The better the question
Scaling safe water enterprises (SWEs) as a better answer to the water crisis.
Imagine a life without safe drinking water. It isn’t easy. Most of us take for granted that we can just turn on a tap and fill a glass. But that’s not an option for roughly one in four of the world’s population — the 2.1 billion people who still lack access to safe drinking water today.
With half of all hospital beds in low-income countries occupied by people with water-borne diseases, it’s hard to overstate the importance of reaching the UN Sustainable Development Goal (SDG) of equitable access to safe, affordable drinking water for all by 2030.
While the current rate of change isn’t fast enough to hit this 2030 target, EY sees grounds for optimism in the growing number of entrepreneurial SWEs innovating new models for the provision of safe water in underserved communities.
Seeing that same potential, Unilever engaged an EY team to help it develop a deeper understanding of these new models, and their economic and operational viability. Having already served nearly 100b liters of safe drinking water to more than 55m people through its Pureit Brand, it wanted to know which models, with the right focus and investment, might be capable of bringing safe water within reach of hundreds of millions more people.
The better the answer
Shedding new light on the capital efficiency of SWEs with a “magic metric” that better enables investment for scale.
Unilever needed to evaluate an SWE’s capacity to scale and become truly self-sustaining. The challenge was the lack of frameworks or methodologies for analysing SWEs’ business model dynamics. Additionally, in a nascent sector with myriad approaches adapted to local market conditions, different models could not be compared “like-for-like.”
When those models could range from an Indian SWE using chlorination to treat water with another in the Americas using reverse osmosis (RO) and shouldering dramatically higher costs, how can you find a way of comparing apples with apples?
One way, it turns out, is to invent an entirely new metric — one that not only helps faciliate direct comparison between different SWE models, but also a radical reframing of how to evaluate SWEs’ growth potential and worthiness of investment.
That new metric is Impact Return on Invested Capital — or IROC — which, in the case of safe water, represents the number of people whose daily water needs can be met per thousand dollars of invested capital.
What makes this new perspective so valuable and important is that more traditional investor metrics, such as Return on Invested Capital (ROIC), are insufficient to assess the capital efficiency of SWEs. For example, ROIC doesn’t take into account the purposeful trade-offs SWEs make, often intentionally running as close to breakeven as possible in order to lower prices for customers.
With innovation clearly essential to achieving equitable access to safe drinking water for all, the world cannot afford to overlook any model with the potential to accelerate that access. Combining both IROC and ROIC lenses opens up a new and broader approach for building and evaluating business and investment cases that help guard against that eventuality.
EY’s impressive combination of strategic insights, analytical rigour and pragmatism have been critical in positioning Unilever to pursue a number of valuable partnerships.
The better the world works
SWEs are bringing safe, affordable drinking water to millions.
How EY can Help
Our Strategy Consulting teams, help CEOs achieve maximum value for stakeholders by designing strategies that improve profitability and long-term value.
Read moreUsing IROC to blend perspectives and create a balanced scorecard is but one of seven insights distilled from EY’s award-nominated analysis of the business model dynamics of several of the world’s leading SWEs across India, Africa and Latin America.
Consolidated in How can a trickle become a torrent? (pdf) — a joint report with Unilever, launched at World Water Week in Stockholm last August — these insights help illuminate a path to SWEs serving hundreds of millions of people and dramatically accelerating progress toward the goal of equitable access to safe drinking water for all.
As well as highlighting the need for investors who are prepared to take a more balanced view of SWEs’ potential to generate returns, the report also illustrates the criticality of scale to achieving true sustainability; and how scale, in turn, depends on finding the best “fit” to a particular blend of market conditions.
For example, while RO may be the “gold standard” for water purification, what people can afford to pay for water automatically rules it out as a scalable, sustainable option in certain parts of the world. It may even be unnecessary in locations where making water potable only requires removal of biological pathogens. Taken together, these insights feed advice that SWEs should take care not to overengineer their business models.
With this and other powerful and practical tips, EY and Unilever hope to advance investors’ understanding of, and confidence in, the SWE sector: to illustrate more viable paths to scale; to stimulate greater investment; and to direct further capacity-building support behind high-potential SWEs.
The ones whose businesses form the basis of our report are already serving more than 15m people. It’s our shared belief that we’ve barely scratched the surface of what these — and others like them — could achieve. With the right focus and support, they have the potential to bring bring safe, affordable water within reach of millions more people living at the base of the pyramid.
