Green Thinking

Four emerging innovations from around the world showcase a new generation of forward-looking business models

On June 25, 2006, Warren Buffett announced he would give away 85 per cent of his $44-billion US fortune, mostly to the Bill & Melinda Gates Foundation, in an effort to solve some of the worst problems of global health and poverty. At a combined $3 billion a year, the Gates Foundation is equivalent to a quarter of the United Nations’ entire budget. Google’s charismatic founders Larry Page and Sergey Brin joined the anti-poverty wave with $1 billion, amending Google’s “don’t be evil” motto with a commitment to do “good things for the world.” But will 2007 bring the grassroots opportunities, inspiration, and managerial talent needed to carry out these bold visions of a more sustainable future?

We posed this challenge to MBAs studying Sustainable Value Creation at York University, and a network of organizations: CARE Enterprise Partners, the United Nations Development Program’s Growing Sustainable Business Initiative, MEDA, and grassroots entrepreneurs from Canada and around the globe.

The path-breaking enterprises featured in this article provide an encouraging glimpse into the contribution of local enterprises and market-based approaches to a sustainable future.

By innovating for sustainability each business successfully turns a
challenge into an opportunity.

Sweet Taste of Honey
By Taz Dossani, Laurie McDougald, Scott Houston, Adrian Varao, and Chris Dogas

When reaching out for a jar of Acacia, African Blossom, or Wild Comb, honey aficionados are transported from supermarket shelves to the small farms of rural Kenya, Tanzania, and Uganda, where Honey Care Africa has revitalized the national honey industries. Against the odds, its for-profit business model, centred on environmentally friendly production, modern beekeeping technology and trusted support of local farmers, has successfully disrupted a mature and contested market.

Farouk Jiwa, now a Care Enterprise Partner, founded Honey Care Africa in Kenya in 2000, where 75 per cent of the labour force derives its income from subsistence farming. In 2004, Honey Care began expanding to neighbouring countries and now employs 48 full-time staff and has captured a significant share of the regional honey market. It has also established a network of 9,000 small-scale beekeepers across East Africa who have since more than doubled their previous incomes. The “money from honey” is used for food, medicine, seeds, fertilizers, school fees, home improvements, and microenterprises.

Central to Honey Care’s success is an innovation in production technology, beekeeping training, a guaranteed market through forward contracts, and prompt payments.

This model has been recognized for its social and environmental impact including awards at the World Economic Forum, the Africa Small Medium and Micro Enterprise Award, the World Business Award, and the Equator Initiative Prize.

Honey Care is now the largest producer of high-quality honey in Eastern Africa. Honey
Care’s products are distributed directly to most major supermarket chains, shops, hotels, lodges, and restaurants in Kenya, Tanzania, and Uganda.

In Kenya, a total of 7,754 households earn supplementary incomes of $180 US to $250 US per annum from beekeeping. Honey Care supported farmer ownership of more than 22,500 Langstroth Hives and 6,200 traditional hives. Five agricultural colleges in Kenya now provide beekeeping training on a commercial basis. A total of 220 government and nongovernmental organization staff have been trained. Kenya is now the fourth African country to export honey to the EU, and specialty honey is available in organic stores in the Eastern US and soon Canada.

Clean Energy Entrepreneurs
By Jerry Chwang, Khalid Khan, Dana Krechowicz, Kasia Sell, and Mohammed Kamal

In Thailand, industrial-scale cassava processing is usually associated with huge lagoons of organic wastes that are left to decompose in the open. Birds flying across these large pools often succumb in mid-air and fall into the ponds due to the enormous quantities of methane generated from the decomposition of the cassava effluent. The rank odours are also a serious problem for human neighbours.

In 1999, the Thai-based start-up company CleanThai wanted to turn problems like this into profitable financial opportunities by providing methane gas recovery and waste-to-energy services to commercial processing plants and farms in Thailand.

At this time, in the wake of the Thai currency crisis, local banks were not lending for new ventures and there were few sources for investment capital for CleanThai. However, E+Co, a Bloomfield, N.J.-based clean-energy finance organization that works only in developing countries, provided CleanThai with an early-stage equity investment of $150,000. This investment allowed for the construction of their first commercial project with the largest cassava processing plant in the country.

With these initial funds, CleanThai installed an in-ground anaerobic digester to clean up the waste stream and produce electricity from the methane gas, while also reducing greenhouse gas emissions. The electricity is used by the plant, reducing their costs and making the upfront costs of installing CleanThai system financially attractive.

In the past eight years, CleanThai has completed several similar projects for food and beverage plants and pig farms in Thailand, and completed a buyback of E+Co shares, producing a profitable exit for the early-stage investor.

Around the developing world, E+Co has repeated investments similar to this since its inception as a clean-energy finance organization in 1994. Twelve million dollars in investments in 140 enterprises across 30 countries later, E+Co has generated impressive financial as well as social and environmental results, including an 8.4-per cent portfolio return after write-offs.

To date, E+Co’s clean-energy enterprise clients have been responsible for generating 382,226 MWh of clean energy, offsetting 1.9 million tonnes of greenhouse gases, saving 76 million kilograms of firewood, creating 2,663 jobs, and providing clean energy to over 3 million people in low-income communities.

Low-Cost Housing Finance
By Mette Olsen, Melissa Leithwood, Bernie Moehring, Mir Islam, Jennifer Jones, and Giorgi Areshidze

In the backdrop of cities from São Paulo to Rio de Janeiro, it is common to see favelas sprawling across the landscape. Like many people around the world, favela residents would like to own a better home. Low-cost housing finance is a newly emerging financial services sector that is experimenting with various approaches and business models to tap into the huge demand for low-income families to build a solid home they can call their own.

The micro-finance model of providing poor entrepreneurs with small loans to start and expand their businesses is now well known around the world. However, low-cost housing finance differs from entrepreneur microfinance in two ways.

First, the loan amounts are significantly higher than those to micro-entrepreneurs resulting in longer payback periods and an increase in total interest paid.

Second, unlike the loans granted to micro-entrepreneurs, low-cost housing loans do not entitle the beneficiary to generate cash flows.

Major obstacles to new ventures in this space are therefore financial feasibility and financial sustainability. Brazil, with its highly concentrated population in urban areas, is a promising testing ground to discover what works. At the same time, however, Brazil can often have outrageously high interest rates, making low-cost housing finance especially challenging.

Early research by York University’s Schulich students indicated that low-income mortgage models would be viable for households with an income equivalent to twice the minimum wage.

They also found that business models for low-cost housing finance companies could increase their chances of success by building in three important components:

First, housing costs can be dramatically reduced by innovative construction designs and by having thelabour done by the homeowners themselves. This also includes the option of building one room at a time.

Second, in an environment with inflated interest rates, low-cost financing is feasible if it can also include a component of microsaving.

Finally, formal or informal ownership of land is a precondition for successful low-cost housing initiatives. Low-cost housing finance ventures should begin in those countries where this need has already been addressed.

With creativity and experimentation, low- cost housing finance ventures can work.

Jatropha Biofuesl in Tanzania
By Pierre Loots, Andrew Kwong, Jackie Chieh-Jen Wu, Monica Da Ponte, and Jason Steinberg

In the field of renewable energy, biofuels are increasingly the focus of attention. Yet few people would think of Tanzania as a place where this type of new industry is developing.

Lying just south of the equator, Tanzania has an ideal climate to grow input crops to create low-cost biodiesel. In a recent speech at the Empire Club in Toronto, Tanzanian Prime Minister Edward Lowassa declared: “With the continued global demand on oil and upward pressure on prices, biofuels are increasingly becoming alternative fuel sources. In Tanzania we have plenty of land for growing the relevant crops. Weare therefore keen to see further investments in palm oil, sugar, and jatropha and welcome interested partners.”

The potential for biofuels from jatropha in particular is not only attracting financial investors to East Africa, but also attracting attention from the world’s social investors such as the United Nations Development Program’s (UNDP’s) Growing Sustainable Business Initiative.

The jatropha plant is ideal for sustainable biodiesel production in Tanzania because of its ability to thrive in sub-Saharan climates and the high oil content of its seeds. Jatropha can grow on marginalized land, is drought-resistant, and can provide supplemental incomes for low-income households in rural areas.
Biodiesel input crops like jatropha can be supplied to a production plant through a combination of community farming with micro-financing and industrial-sized plantations. This hybrid supply chain can meet the input requirements of a biodiesel plant (which needs to produce approximately two million litres of biodiesel per year to be viable) while also providing a market for local small-scale farmers.

For biodiesel to incrementally replace petroleum diesel in non-oil producing countries like Tanzania a number of pieces in the supply chain will need to be further developed, including storage facilities to minimize oil losses before the jatropha seeds are pressed and storage facilities of the biodiesel itself to prevent deterioration of the fuel over time.

Tanzanian and Canadian investors along with development organizations like the UNDP are already responding to Prime Minister Lowassa’s calls for investment in the industry, putting Tanzania on a course to be an African leader in a petroleum-independent and environmentally sustainable energy future.

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