Water is both a basic right and a commodity, making it a difficult issue for investors. But an innovative use of carbon credits has created an opportunity to provide self-financing water purification free of charge to those who most need it.
“The pitch to investors are the social and environment benefits, including better health, reduced poverty and improving the life of women, as well as offering a commercial return,” says James Beaumont, managing director of DelAgua. “You can do an awful lot of good by providing clean water and still show a commercial return.”
DelAgua designed a water testing kit for rural communities for Oxfam in 1985. The company went on to develop a purification product to solve problems highlighted by its testing kit. People in the developing world currently boil water over wood fires to make it drinkable, Beaumont explains, causing noxious fumes in the home, emitting carbon and promoting deforestation.
He plans to distribute free water purifiers to rural communities in need. The company will start in Pakistan, through the charity Islamic Relief, which has a very good distribution network and has been distributing medical products to small villages for 25 years. When successful, the model will be expanded to nine other countries.
You can do an awful lot of good by providing clean water and still show a commercial return
Each purifier will cost $25-$40 to manufacture, but margin, shipping and duty would result in a retail price of $80-$90. “This is in a developing country where $1 a day is a lot of money,” says Beaumont. Instead, Islamic Relief will buy them for $5 or less and distributing them to 1.2 million households, supporting 6 million people, throughout Pakistan.
The difference between the cost and Islamic Relief’s commitment will be financed through carbon credits generated by cutting emissions from wood burning. A purifier might produce four carbon credits a year over its four-year life, which will be sold on the international market.
“The profits are recycled back into the programme, to build it up over a period of years,” says Gareth Hughes, managing partner of Beetle Capital. “It requires a reasonably robust view of a strong long-term market for carbon credits. At the moment it is quite challenging, because of the general volatility of the market and uncertainly on what will happen in the next phase of the Kyoto Protocol.”
Signina Capital, a Switzerland-based water investment management company, has just financed the first phase of an investment of up to £40 million in DelAgua. However, carbon credits are not the only potential source of revenue. Beetle Capital is considering offering naming and branding rights to generate corporate sponsorship and to help with logistics. It is also looking at the project as a way to provide international and domestic companies with an efficient channel to market to the “bottom of the pyramid” market for energy, food or other domestic goods.
Martin Klöck, managing partner at Signina Capital, says he receives a lot of proposals that are either purely green and hard to believe or are purely financial but try to look green. “We were first attracted by the involvement of financiers,” he says, “but it was vital that it involved the security of backing from established NGOs and a technology that has been in place for years, rather than the usual venture capital propositions. This is one of the rare investments where sustainability can be combined with an attractive economic case.”
