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“The dimensions of the challenge are enormous. Billions of people cook indoors using wood and charcoal, leading to substantial household air pollution and more than 4 million deaths per year. It’s a challenge with particular resonance for me as I was born in Ghana, where thousands of people die every year due to toxic fumes from cooking indoors. But we are excited by the power of a demand-driven marketplace eager for the right products and services,” explained Jacques Brand, CEO, Deutsche Bank North America. In a joint interview with Deutsche Bank leadership—tied to the recent Cookstoves Future Summit held in New York City—we discussed the launch of major new funding programs, the challenges and opportunities associated with such investments, the changing nature of development finance, and much more.
Jacques Brand was named CEO for North America in October 2012. Prior to this role, he was Global Head of Investment Banking Coverage & Advisory and was a member of the Corporate Banking & Securities (CB&S) Executive Committee.
Gary Hattem is a Managing Director at Deutsche Bank and heads the Global Social Finance group as well as its Americas Foundation. He is responsible for lending and investment activities within the U.S. and throughout the developing world that benefit social enterprises and disadvantaged communities. He also oversees Deutsche Bank’s corporate citizenship activities for the Americas.
Rahim Kanani: Where did the idea come from to raise US $100M for funds that support social enterprises advancing and deploying clean cookstove solutions?
Gary Hattem, President, Deutsche Bank Americas Foundation: Deutsche Bank’s Global Social finance team has long been active in defining opportunities in which private capital can help drive meaningful and scaled solutions to global challenges. Over the past 20 years, we have deployed more than $2.5 billion to assist disadvantaged communities here in the US, and throughout the developing world, through a financing strategy.
Through our partnership with the Global Alliance for Clean Cookstoves (Alliance), we came to appreciate the need for a dedicated finance facility that could serve the growing capital requirements of a variety of enterprises serving the clean cookstove and the fuels sector. The concept of the fund is to be able to harmonize a variety of capital providers in a common approach to understand and respond to the finance needs of diverse companies working in the sector – from manufacturers to distributors to clean fuel suppliers. Deutsche Bank’s own commitment to the goal of mobilizing $100 million in capital for the sector brings important credibility to the effort and leverages our broad capabilities and relationships in finance. The Cookstoves Future Summit, convened by the Alliance in November, was an important opportunity to call attention to the fund and to begin to attract investor interest.
Kanani: Is this new kind of partnership model the future of development financing?
Hattem: Yes, I am very enthused by this new approach to accelerating a development intention that is built – from the ground up – based on a market strategy to reach scale. The entire clean cooking sector has significantly benefitted from the field-building and market-based work of the Alliance to create an enabling environment to allow for opportunities for private sector engagement. This market approach has helped create a demand for the financing in educating consumers, helped develop important performance standards for products and is helping to “de-risk” private capital flows.
Deutsche Bank has the benefit of being an early pioneer in structuring funds to benefit microfinance and is applying many of the lessons learned to this new emerging sector. We remain very committed to the concept of “crowding-in” like-minded investors to address development challenges in innovative and efficient ways. We are excited by the potential of this fund to attract the interest of foundations, development finance institutions, institutional investors and high net worth individuals, as well as public-private partnerships and other financial institutions that need to be brought to the table to develop unique capital solutions.
Kanani: During this time, Deutsche Bank AG also launched a US $4M Clean Cooking Working Capital Fund for early-stage clean cooking ventures. Why was this additional fund also an important step forward?
Jacques Brand, CEO, Deutsche Bank North America: The initiatives are very complementary. Our initial Clean Cooking Working Capital Fund was created to invest in earlier-stage companies that design, manufacture, distribute and finance clean cookstoves and fuels, and have reached the point at which they are ready for debt financing. This is a high-risk fund that was designed as a pilot to prove the potential of these social enterprises to build traction in their local markets that can lead toward sustained profitability.
Going beyond this pilot, we believe we must take steps now to be ready for additional growth capital for these same enterprises while also being positioned to serve the needs of a broader set of actors in the sector.
The dimensions of the challenge are enormous – billions of people cook indoors using wood and charcoal, leading to substantial household air pollution and more than 4 million deaths per year. It’s a challenge with particular resonance for me as I was born in Ghana, where thousands of people die every year due to toxic fumes from cooking indoors. But we are excited by the power of a demand-driven marketplace eager for the right products and services.
Kanani: What are some of the challenges and risks associated with these kinds of financial instruments, and how have you planned to overcome some of those obstacles?
Hattem: As with all investments, there are certain risks involved with impact investing. Social enterprises operate in some of the most challenging markets, so there are geopolitical risks that we have to weigh. In addition, when dealing with these earlier-stage companies, we pay significant attention to the companies’ ability to deliver on aggressive growth projections with often small and stretched management teams. Finally, assessing product quality and safety is extremely important component of our risk analysis.
We work hard to de-risk these investments through developing partnerships with stakeholders who help with advocacy, awareness creation, performance standards and demand generation. Many of these partners also work alongside us to further assist these enterprises, and the security of our financings, with equity, grant funding, guarantees and capacity-building support.
Kanani: How do these efforts align with Deutsche Bank AG's larger philanthropic and sustainability objectives?
Brand: Deutsche Bank is committed to a major role in social finance – pioneering bold and innovative impact-investing strategies that link the private sector’s capabilities with mission-motivated partners. We are particularly interested in the intersection of climate change and poverty and how we might further the development goals for those most at risk from climate change.
Supporting clean cooking enterprises has direct positive outcomes for the environment and women’s health. It also has tremendous potential to further economic development in frontier markets though the formation and growth of small- and medium-size enterprises.
Kanani: Finally, what are some of the leadership lessons you've learned as it relates to working on these kinds of development challenges from a financial vantage point?
Brand: I firmly believe that the private sector needs to be at the table early on with development partners in defining strategies that play to our respective strengths. Those of us in leadership positions in finance can lend enormous credibility to the efforts of a brave new generation of entrepreneurs who are seeking more than profit. We can open doors, provide critical advice and link them to broader networks.
Deutsche Bank is a global firm, and this work hits home for me and many of my colleagues. I find it emotionally rewarding, as do many of our partners in the private sector, to be part of working on solutions to development challenges.