mentors, we put together a viable business model, where he is able to produce portable water treatment plants that can be run and operated in local communities.

Rodrigo Villar

Rodrigo Villar, Mexico: We work with a company called Biofabrica Siglo XXI. They came to us four years ago. The owner of this company was an agronomist, he didn’t have any experience with business, and he was using this technology to change chemical fertilizer into biological fertilizers. So we helped him with the business plan, and now, four years later, this company is worth $7 million, and over 200,000 hectares are using his bio-fertilizers instead of the chemical ones, and he was able to drop the price of his product too, so he continues to get new clients.

How is the economic crisis impacting your country?

Weijia Ye, China: It’s different for different industries. In general it’s hard to say “Now it’s ending.” I would be pretty cautious and wait another half year or year. This crisis is so different from previous ones because no one can predict it. Some of them are doing pretty well, but it doesn’t mean it’s the end of the crisis. I think the current financial crisis is sending a very strong, clear signal that there is something fundamentally wrong with this current regime of the market economy.

Rodrigo Villar, Mexico: Between the economy, the H1N1 flu scare, and the drug problems, it’s been a tough year for us. But a recession can be a good time for entrepreneurs. Companies are growing. If they can make it work now, they’ll grow even more as the economy recovers.

Can green companies be competitive in the current economy?

Sanjoy Sanyal, India: These are early days. But I think there clearly is an understanding that yes, green companies can be competitive. A lot of it is coming from the fact that, while the US is still struggling with its economy, it is still clearly signaling to the world that businesses need to develop a more sustainable model. So whether it’s Walmart or a Cisco, people are saying that we need to incorporate energy efficiency and climate into our business thinking. Another thing the US is signaling to the world, which I think emerging economies are picking up on, is the fact that consumers are willing to vote with their wallets that they would like to spend more on goods and services that have a clearly professed environmentally positive, or at least an environmentally neutral effect.

Andre Carvalho, Brazil: Six years ago the community of investors in Brazil thought that sustainable business was only something very small, and that it couldn’t be scaled up. But New Ventures has been showing them that there are a lot of opportunities, and showcasing successful fair trade models that are part of a new history that’s being written right now. We are showing the mainstream that there are other ways to think about community development.

Weijia Ye, China: We want our SMEs not only to be producing green products, but also to have strong values. I believe that the future of the world Weijia Yedepends on all companies becoming sustainable. There’s a call for a new generation of enterprises, which should be different from Henry Ford’s generation. Because at the time, if you look at the management of these original industries, they were quite brutal. We’re at the stage where we should not be doing the same things as we did before. We are ready to develop new models.

What motivates you in your work at New Ventures?

Diyanto Imam, Indonesia: You get to meet these great individuals with ideas, with fire in the belly. They have amazing passion. I like to meet with these entrepreneurs simply because they are passionate about what they do. They have this belief that they can change the environment and affect the people around them in a good way. The spirit is there. In Indonesia, life is tough. But these people see opportunities.

Weijia Ye, China: My wish is for the next generations of big companies to be fundamentally different from current versions. They should not be developing Corporate Social Responsibility plans only when they become big. They should have these plans in their DNA from the very beginning. It should be incorporated into their way of doing business. These small companies we work with have the right core values now, and when they grow they will be part of the next generation of business.

WRI Advances Green Supply Chain Initiative

Jessica Forres — Thu, 01 Oct 2009 16:48:08 -0400

The World Resources Institute (WRI) is stepping up its work on greening the supply chains of companies both big and small, thanks to a grant from Walmart.

“Sustainability is becoming a driver of business strategy for smart companies. Sustainability trends affect competitiveness, costs, regulatory risk, and market position,” said WRI president Jonathan Lash. “The companies that reduce emissions along their supply chains will capture new markets with their green offerings while preserving the environment and improving worker health and safety.”

WRI’s Green Supply Chain Initiative will develop and deploy a new set of accounting tools to measure the greenhouse gas (GHG) impacts of a company’s supply chain and of the products that are sold to customers. The project also involves creating a web tool that will bring clarity to the various environmental certifications given to products.

“Measuring greenhouse gas emissions is the first step to managing them,” said Rand Waddoups, senior director of sustainability for Walmart. “We think WRI can play an invaluable role in helping others understand the environmental and business benefit of collecting emissions information across the entire supply chain.”

“The initiative opens up tremendous access and opportunity for companies and other stakeholders to participate in the drafting and piloting of the new product and supply chain accounting tools, which are based on the success of the Greenhouse Gas Protocol Corporate Standard” said Pankaj Bhatia director of GHG Protocol Initiative at WRI. The GHG Protocol is an international accounting standard used by businesses to identify, calculate and report their own emissions. It was developed by the WRI and the World Business Council for Sustainable Development (WBCSD) in 1998.

Bhatia added, “These new standards will provide a framework that companies can use to evaluate a supplier’s performance, identify where emissions could be reduced along the supply chain or product life cycle and track the progress of GHG-reduction investments.”

Support from Walmart will also go toward developing a “Green Standards Guide” to help companies navigate through the “green” claims of different environmental certifications or labels. The guide is designed to provide greater transparency into the eco-label market place. It will help companies decide which eco-labels their organizations will recognize through a standard set of eco-label evaluation criteria.

The different and inconsistent criteria for eco-label standards have resulted in a vague and confusing concept of “green.” For supply chain managers looking to avert environmental risk, using environmental certifications has become increasingly complex and burdensome for themselves and their suppliers.

WRI’s expert on green supply chains Jeff Rodgers said, “We hope our work can help companies assess certification options for their products in ways that improve the environmental impact and lessen the burdens on businesses by identifying and helping compare the many different standards that currently exist.”

The grant also enables WRI to improve the environmental performance of suppliers in China by working with the Beijing-based Institute of Public and Environment Affairs (IPE). The partnership will allow WRI to develop best-practice case studies for Chinese firms. These case studies, which can be used as training materials for industry, will highlight the practical and effective solutions adopted by China-based suppliers in resolving common environmental challenges such as water and air pollution.

The project will receive $420,000 in support from Walmart. Other funders for the project can be found on the GHG Protocol website.

Closing the Bankers' Loophole in Emissions Reporting

Shally Venugopal — Mon, 28 Sep 2009 09:53:24 -0400

Financial institutions are learning to protect investors–and themselves–from investments exposed to risk from climate change.

As the country reflects on the anniversary of the fall of Lehman Brothers and the subsequent bailouts of major banks, pressure is mounting for financial institutions and companies to more fully disclose their investment risks, especially those risks from climate change.

Investments in carbon-intensive projects are no longer a safe bet. Companies, under pressure from shareholders, have been pulling support and cancelling plans to construct new coal plants. Two years ago, in a move that showed increasing concern for investments in heavily polluting industries, top investment banks participated in a leveraged environmental buyout of TXU, a major Texas power company, which meant dropping 8 out of 11 planned coal plants. New York has required energy companies to disclose their climate change risk exposure to investors, and The National Association of Insurance Commissioners has adopted new mandatory requirements that insurance companies disclose the financial risks they face from climate change as well. And in the U.K. banks are under pressure to report their emissions from investments after revelations that taxpayer dollars were potentially bankrolling highly polluting projects.

As WRI’s new issue brief Accounting for Risk shows, there are powerful incentives for financial institutions to manage their environmental risk, whether it’s for reputational reasons or to insulate their shareholders from climate change risks.

But before a company can reduce its greenhouse gas (GHG) emissions, it must first know what those emissions are and where they come from. That’s the idea behind the Greenhouse Gas Protocol, the most widely used accounting tool for companies to track, quantify, and then manage their GHG emissions.

The GHG Protocol has become the international standard, used by top corporations, NGO’s, government agencies, and other organizations. However there is one sector that can fall through the cracks: financial institutions.

Here’s how it happens. Per the GHG Protocol Corporate Accounting and Reporting Standard, companies can choose whether to report emissions (1) based on their ownership in a company or project, or (2) based on companies that they financially or operationally control. Most financial institutions choose to report emissions only from entities or projects that they operationally control, including emissions from sources like purchased energy for building operations or company-owned cars. For a typical financial institution these emissions are relatively insignificant.

Operational Boundaries of GHG Emissions: Credit: New Zealand Business Council for Sustainable Development

But using “operational control” as the institution’s boundary for measuring its emissions could be problematic or even misleading. For example, by using this reporting method, emissions from investments in coal plants, or lending to oil and gas companies would not be reported, giving investors an incomplete understanding of the institution’s carbon impact.

Citigroup, one of the few companies that reports on emissions from some project financing, gives us a rare glimpse into just how much other companies could be underreporting. In 2007, Citi reported its total environmental footprint (scope 1 and 2) at about 1.4 million metric tons of CO2, but estimated its share of CO2 emissions from financing just two thermal power plants to be almost 200 million metric tons of CO2 (~3.3 million metric tons on an annual basis based on a 60 year life) [edited on 10/2]. That’s a big difference, and, like Citigroup, most other financial institutions’ traditionally reported scope 1 and 2 emissions will be tiny when compared to their share of emissions from investments.¹

These discrepancies show why it’s necessary to develop specific guidelines to help financial institutions report their full GHG emissions consistently and accurately. The World Resources Institute has taken the first steps with Accounting for Risk, a new issue brief that gives an overview of options for companies looking for better reporting options.

The report makes a strong case for why financial institutions should both measure and report the GHG emissions in their investment portfolios. One is the matter of reputation. Institutions can get a lot of mileage from being leaders in GHG accounting, and proactively branding themselves as transparent and eco-conscious. In general, stakeholders have applauded institutions that allocate less capital to dirty sectors and more capital to clean sectors. In a conversation with representatives from Citigroup, Valerie Smith, Vice President of Corporate Sustainability, told us that their decision to report “really came out of stakeholder requests, and there has only been positive feedback.”

A big business case for [reporting] is that it really gets the institution thinking about carbon risk. And the first step in doing that is understanding how to calculate it.

—Courtney Lowrance, Citigroup

Better accounting is also smart for business. By fully tracking “investment related emissions,” these institutions can manage their climate-risk exposure and become more aware of carbon-intensive holdings and potentially bad investments. It’s important for an institution to have a clear picture of its total emissions, especially if pending legislation puts a price on carbon. According to Courtney Lowrance, Vice President of Environmental and Social Risk Management at Citi, “A big business case for [reporting] is that it really gets the institution thinking about carbon risk. And the first step in doing that is understanding how to calculate it.”

“Standard guidelines would absolutely help,” adds Eliza Eubank, Assistant Vice President of Environmental and Social Risk at Citi. “It always helps to be able to make apples to apples comparisons. If everyone is finding their own way and designing their own methodology, then you really don’t know how to compare different numbers that different people are putting out there.” Without guidelines, deciding what and how to report, “can be a very dicey issue.”

As consensus grows for the need for updated guidelines, WRI’s next step is to convene stakeholders (including banks, accounting firms, consultants, NGOs, and funders) and develop a strategy for implementing more specific GHG reporting standards. The success of the GHG Protocol shows that this approach can work, and WRI hopes these next steps will keep the GHG Protocol tools and standards relevant and effective for a broader range of organizations.

In 2007, Citi changed its reporting methodology from reporting based on a proportion of the total debt capitalization of a project, to reporting based on a proportion of the total capitalization of the project. The 192.8 million metric tons of CO2 reported in 2007 is based on the Citi’s proportion of total debt capitalization over the 60 year lifespan of the projects. Based on the new methodology, the proportional share of total capitalization is 79.5 million metric tons, or ~1.3 million metric tons annually. While lower, this is still close to Citi’s reported operational emissions for the entire year. [edited 10/2] ↩

Caterpillar President, Experts in Clean Tech & Energy Markets Named Directors at WRI

Camilo Ramirez — Fri, 25 Sep 2009 15:09:36 -0400

The World Resources Institute (WRI) has elected three new members to its board of directors: Kathleen A. McGinty, a specialist in clean technologies and operating partner at Element LLC, Douglas R. Oberhelm, group president of sustainable development at Caterpillar, and Dr. Susan Tierney, an expert in energy policy and economics and a consultant at the Analysis Group, Inc.

The Honorable Kathleen A. McGinty is an operating partner at Element LLC, a private equity firm investing in early and mid-stage clean technology companies, and director of NRG Energy, Energy East, and Weston Solutions.

Previously, Ms. McGinty was Secretary of the Pennsylvania Department of Environmental Protection and Chair of the Pennsylvania Energy Development Authority. During her tenure, she helped attract market-leading clean tech and renewable energy companies to Pennsylvania, bringing more than $1 billion in new investment and creating some 3,000 new jobs. Ms. McGinty was also President Clinton’s Chair of the White House Council on Environmental Quality and Legislative Assistant and Environmental Advisor to then-Senator Al Gore.

Douglas R. Oberhelman is a group president of Caterpillar, the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. He is responsible for the company’s human services and sustainable development functions as well as Caterpillar’s growing remanufacturing business. He also oversees worldwide manufacturing, marketing and support of industrial and large power systems, industrial gas turbines and Progress Rail Services. Caterpillar was recently named to the Dow Jones Sustainability Index for the ninth consecutive year.

Mr. Oberhelman joined Caterpillar in 1975 and has held a variety of positions including managing director and vice general manager for strategic planning at Caterpillar Japan Ltd. He was elected group president and member of Caterpillar’s executive office in 2002.

Dr. Susan Tierney is managing principal at the Analysis Group, Inc., a consulting firm that provides economic, financial, and business strategy consulting to law firms, corporations, and government agencies. An expert on energy policy and economics, specializing in the electric and gas industries, she has consulted on energy markets, economic and environmental regulation and strategy, energy and renewables policy, and energy facility projects.

She is a former Assistant Secretary for Policy at the U.S. Department of Energy. In Massachusetts, Dr. Tierney was previously Secretary of Environmental Affairs, Chair of the Board of the Massachusetts Water Resources Agency, Commissioner of the Massachusetts Department of Public Utilities, and executive director of the Massachusetts Energy Facilities Siting Council.

“I have long admired the unique role that WRI has played on environmental issues, said Dr. Tierney. “I am honored to be part of an organization dedicated to high quality and relevant research and pragmatic solutions.”

These three members join a board that includes: Chairman James A. Harmon, Vice Chair Harriet (Hattie) Babbitt, Chairman Emeritus William D. Ruckelshaus, Vice-Chair Emeritus Alice (Tish) F. Emerson, Roberto Artavia, Gay Barclay, Frances Beinecke, Afsaneh Beschloss, Antony Burgmans, Fernando Henrique Carsdoso, Jessica Catto, Robin Chase, Jining Chen, Leslie Dach, Daniel L. Doctoroff, Jamshyd N. Godrej, Al Gore, Jonathan Lash, Ngozi Okonjo-Iweala, James W. Owens, Michael Polsky, C.K. Prahalad, Theodore Roosevelt IV, Stephen M. Ross, Alison Sander, James Gustave Speth, Lee M. Thomas, Todd S. Thomson, Diana H. Wall, and Daniel Weiss.

Environmental Challenges for the Food and Beverage Industry

Dana Krechowicz — Thu, 27 Aug 2009 14:40:00 -0400

Climate change and water scarcity will have a big impact on the food and beverage industry in Asia, due mainly to the changes in growing conditions for key agricultural inputs. That’s the primary finding of WRI’s forthcoming report: Weeding Risk, due out in October.

The current drought in India could be a harbinger of things to come. A 2 month long drought has afflicted almost half the country during this summer’s rainy (monsoon) season. The monsoon rains that are critical for crops such as rice, soybeans, and sugarcane, are 85% below normal. As a result, India’s sugar crop in 2008 was 45% lower than the previous year, and this year’s crop is expected to be the same or worse.

Overall food prices in India have risen 10%, owing largely to the drought. And global sugar prices have reached a 28-year high, in part because of lower production in India (India is the 2nd-largest sugar producer, in part because of growing demand for ethanol. Climate change’s impact on precipitation patterns is predicted to make droughts such as this year’s more common and prolonged than in the past.

What does this mean for investors in the food and beverage industry? WRI’s forthcoming Weeding Risk report attempts to answer those questions by examining the impact that climate change and water scarcity would have on key sub sectors, including aquaculture, dairy, poultry, tea, sugar, starch and confectionery and edible oils.

The report’s main findings are that climate change and water scarcity can have the following impacts on the sector:

Raise agricultural commodity prices and increase price volatility by decreasing yields.
Increase processing costs through operational disruptions and treatment costs.
Create food safety challenges and conflicts with local communities over resource use

Leading F&B companies will find ways to build corporate and supply chain resilience to potential risks. Companies that understand the risks they are facing, and are actively building their resilience to the impacts, are better long term investments.

The forthcoming Weeding Risk report is being produced in partnership between WRI, the International Finance Corporation (IFC), and HSBC Bank.

Accreditation to Increase the Credibility of Energy Service Companies in India

Elaine Aglipay Delio — Wed, 19 Aug 2009 15:22:33 -0400

The Bureau of Energy Efficiency (BEE) in India initiated an accreditation process to encourage the adoption of more energy efficiency projects through Energy Service Companies (ESCOs).

The accreditation initiative aims to increase the credibility of the ESCO industry among potential clients such as government offices, building owners, and enterprises and among financial institutions who would consider providing capital to ESCOs. CRISIL (Credit Rating Information Services of India Limited) and ICRA (formerly Investment Information and Credit Rating Agency of India Limited) carried out this accreditation process. CRISIL and ICRA are two of the premier agencies in India that present independent credit ratings, capital market information, and industry analysis.

A total of thirty-five ESCOs were given ratings between “Very High” and “Poor” based on criteria involving the ESCO’s success in implementing energy efficiency projects, the ability of its technical manpower, and its financial strength to invest in such projects. Twenty-five ESCOs received ratings of “Good” and above, while ten ESCOs received ratings of “Below Average” and below. This accreditation is valid for two years, after which a fresh accreditation from CRISIL or ICRA will be required once again.

Overall, this accreditation process will be beneficial for the entire ESCO industry. First, it will provide potential clients with a fairly credible selection tool which will provide them information about an ESCO’s technical and financial capability. Second, it will give ESCOs the incentive to improve so that they could attain higher ratings on the next accreditation round. Finally, this ESCO accreditation also serves as a guide for financial institutions when making decisions regarding the creditworthiness of an ESCO. In fact, WRI has been able to use this ESCO accreditation in its current work with financial institutions in India to increase investment into the ESCO industry and overall energy efficiency space.

Earlier this year, WRI shared with various Indian banks the findings of its publication Powering Up: The Investment Potential of the Energy Service Company Industry in India. Its analysis shows that there are attractive investment opportunities to fund ESCOs, especially among debt investors such as commercial banks in India. One of WRI’s recommendations is for these banks to pilot financial products targeted at ESCOs and their energy efficiency projects. In fact, WRI is currently in talks with several national Indian banks to explore this option. WRI has utilized the BEE’s accreditation scores during its conversations with the banks at times when the banks need a good sense of the overall capacity of a particular ESCO. In the end, WRI’s findings and analysis give an overall view of the whole industry’s potential, while the BEE’s accreditation gives more information on an individual ESCO.

All in all, the BEE’s accreditation has been a complementary tool to achieve WRI’s objectives of increasing investment into and ultimately the growth of the ESCO industry and energy efficiency space.

Living Up to Potential: India's Energy Savings Companies

Elaine Aglipay Delio — Tue, 30 Jun 2009 12:11:50 -0400

The market potential for energy savings companies (ESCOs) in India is great, yet barriers still stand in the way of the industry’s growth.

Listen to the full podcast interview:

In April 2009, WRI released “Powering Up: The Investment Potential of Energy Service Companies in India,” a study that examined the potential of India’s Energy Service Company (ESCO) industry. The authors found that with an investment of US$10 billion dollars in energy efficiency improvements, India’s economy would see benefits of up to 183.5 billion kilowatt hours in energy savings. The publication is part of ongoing research on Accelerating Clean Energy Markets in India.

In this interview, WRI Ella Delio gives some background on ESCOs in India, and describes how this industry can overcome its most significant barrier to growth–a lack of access to finance:

Full transcript:

Q: How big is the potential for energy savings through energy conservation efforts in India?

A: The potential for energy savings in India is tremendous. With an investment of $10 billion dollars, India can realize 183.5 billion kilowatt hours of savings annually. That is 36% of their annual electricity consumption. And a key element of realizing this potential is the Energy Services Company industry.

Q: What is an energy service company?

A: An Energy Service Company, or an ESCO, is a company that provides energy efficiency related services, and operates on an energy performance contract. Which means that their revenues are earned based on the amount of energy savings that they produce for the client. The majority of ESCO projects have payback periods of two years, and on average, the clients of ESCO’s save around 20-25 percent of their baseline energy costs.

Q: How big is the ESCO Industry in India?

A: In India, the ESCO industry has grown tremendously over the past five years. From 2002-2007, the compounded annual growth rate was 96%, and it is estimated that in 2008 the growth rate was 62%. This high growth rate is due to rising energy costs, to the desire of enterprises to increase their cost competitiveness, and due to the greater procurement of energy services from government agencies in India. Despite this high growth, though, in the past five years, India’s industry is still relatively small to other emerging economies such as Brazil and China. In India, in 2007, the annual revenues of the industry was $18 million US dollars, while in Brazil, for the same year, the industry revenue was $280 million US dollars – which is 15.5 times more than that of India’s.

Q: What are the barriers to growth of the ESCO industry?

A: One of the primary barriers to the growth of the ESCO industry is the lack of access to financing for the energy service companies. WRI’s analysis shows that there are attractive investment opportunities to fund ESCO’s, especially among debt investors such as commercial banks in India, and one of WRI’s recommendations is for these banks to pilot financial products targeted at ESCO’s and their energy efficiency projects. In fact, WRI is currently in talks with several national Indian banks to explore this option. And we hope that by the end of June 2009 we will have an agreement with at least one of these banks to pilot such a financial product.

There are other barriers to the growth of the ESCO industry, such as the lack of a strong national industry association for ESCOs, as well as the lack of confidence of the prospective clients in the ESCOs. And we provided recommendations to address these barriers in our new report called “Powering Up,” and we hope that all those who have listened to this video today, and are interested in learning more about the investment potential of the ESCO industry in India will download the report from the WRI website.

Reports Highlight Urgent Environmental Risks Facing Investors, Companies in Emerging Asia

Paul Mackie — Thu, 25 Jun 2009 11:52:22 -0400

Environmental risks and opportunities that are overlooked by investors and companies will impact the financial performance of companies in India, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam.

These are among the findings from two new reports by the World Resources Institute (WRI) and the International Finance Corporation.

The reports - Emerging Risk: Impacts of Key Environmental Trends in Emerging Asia and Undisclosed Risk: Corporate Environmental and Social Reporting in Emerging Asia - are being released at a critical time.

Until recently, these Asian markets have focused largely on environment-related reputational risk. But the report additionally highlights the operational, regulatory, and legal dimensions of environmental risks already flowing through companies’ value chains. For example, recent flooding affected companies in Indonesia significantly. Two major floods translated into real impacts on the population and on the country’s largest companies, resulting in declining stock prices and severe infrastructure degradation.

Euan Marshall, program manager of IFC’s Sustainable Investing unit, said, “The global financial crisis is causing companies and investors to reconsider the question, ‘What is risk?’ The investment community has begun to value companies based on how they respond to climate change risks. However, more needs to be done, and companies and investors need to understand the relevance of environmental risk in the context of aggregate financial risk.”

Dana Krechowicz, lead author of the reports and an associate at WRI, added, “Scarcity of water and climate change, among other risks, have and will increasingly affect the region. Economic impacts will be magnified if companies and investors are not well prepared.”

The two reports set the stage for a series of sector-specific reports to be published later this year by IFC, WRI, and HSBC that will identify material environmental risks and opportunities in the region’s food and beverage, real estate, and power generation sectors.

The series of reports are being completed in partnership with the Japanese government.

Short- and Long-Term Business Impacts of Environmental Trends in South Asia

Seizing India's Sustainable Investment Opportunities

Chandan Singh — Tue, 02 Jun 2009 08:22:10 -0400

The New Ventures India community recently convened its annual Investor Summit to discuss small and medium enterprises (SMEs) and the opportunities and obstacles investors face.

The Coaches Network, a group of private advisors from some of the leading institutions in India, met with the New Ventures companies individually to analyze how they may capture opportunities and overcome any barriers that are present in this economy. Meanwhile, the New Venture India’s Green Investor Network, a platform for investors to interact with sustainable enterprises, discussed the New Ventures India activities and pipeline development.

The Green Investor Network also participated in a presentation and discussion around findings from two of the World Resources Institute’s publications. The first publication–Powering Up: The Investment Potential of Energy Service Companies in India–focuses on the Indian energy service company (ESCO) industry, which can play a major role in realizing energy efficiency opportunities. The second presentation focused on a soon to be released WRI publication on the potential for concentrated solar power.

Secretary Dinesh Rai of the Ministry of Micro, Small and Medium Enterprises (MSME), released Powering Up to the Indian public for the first time at the Inaugural Session of the Investor Summit. The publication provides the first quantitative and qualitative look at the market potential of the Indian ESCO industry by analyzing the energy efficiency scenario in India, market data from over 90% of the identified Indian ESCOs and comparisons of the Indian industry to the ESCO industries in Brazil, China and the United States.

Following this presentation, WRI and CII-Green Business Center held a press conference for the publication’s launch. Many members of the press asked questions about India’s energy efficiency industry and the role of the energy service company (ESCO) industry in realizing their tremendous potential for growth.

At the press conference, Dr. Datta Roy, CEO of DSCL Energy Services, discussed how ESCOs could help the small and medium enterprises (SMEs). Dr. Roy pointed out that it can be difficult to approach SMEs on an individual basis because of an owner’s lack of time to focus on energy costs on top of all other aspects of the enterprise. For ESCOs to penetrate the SME sectors, he said, they need to do so at a SME cluster level, prove a technology, process, or product that will bring energy savings and provide this via an ESCO model.

A SME cluster is a geographical concentration of enterprises producing complimentary products. Typically, within a SME cluster are a number of enterprises with similar opportunities (energy saving measures) and barriers (cost competitiveness of goods). If an ESCO can implement a successful project in one or two SMEs within a cluster, reduced market development effort is needed for the rest of the cluster.

WRI is currently in discussions with a number of Indian banks to explore setting up a customized financing mechanism to fund these kinds of SME projects. Not only will WRI be aiding the banks with the introduction of a new financing mechanism, but also with their implementation of the mechanism to its customers within SME clusters. This financing mechanism is needed to overcome a few of the major barriers for these kinds of projects such as the exclusion of soft costs for financing.

In addition, the NVI community gathered for its annual Steering Committee meeting, providing a guiding direction to the program for the year to come. Included in this committee are India’s largest investors in small to medium enterprises (SMEs) and other stakeholders in India’s entrepreneurial and business sector.

The event concluded with a panel discussion on the impact of the financial crisis on sustainable investments in India. The panel brought together investors from ICICI Bank, Sequoia Capital, IEP Advisors Private Limited, the Acumen Fund, and New Ventures India enterprises such as Sumaya HMX and Conserve HRP. Participants remarked that the markets had been experiencing an increased volatility not seen in their lifetimes, citing bank interest rates and the Indian stock market as examples.

However, one panelist said their fund had been able to withstand the fluctuations through its focus on energy efficiency and natural resource companies–a fact that confirms the investment case for the kind of high-growth sustainable enterprises that New Ventures supports.

The Southeast's Clean Energy Opportunity

Eliot Metzger — Wed, 29 Apr 2009 15:02:14 -0400

New reports show the Southeastern states have big potential for clean energy and efficiency improvements.

Some have argued that Southeast states do not have the resources to meeting national renewable energy targets. For example, Stan Wise of the Georgia Public Service Commission recently wrote in the Atlanta Journal-Constitution:

While we can grow our use of renewables in Georgia, we cannot come close to meeting the mandates considered by Congress.

However, with firm targets and flexible incentives, Georgia and other states in the Southeast can develop renewable energy resources such as biomass, solar, and wind power. In fact, renewable power could meet more than 25 percent of the region’s electric power needs by 2030.

This is just one of several energy policy opportunities highlighted in a new series of reports by WRI and regional experts at the Southern Alliance for Clean Energy (SACE), Southeast Energy Efficiency Alliance (SEEA), and Southface.

The reports also show that within the next 15 years, the Southeast can:

Enhance energy efficiency by 20 percent to save money and create new jobs.
Leverage the links between energy and water use to secure supplies of both resources.

Near-term policy action is critical, especially considering the population in the region is expected to grow more than 30 percent through 2030 and the increasing demands for electricity will otherwise be met with conventional power supplies.

Clean Energy Development

The Southeast imports much of its conventional electric power resources (coal and nuclear fuels) from outside the region. According to the Union of Concerned Scientists, states in the Southeast spent more than $700 million in 2005 to import coal from Columbia, Poland, and Venezuela.

Developing local clean energy resources would keep energy investment dollars in the region, while also building new markets and job opportunities. Cost-effective investments in efficiency and renewable power supplies would also lead to consumer savings and dramatic environmental benefits.

Energy Efficiency

According to the American Council for an Energy-Efficient Economy, a national efficiency target for electricity and natural gas savings would save the Southeast more than $37 billion in 2020—creating more than 56,000 new jobs and reducing peak demand by the equivalent of 126 power plants.

Water Resources

Avoiding the need to build new power plants has benefits not only for local air quality and consumer costs, but for water resources as well. Electric power plants often need vast amounts of “cooling water” and in the Southeast approximately two-thirds of all freshwater withdrawals go to meeting these needs. Reducing electricity demands, therefore, leads to significant water savings.

Water savings, meanwhile, also translate to significant energy savings. As much as 25 percent of a home’s energy bill is related to heating water. The U.S. Environmental Protection Agency estimates that if just half the households in the Southeast used WaterSense® labeled faucets or faucet aerators, it could save more than 6 billion gallons of water and $120 million in water and energy bills each year. These local water savings would also reduce demands at costly, energy-intensive water and wastewater treatment plants.

Opportunities in the Southeast

In general, the Southeast can capitalize on policy opportunities to save energy, water, and money. Robust state and federal policy can create targets for energy savings and renewable power production. Financial incentives—including tax credits, low-interest loans, on-bill financing and rebates—can help spur new markets for energy and water efficiency and save consumers money.

As Southeast states seek out solutions to future resource challenges, they should prioritize investments in efficiency and renewable power to ensure a strong, sustainable energy economy.