Impact entrepreneurship

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.

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.

Impact Return on Invested Capital

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.