Alternative Assets: Investing in the Environment & Ecosystem Services

Investing in “hard assets” continues strong with persistent threats of inflation, deflation, currency, banking system and economic collapse. Rapid industrialization in BRIC nations and other emerging market countries, coupled with the increasingly pressing issues of food and energy security and environmental degradation have all fueled a decade-long boom, not only in the prices of hard asset commodities, but in the shares of companies involved in these economic sectors.

These perceived threats have also brought together a diverse range of stakeholders in efforts to more sustainably manage natural resources and more accurately and comprehensively determine the economic and social value provided by the world’s forests, grasslands, farmlands, freshwater resources, oceans and atmosphere. Their efforts have resulted in some innovative vehicles via which investors can participate in helping conserve and revitalize the earth’s biosphere, while at the same time, earn a return on their investments.

To date, such investment vehicles have been few and far between. They’ve been almost exclusively developed and funded by and for large international institutions, private corporations and large, wealthy investors that skeptics like to point out have been the primary agents that have brought on these threats, at least historically.

Similarly, so-called “ethical” or socially conscious investments aren’t new,  but they’ve traditionally focused on catering to institutional and other large investors. That’s beginning to change, however.

Alternative Environmental Investments for Individuals

As a socially responsible, environmentally-conscious investor, there is a wide variety of renewable energy and clean technology companies, mutual, closed-end and exchange-traded funds (ETFs) that you could invest in–but let’s go a step beyond these and look at other social and environmental investments that are emerging.

One sure sign that times are changing is the cooperation between large environmental NGOs and some of the world’s largest corporations and wealthiest individuals to create investment funds dedicated to environmental conservation and sustainable natural resource development.

In September, the World Wildlife Fund (WWF), the Global Canopy Program and the Climate Bonds Initiative joined in calling on governments around the world to help foster development of a global market for forest conservation bonds. BoA Merrill Lynch is offering these bonds to its wealth management clients.

A healthy, international market for forest conservation bonds would go a long way toward slowing down deforestation by raising investment revenue from institutional and other investors, such as pension funds, in return for a steady stream of revenue from sustainable timber operations, carbon sequestration and other ecosystem services, the groups explained.

Thirty billion dollars a year invested in forest conservation bonds would cut deforestation rates in half, thereby assuring the world’s forests will continue to function as sinks that soak up carbon dioxide from the atmosphere, they asserted.

Climate Bonds Initiative chairman, Sean Kidney, believes investors will flock to forest conservation bonds as they can be high credit quality debt securities that offer attractive returns, as well as provide diversification, even negative correlations, with stocks and other bonds.

“If you offer investors an AA-rated forest bond or an AA-rated oil bond, most of them will take the green option. You have to remember that 19 of the 20 largest pension funds are public sector funds and they’re concerned about climate,” Kidney was quoted as saying in an Alternative Asset Analysis news report.

Green Investing

Not exactly alternative, but Winslow Management Company has been a pioneer in green investing and fund management since 1983. It offers a family of green mutual funds and managed services accounts based on an investment philosophy that incorporates various environmental, social and governance analytical tools into investment decisions.

These are applied across and within green market sectors, including clean Energy, water management, resource efficiency, sustainable living, environmental services, green transportation and green building products with the goal of realizing long-term capital growth driven by environmental sustainability, according to the company.

Another more widely available, sustainable natural resource management investment option is to invest in the shares of the growing number of companies that have embraced, or at least claim to embrace, sustainable environmental methods and practices.

As an example, Nasdaq OTC-listed Eco Ventures Group (OTC:EVGI) says it’s applying sustainable, environmentally-friendly methods and practices to grow bio-energy and food crops in Panama, as well as recover metals from old mine waste dumps in the U.S. Canada’s AgCapita Partners manages more than $150 million in its private farmland investment trusts.

Watch More: Green Investing (Fox Business)

 

Caveat Emptor

Such investments are fraught with pitfalls, however. There have been numerous frauds associated with purported biofuels and reforestation projects around the world, some of which have even managed to con their way into earning carbon offset credits from World Bank, EU and voluntary carbon credit trading programs.

Even when they’re not outright criminal, such schemes have wound up degrading land, water and air and created new or exacerbated existing problems. While having made any and all promises necessary to assuage environmental and social concerns, the company’s owners are able to walk away without much fear of reprisal once they’ve cashed in on them, leaving the public, through government, stuck with remediation costs that have dwarfed the value of the exploited resource.

Furthermore, indigenous groups and local residents, relatively poor and with no representation, continue to be pushed off their land with little or nothing in the way of compensation to make way for a dam system, forest plantation or “sustainable” farm whose products are primarily exported and which is owned by a faceless, faraway corporation whose directors and executives will never appreciate, much less have to experience, life as led by local residents displaced or otherwise affected.

Investing in Water

Maintaining water resources are increasingly on the minds of urban planners, farmers, ranchers and everyday folk. This year’s record-setting drought only heightened their concerns. It’s recently been estimated that the U.S. will need to invest anywhere from $300 billion to $1 trillion to maintain and upgrade its water services infrastructure.

The actively managed Calvert Global Water Fund (CFWAX) is designed to capitalize on this need for investment. The fund’s managers allocate capital across the network of water services, including companies active in water capture, storage, delivery, treatment and filtration, as well as drinking water and infrastructure.

There are also water exchange-traded funds (ETFs) for those looking for a cost-effective means of investing in water companies more broadly. These include the PowerShares Water Resources Portfolio ETF (NYSE:PHO), PowerShares Global Water Portfolio ETF (NYSE:PIO) and the Guggenheim S&P Global Water Index ETF (NYSE:CGW).

Taking Matters into Your Own Hands

As individual investors concerned about environmental health and quality, you could take matters more into your own hands. For instance, you might instruct your broker to seek out investments in municipal bonds backed by revenue from the fast-growing number of waste- or wastewater-to-energy plants that are cropping up around the U.S. Or you could use the heretofore unavailable investment information and market access provided by the internet to seek these out and invest in them yourself.

On the other end of the scale, the revolution in digital communications and technology has brought on the socio-economic phenomenon of “crowd-sourcing,” which has been a big factor in micro-finance growing into a global industry.

Through organizations such as Kiva, individuals can lend small sums of money to organizations and individuals in the developed, as well as developing, world that are working to earn their livelihoods by creating more sustainable, environmentally-friendly natural resources products and services.

Participating Directly: CSA Farms

Rather than working through intermediaries, another alternate means of investing is to participate in them directly. Taking a cue from farmers’ co-operatives, farmers, ranchers and property owners across the country are forming community-owned renewable energy co-ops that own wind and solar power farms.

Another direct alternative investment of your time and a bit of labor, in addition to dollars, is to join a Community-Supported Agriculture (CSA) farm. CSA continues to grow rapidly across the U.S. as people are concerned about nutrition and diet, how their food is grown and where it comes from.

A relatively small expenditure will typically afford you baskets of locally, sustainably grown food, and may also serve to re-establish your connection with agriculture and nature by enabling you to spend a day a month or so helping harvest the vegetables and fruit whose growth your dollars support.

Such alternative investment vehicles are by no means traditional, and they aren’t large or mature enough yet to invest large amounts like a significant portion of life savings, but they can supplement your conventional, as well as alternative, socially and environmentally responsible investments. Perhaps equally rewarding, they can help reconnect you with the environment, community and the value of a dollar.

References: Environmental Investments