Travel through some of South East Asia’s most remote areas, and you will see them: solar panels and water filtration systems. They might not look like much at first glance, but these types of projects profoundly transform lives and reduce rural communities’ carbon footprints. What you won’t see however, is the financing that is required to bring many of these projects to completion.
Climate finance is any flow of money – drawn from private, public and alternative sources – that is destined to address climate change. It is the lubricant that allows the engine of development to run, a vital part of climate action, as well as poverty alleviation in the Developing World.
One organisation in this space is Nexus for Development, which provides access to finance for clean energy and water solutions across South East Asia. “Embedded in all our activities is a strong climate [action] element,” says Nexus’ Executive Director, Clarisse Kehler Siebert. “This is even true on the water side, where the climate change link may be slightly less obvious. For instance, with projects like small-scale solar water pumps substituting out diesel pumps, there’s a climate impact,” she adds.
“We have grown from working on community-driven projects that benefit from selling carbon credits to trying to also figure out how to finance these projects. Carbon credit-generating projects are quite capital intensive up-front,” Kehler Siebert says. “They only deliver a return several years later, so we started to dabble in ways to finance these projects, and from that we grew the expertise, and we now manage our own impact investment fund called the Pioneer Facility.”
As Nexus for Development has grown from its base in the Cambodian capital of Phnom Penh, so has the climate finance and impact investing landscape in Southeast Asia. “First we saw only public finance for climate change, then blended public-private finance, and now often we see family foundations or other types of private capital wanting to be put to good use,” Kehler Siebert says. “In the impact investment space, it’s capital where investors are prepared to take on more risk than conventional investors, and there should be a balance between returns and doing something socially and environmentally good.”
The drive to “do something good” for both individuals, their communities and the climate has seen big industries in the region taking the lead. “In Cambodia, for example, big industries are pushing [climate action]. For example, we see garment companies setting up their own “net zero” (GHG emissions) goals, and if they can’t produce using a clean [electricity] grid, then they are less interested in producing in the country as it will prevent them from reaching their climate goals.”
Myriad challenges remain, not least the access to the finance itself, particularly for small-scale entrepreneurs. “One of the big barriers we see is access to non-collateralised finance (loans that do not require any collateral). Often if an entrepreneur has a business idea, she will have to put her house or land on the line in order to access the funds. That makes people reticent, or alternatively they do it without thinking too much about it. Combined with low financial literacy, the implications are quite terrible if you – imagine losing your house because you tried to build a windmill and it didn’t work out in your favour,” Kehler Siebert adds.
While there are common problems to South East Asian countries, there are also country-specific problems, often related to the regulatory environment. “We see this particularly in the renewable energy space,” says Kehler Siebert. “You have a state-run utility, a highly regulated energy sector, and a government figuring out how to transition to renewables without losing their piece of the pie. Another challenge is a regulatory or planning vacuum: if you introduce, say, small-scale solar home systems in a region that is off grid, and the region is suddenly prioritised for grid access, the benefit to the farmer or the entrepreneur becomes obsolete overnight.”
Despite the challenges, there has been a lot of progress. “Looking back ten or twenty years, access to both energy and clean water has expanded greatly; fewer communities lack grid or pipe access. Our impact investment fund works with ‘grow-ups’, or enterprises that have a proven concept and have operated for a few years, developed a product and figured out how to market it. Then there’s a gap between being really little and really big. Finding that middle level of financing is challenging, and that’s what we try to provide. There are a lot of ideas, we see many graduates from incubators, but it still can be really hard to find a grow-up company that has all the needed expertise to, say, produce that smaller scale water treatment plant. It is not uncommon for a social enterprise to be really good at engineering or product development, but lack the financial skills to produce a business model, or local market knowledge to successfully introduce their product or service. So all the good ideas are not always well matched to make the full package. In addition to financing, we also try to help entrepreneurs put those pieces together.”
While the challenges remain, Kehler Siebert is optimistic about the future. “There’s a lot to do still, and I suppose that engaging people at a community or individual level like we do through these financing projects demonstrates that small solutions contribute to proven concepts, which in turn scale to be bigger solutions. Step by step, we get there.”
Three to Watch
Techno-Hill (Myanmar)
$50,000 was raised on the online lending website Kiva for two micro-grid projects in rural Myanmar. These 60kW systems will provide clean energy for 2,250 people while avoiding over 200 tons of CO2 per year. Coming amidst a political crisis, this relief funding is crucial for Techno-Hill to keep delivering vital, cheap energy.
Okra (Philippines)
Okra creates smart-grid solar home systems that form interconnected networks – essentially ‘plug and play’ solutions – that enable remote communities to become electrified. Okra aims to connect more than one million people to electricity in the next three years, something that Nexus for Development’s $500,000 Pioneer Loan has made more possible. In the shorter term, it will allow Okra to build and distribute more than 30,000 Okra Pods in the next couple of years.
Hydrologic (Cambodia)
Hydrologic develops water filters that that allows local communities without access to piped water to move away from boiling water practices. This ensures that less deforestation occurs (as firewood is no longer needed as fuel to boil water) and public health improves. The environmental outcomes of their business are also a key source of revenue contributing significantly to their operations and social impact. Nexus for Development has been supporting Hydrologic since 2016 to leverage carbon markets, by certifying and monitoring the social enterprise’s activities, which provide an additional source of funding to scale the company’s impact. Indeed, the funds from carbon revenue cover more than 30 per cent of Hydrologic operational costs.