Mixing Oil and Water in SME Development
Like oil and water, many would argue that major energy companies don’t mix with advancing social impact. However, in an industry better known for oil spills and fat profits, the Shell Foundation is shattering stereotypes and proving that major energy firms can drive change.
A new book on catalytic philanthropy, Do More Than Give, written by three managers at FSG, provides a perspective of a donor’s role in maximizing social and economic impact. The Shell Foundation is a prime example of an organization living by the ethos articulated in the book: “traditional philanthropy is no antidote to the complex problems that challenge our world today. Donors who aim to achieve real results go beyond check-writing to proactively catalyze change.”
Eschewing the traditional role of philanthropy, the Shell Foundation is maximizing its impact by offering its network, skills, entrepreneurial know-how, and strong partnerships with local service providers. The private foundation, initially endowed by Royal Dutch Shell for $400 million, provides access to capital and business development support for small and medium sized enterprises in developing countries. The foundation addressed a critical gap in the market, providing financing for energy and infrastructure organizations too small for commercial funding and too large for microfinance.
In addition to delivering a strong financial return (Read more about GroFin in Africa), the Foundation is demonstrating its value to the Shell Group by growing energy demand and alleviating socio-political barriers. In South Africa, local SME development provided a solution to the legal pressures of diversified sourcing of energy and fostered black-empowered capitalism. In addition, as the foundation invested in local energy companies, they grew the need and capacity for consumption.
In June’s issue of Alliance magazine, Chris West, the director of the foundation, outlined his belief that the Shell Foundation is a “means to an end.” Poverty alleviation requires job creation. Jobs require profitable companies. Furthermore, companies need money, networks, and leaders with skills to scale and reap profits. The Shell Foundation aims to support the businesses critical to this social impact chain.
To this end, the foundation is launching new programs to help bridge the “valley of death” of companies between the concept stage and commercial funding. It is piloting two programs in India:
- An accelerator for energy and affordable basic services sectors. This program provides risk capital and business development assistance to seed-stage enterprises.”
- Commercial debt products for early-stage businesses through partnerships with local financiers like IntelliCash. This allows SMEs to build a track record of debt to attract commercial funding when they are ready to scale.
The Shell Foundation does more than give; its focus on overcoming market inefficiencies by coupling financial support with their wealth of business sector experience provides an exciting and effective model for social change. While a “big energy” venture in social entrepreneurship seems as natural as mixing oil and water, the Shell Foundation has defied expectations by setting the standard of a successful philanthropy.