Burning kerosene to light homes and businesses has serious drawbacks. Breathing kerosene fumes is equivalent to smoking two packs of cigarettes a day. Structural fires and severe burns are common, resulting in fatalities 13 percent of the time. Meanwhile, kerosene fuel costs 40 times what the average American pays for energy, making it a significant hindrance to economic advancement for individuals and communities.
Studies from India indicate that electrification, from anything from solar lighting to microgrids, increases incomes up to 38 percent and literacy rates as much as 74 percent. As the burden of high kerosene costs are removed and families have access to reliable energy, significant economic potential is being unlocked globally. Yet we’ve only begun to enable this growing market.
Over the past decade, social impact investors and entrepreneurs have provided solar energy solutions to people at the base of the economic pyramid and generated financial returns on par with conventional investments. But, for the vision of economic development in emerging markets to be fully realized, the industry needs more conventional funds and large investors to finance companies improving energy access in emerging markets.
Over the past decade, social impact investors and entrepreneurs have provided solar energy solutions to people at the base of the economic pyramid and generated financial returns on par with conventional investments. But, for the vision of economic development in emerging markets to be fully realized, the industry needs more conventional funds and large investors to finance companies improving energy access in emerging markets.
Today, solar products are doing the same with energy access. As of mid-2015, over 13 million brand-quality portable solar lights had been sold worldwide, budding into a $300 million market.
Social Impact: Real Markets, Real Returns
The market of off-grid families and businesses is ripe for opportunity. In this space, businesses and investors can make strong returns and have a tremendous impact on the quality of life and economic futures of individuals, villages, and entire countries.
In its Impact Investing Benchmark research, Cambridge Associates and GIIN found that fully realized and closed impact investment funds outperformed their conventional peer group by 10 percentage points. Later funds that were not yet fully realized also showed returns on par with conventional investment strategies.
The University of Pennsylvania Wharton Social Impact Initiative found that impact investing private equity funds (both realized and unrealized) yielded approximately a 13 percent return between 2000 and 2014. When the social or environmental mission of the company persisted after the investment exit, returns were comparable with non-mission-aligned exits.
These and other studies are debunking the myth that strong financial returns and social impact are incompatible. Investors with financial returns as their guiding principle no longer need to wait for real examples of international social-benefit companies that are scaling successfully and providing commercial-level returns. The evidence is clear and continues to mount.
As the market grows exponentially, more working capital from traditional funds is needed to provide greater numbers of people with energy and economic opportunity. Historically, sizable investments in energy have funded centralized infrastructure like government-backed grid expansion. However, in today’s emerging markets, the most efficient and scalable model is decentralized energy delivery. Small, individualized solutions are more affordable and empower families to control their own energy usage.
Many solar energy businesses are leading the way with cutting-edge technology and comprehensive distribution networks, and millions of families in developing countries are poised to adopt these new, truly life-changing solutions. But the industry needs more institutional investors to provide working capital to take advantage of the rapidly approaching inflection point.
Investments in off-grid energy today will have a ripple effect for generations to come, delivering returns to investors and collectively improving macro-economies. The opportunity is at hand to power the arrival of these markets onto the global stage.