Wednesday, June 27, 2007

Worth Repeating

While I often quote others in this blog, I am ususally discrete (might I even say "surgical"?) in my quotations. Not here. Wholesale lopping here from an email from Mathis Wackernagel at Global Footprint, a recent Skoll Award recipient:

"In nearly every newspaper, from California to Australia, you can find a reference to the 'Carbon Footprint.' It has become an enormously popular term as we rush to stem global warming, and to find alternative energy sources that won't harm the climate. This is great news.

The Carbon Footprint is 50% of humanity's overall Ecological Footprint, and global warming is one of the most visible symptoms we've seen to-date of the larger problem humanity is facing: ever-increasing, global ecological overshoot.

Ecological overshoot means that humanity is living beyond the planet's ability to sustain us. Today the focus is on carbon, but climate change is happening as we approach other critical limits as well, in fisheries, forests, cropland, and water. Unless we focus on ending overshoot as a whole-systems problem, some of our solutions to climate change could cause large, unintended impacts.

For example, in Brazil, sugarcane plantations used for ethanol production are being linked to air pollution, water pollution, and deforestation. And in Borneo and Sumatra, large areas of tropical forest are being cleared to make room for palm oil plantations, which is destroying the habitat of endangered species, in particular, the orangutan.

The Ecological Footprint was created to ensure that addressing a singular issue, like global warming, doesn't negatively impact entire ecosystems or shift pressures from one land type onto another. "

Different choices on energy and technology can still have vastly different ecological impacts. How will you reduce your personal footprint? Walking or riding a bike? Buying wind energy from another state? Installing solar panels? Buying carbon offsets from replanted trees in the Amazon? Using the EcoFootprint tools will help you make informed decisions.

As we work toward a clean energy future, carbon is an important consideration, but as Mathis points out, it is only half the environmental story. And "Ecological Footprint" is only one third of the Triple Bottom Line around which we need to be building sustainable enterprises.

Dream Job

Are you sitting at your desk thinking that you are spending time doing something that is interesting, but not so important? If you do it for three more years, under the best of circumstances, what would you accomplish?

Now, how would you like to help a very promising young company grow? In three years, you may have been part of eradicating poverty for thousands (or dream big, millions) of microentrepreneurs around the world. Sound good? How about living and working in San Francisco?

Well, Kiva needs a CFO. Check out Matt's blog/job posting... this is such an impressive company and it is great to see them building out their team.

Here is the info:

Saturday, June 23, 2007

My friend Nathaneal told me...

that my blogs are too long. Hmmm. That violates the first rule of stickiness (Simplicity). So here is a shorter blog, Nathaneal.

If the Millenials and Gen Y and LOHAS are supposed to be market segments that care about the sustainability of products they purchase, how do you explain their affinity for Apple products? Perla Ni's post has stirred up some controversy on the role of corporate philanthropy and which companies don't do much, and Apple is at the center of her target. Apple also has done less on the life cycle of its products, compared to competitors like Dell and H-P. Lots of room for improvement, and my guess is when they do something, it will be innovative. Makes me pause before I go buy an iPhone, though.

I gotta give props to Eric Nee, at Stanford Social Innovation Review, for stirring it up in this sector. Something badly needed. First the articles on "who gets to call themselves a social entrepreneur". (My take: Going to a conference on social entrepreneurship was enough to make me not want to call myself one.) And more recently, Aneel Karnani's article which is critical of microfinance as a development tool.

Lastly, a while ago, someone sent me a link to management changes at It seems that they have now hired most of the key hires (and these are some good folks). And they've made a few more grants. So, maybe some forward motion, but still has an Oz-like quality to me. My previous posts on both supportive and somewhat critical.

There, Nathaneal. Now you can read my blog and get in a bike ride before work. And, it is Bike to Work week, this week. So get a friend to ride too.

Friday, June 22, 2007

Gapitalists and H.E.R.O.'s

There is a bit of a problem with capitalism.

Well, several problems actually. Nothing fatal, but we have some work to do. If you read my blog regularly, you know I think Hernando de Soto has identified some important flaws with how capitalism has been implemented in the developing world (Mystery of Capital). And Paul Hawken and the Lovinses have pointed out some of the problems flowing from a system that doesn't take into account natural capital (Natural Capitalism). Sen has pointed to the need to look at measuring freedoms in addition to economic factors when evaluating international development (Development as Freedom). Well, I am not in their leagues. And my problem isn't that big... but it is signficant.

This problem has to do with expected returns on investment. Those who work in the area of socially responsible investing or sustainable development or the BOP often talk about Social Return on Investment (SROI) where non-financial business performance metrics are measured and quantified. As an example, if you make a loan to business that employs high school drop outs, you (hopefully) get interest payments and a return of your principal. But you also may get measurable social benefits: less delinquent behavior, less kids going to prison, less drug use, etc. If the interest rate and risk on the loan are perceived to be equal, one assumes that most people will favor the socially responsible investment.

This has attracted capital to "social venture" sector. What used to be primarily donations is starting to shift to debt which allows the capital to be recycled. If you are supporting a venture that will eventually be financially independent, it would be nice to get your money back, so you can lend it to another venture. This is the appeal of Kiva. Loan $50 to a microentrepreneur in Tanzania. Get repaid. Lend to microentrepreneur in Cambodia. Almost as easy as shampoo instructions. Instead of Lather-Rinse-Repeat it is Loan-Repay-Repeat. At the other end of the spectrum, Accumen Fund, GoodCap and others are looking at larger loans to larger businesses working on improving on companies that produce financial returns and social returns.

So what is the problem? Well, as you know, it isn't that I think there is a capital shortage for the social sector. The issue is that there is a gap in our entrepreneurial finance model. Debt is unlikely to be a powerful way to fund social venture start ups. Yet private equity capital wants to earn 25%-35% return if invested in a risky venture (spread over a portfolio, so the actual winners need to return at an even higher rate to make up for the losers). Yes, there are losers, that have a negative return. While investors can identify some of these losers up front (and not invest) a fair number slip through, get funding and don't repay investors. After millions of transactions, the markets have worked out that this type of investment needs to return at that 25% rate to be attractive to capital.

And money put into a non-profit returns -100%. So, the gap is that our capitalist system presumes that a start up returning less than 25% on invested capital cannot (and should not) exist (for my academic and banker friends, don't quibble me with on numbers... I am discussing a concept here). It is a null set. Capital just won't go to these deals. At least not smart capital. Of course, this is not true experience. Companies return much lower than 25% all the time and few private investors get a 25% return over time. Not even Warren Buffet (but he has made over 20% over the years for Berkshire shareholders, which is spectacular). But this ROI rule has achieved mythic status in the investment community.

There have to be many good businesses that simply cannot really return 25%, but produce value to society. Rather than castigate these investors for being heartless, entrepreneurs need to find ways to help them build successful track records investing in this sector, and this is starting to happen. These entrepreneurs are venture gapitalists.

Hybrid financing schemes are emerging, where private capital is pooled with foundation capital. The Gates Foundation is working on this. Simply, if half the money in the pool isn't looking for a return (the foundation donation), then the opportunity only has to return 12.5% to meet the private investors 25% hurdle rate. David Green (of Aurolab fame) recently worked with Deutsche Bank on a similar approach to put together a fund for eye care in Africa. I expect to see more of this synergistic financial partnering between private capital and foundations.

Another approach is to use "other value" to attact capital. For instance, my earlier example of SROI. But we need to push that model- I think we are still in beta test phase on this. Instead of being a bit greener or more socially responsible, what if entrepreneurs build companies that will be truly regenerative? My acronym is H.E.R.O.'s: Human and Environmental Regenerative Organizations. As a system, natural systems have an amazing ability to regenerate. How about capitalist systems? What companies are actually cleaning up the place? Is it possible for companies to actually reduce their eco-footprint as they grow? To make a business of environmental repair? clean water? Providing credit, education or health benefits to chronically poor regions? These are the Blue Ocean opportunities of the next decade. Carbon sequestration, cellulosic ethanol, biomimetic solar systems... Entirely new markets will emerge and entire industries are going to be remade in coming decades (as they have been in recent decades).

This is just getting started, so it will be exciting to see what else begins to happen as "relentless capital" begins to flow and shift to find these areas of value. I foresee some interesting financial instruments emerging. Will we see loans repayable with carbon credits (something Envirofit has proposed to some funders)? Financial returns that vary with social/environmental performance (either positively or negatively)? Syndication of social benefits (remember that derivatives are just stripping out and repackaging separate benefits of financial instruments). So I'd urge BOPreneurs to talk with these new investors and LISTEN. Figure out what they are looking for. Figure out if you can find a solution for them.

A few of those who get there early are going to make a bunch of money and solve some of our environmental and social problems. And, I hope, change the business role models for success. And a lot of others are going to fail. Great system, right? This doesn't bother me, but it seems to bother some people in the social venture community. To paraphrase Mr. Churchill: "capitalism is the worst economic system, except all the others that have been tried." Capitalism isn't perfect and continues to evolve. It is this dynamic that allows us to dream of 25% returns or companies that "clean up" in multiple ways.

I think that the easiest way to find entrepreneurial opportunities is to ask "WHAT SUCKS". This "gap" sucks, and it is an imperfection in the capitalist system. But the next step is important. Who is going to fix it? So go ahead, write your newspaper or congressman (good luck) or... get started on building or funding organizations that change business for good.*

*"Changing Business for Good" is the motto of Bainbridge Graduate Institute. I think its a great, sticky motto. So I am shamelessly using it.

Monday, June 18, 2007

Envirofit Honored at World Clean Energy Awards

Media Release, Basel, 15 June 2007

"The very first World Clean Energy Awards were presented today, at the traditional “Faktor 4-Festival“ in Basel. The awards honour the world's best projects promoting the large-scale use of renewable energies. From some 70 nominees, a high-profile jury picked the nine winners of the first energy "Oscars", who travelled to Switzerland from as far away as Abu Dhabi, China, India, Kenya, Sweden and the USA to receive their awards....

Transport and mobility
Bryan Willson, Chief Technical Advisor, with the Philippine Two-Stroke Engine Retrofit Project. The Envirofit company has developed a retrofitting kit for twostroke engines, which are found everywhere in the Philippines. The kit improves fuel-efficiency and thus massively reduces greenhouse gas and toxic emissions....

The high-profile jury of the World Clean Energy Awards... is composed of the following eight individuals:
• Christopher Flavin, President, Worldwatch Institute (USA)
• Nicky Gavron, Deputy Mayor of London. On the jury she also represents the organisations ICLEI (Local Governments for Sustainability) and "C40 – Large Cities Climate Leadership Group" (UK)
• Ashok Khosla, CEO TARAhaat, New Delhi (India)
• James Leape, Director General, WWF International
• Amory B. Lovins, Chairman, Rocky Mountain Institute (RMI), Snowmass, Colorado (USA)
• André Schneider, Managing Director and Chief Operating Officer of the World Economic Forum (Switzerland)
• Klaus Töpfer, former Executive Director of the UN Environment Programme UNEP(Germany)
• Ernst U. von Weizsäcker, professor and author (USA /Germany)

Well-known institutions such as the Worldwatch Institute, Rocky Mountain Institute(RMI), the local government sustainability union ICLEI and South-South-North Cape Town, South Africa, were invited to propose winners. Together with other respected institutions, they nominated a total of 70 candidates from 20 countries."

For more info: