Eight ways impact enterprises can transform the sanitation economy

Also in Kenya, Sanivation is transforming toilet resources into fuel briquettes, extruded from fecal sludge that has been heat-treated to inactivate pathogens. It built its strong customer base by initially providing free samples, so that people could see for themselves not only how the product is odorless, but also emits less smoke and burns longer than traditional biomass, such as firewood or charcoal.

In Cambodia, ATEC produces, sells and distributes pre-fabricated biodigesters that turn kitchen, farm and human waste into biogas and organic fertilizer for rural farming households. While those biodigesters offer huge benefits for customers — including an average saving of US$521 a year vs. purchasing LPG gas and chemical fertilizers — the upfront cost of owning one can be prohibitive. So ATEC has adopted a pay-as-you-go financial model, allowing customers to pay for biodigesters in instalments, using the savings they generate.

These steps are helping to dramatically increase demand for toilet resources — to the extent that ATEC is now targeting installation of one million of its systems by 2030; Sanivation is receiving inquiries from much larger customers, such as tea farms and pharmaceutical companies, interested in switching to more sustainable fuels; and Sanergy is building a new facility, capable of treating and processing 200 tons of sanitation and organic waste a day, in order to meet demand for its products.

4. Recognize there’s more than one way to ‘close the loop’ 

While the likes of ATEC, Sanergy and Sanivation have all demonstrated that it’s possible to “close the loop” on material flows by identifying and creating demand for toilet resources, they also show that unlocking and meeting this demand can require different approaches in different settings. 

On the one hand, there are those, such as ATEC’s, that are designed for the processing and productive use of toilet resources to occur on-site. On the other, there are those typified by Sanergy and Sanivation, which, in their use of offsite processing and reselling of end products, are more heavily reliant on integrating different parts of the sanitation value chain.

In the latter case, a supportive enabling environment is vital, to which end Sanergy has participated in the development of various policies, including Kenya’s national waste management bill, as well as working with the Kenya Bureau of Standards to help formulate appropriate legal and institutional frameworks for the efficient and sustainable treatment and upcycling of waste.

5. Make full use of sanitation data 

The principle of “waste to resource” applies to far more than just physical resources. It also applies to the vast amounts of information and insight that can be gleaned from people’s use of sanitation facilities and how that can be put to productive use — not only in the service of sanitation enterprises fine tuning their strategies and operations, but also of cities, municipalities and governments implementing more integrated waste management strategies and more effective public health campaigns.

In India, GARV’s integration of smart technologies, such as sensors and radio-frequency identification (RFID) tags, into its vandal-proof, stainless-steel restrooms, means it can gather a wealth of data on customer behavior, including how many times they flush and use the soap dispensers. For example, when data from one school project revealed that fewer than 10% of children were washing their hands, it was uncovered that they weren’t adapting to touch-free, sensor-based soap dispensers. This led to development of specific training, resulting in handwashing rising to more than 80%.

Of course, GARV can also use this data to inform decision-making and drive all manner of strategic and operational improvements. For example, GARV’s service operations team has been able to improve efficiency by around 35%, as they’re able to track any malfunctions in real time and provide required service on-site. Service turnaround times have also improved, resulting in an increased number of functional toilet facilities for users.

7. Solve more problems to unlock multiple sources of capital 

Because they can tell and sell an integrated story of impact — one that not only addresses SDG6 (clean water and sanitation), but also adjacent goals, such as SDG2 (zero hunger), SDG3 (good health and well-being) and SDG7 (affordable and clean energy) — several Sanitation Economy enterprises are proving adept at unlocking multiple sources of investment.

In the case of ATEC, for example, articulating the value proposition of its biodigesters is incredibly simple: waste goes in; gas and fertilizer comes out. But allied to a biogas-fueled rice cooker and twin burner stove supplied with the biodigester, that value proposition can be wrapped in the bigger idea of building a “smart farmer community,” where each member not only benefits from a US$521 a year saving on gas and fertilizer, but also a modern, smoke-free cooking environment.

Anchored more in the outputs of its biodigesters than the inputs, this narrative has helped ATEC raise US$2.8 million in debt and equity financing to date, with a further US$5 million expected to be raised over the next five years — the majority of its funding objectives met by investors focused on energy and fertilizer, as well as some taking a more holistic view of the benefits of investing in water, sanitation and hygiene (WASH).

8. Innovate new financial instruments 

That several Sanitation Economy Accelerator program enterprises have been able to raise commercial investment signals an important tipping point in the level of trust that entrepreneurial sanitation enterprises can build scalable, profitable and sustainable business models. But realizing the full potential of the sanitation economy will require many other enterprises to spring up and follow their lead. In turn, they will need help to bridge the gap between philanthropic capital at one extreme and commercial investment at the other.

Between novel idea and proven concept lies the “dragon pit” of testing, iterating and validating the business model — a process that can take considerable time. Urgently needed are more blended financing and innovative financial instruments that recognize these gaps and are specifically designed to fill them — instruments that incentivize cross-sector collaboration, that emphasize impact as well as financial returns, and that ideally focus specifically on the acceleration of progress toward the SDGs.

The increasing prevalence of development impact bonds points the way forward. Crucially, these bonds aim to provide a successful, workable financial structure that brings together private investors and corporates, as well as governments, and that shifts credit facility assessment from a solely risk-based model to one that includes impact-based assessment as well.

For government and other outcomes funders, it reduces financial and operational risk, while promoting investment in the creation of positive social outcomes and encouraging innovation; for investors, it offers a “mission aligned” investment opportunity that can create positive impact as well as financial returns; and for social enterprises and other sanitation-focused organizations, it offers upfront funding to develop, refine and scale their business models.

In essence, it’s a new model for public-private partnerships — one that offers huge potential to stimulate the level of investment needed to make real the promise of a transformative sanitation economy.

Conclusions 

We sit at a critical inflection point in the pursuit of the Sustainable Development Goal of access to adequate and equitable sanitation and hygiene for all by 2030. With the UN suggesting that achieving universal access to even basic sanitation by 2030 would require doubling the current rate of change, we need to go further, faster in scaling the impact enterprises whose innovative business models are reaching the people that conventional sewerage, waste treatment and processing can’t.

Better answers to the global sanitation crisis already exist in the shape of past and present participants in the TBC’s Sanitation Economy Accelerator program. But unless and until the debate meaningfully shifts from why a transformational sanitation economy is a good idea toward how to rapidly scale and replicate the success of these enterprises, the prize — estimated to be worth US$62 billion a year by 2021 in India alone — is likely to remain elusive.

Building a profitable, sustainable sanitation business serving low-income customers is hard, but as the examples in this report show, it can be done. From bundling sanitation with other services to create a better, broader user experience, to creating demand for transformed toilet resources, to becoming asset light to make invested capital stretch further, Sanitation Economy Accelerator enterprises are illuminating multiple pathways to greater efficiency, profitability and scale. And in so doing, they’ve already brought dignity and a better quality of life to millions of people.

With the right support — particularly innovative forms of finance — EY and the TBC believe that these enterprises and others like them, can bring affordable, sustainable and safely managed sanitation to hundreds of millions more of the people who so desperately need it.