Looking South

Latin America Offers Sustainable Investment Opportunities

As the American economy continues to lag, more and more socially and environmentally responsible investors are looking south to find promising venture capital opportunities. While much of the rest of the world is bogged down in recession and cowed by the specter of terrorism, Latin American businesses are operating in a relatively safe and fast-growing economic climate friendly to sustainable development and still rich in virgin natural resources.

A small cadre of environmentally conscious venture funds—most of which feature a nonprofit component—have already invested almost $2 billion in sustainable forestry, organic agriculture, renewable energy and other green businesses in the region, and are poised to make significant returns over the coming decades. Individual investors are still welcome to invest in many of these funds.

Green Pioneers

"When we started to invest in green businesses in Latin America six years ago, there was no one," says John Michael Forgach, president of the A2R Fund Management Group, which has committed $205 million for Latin American green businesses to date and hopes to boost that number to $500 million by 2005. "We were considered the clowns, the dreamers, the romantics," he adds.

Today the field is a little more crowded, thanks in large part to New Ventures, a program of the World Resources Institute’s Sustainable Enterprise Program, which connects investors with sustainable business leaders to promote the development of profitable solutions to environmental and economic challenges in Latin America. New Ventures convenes Investor Forums twice a year in different Latin American countries to provide entrepreneurs with a venue to showcase their businesses and to ease the transfer of venture capital to innovative sustainable enterprises.

Costa Rica-based EcoEnterprises Fund, established in 2000 as a joint venture of the Nature Conservancy and the Inter-American Development Bank, is one of the frequent venture capital participants at the forums. The fund invests seed and expansion capital in small to midsize companies in Latin America and the Caribbean and focuses on ecotourism as well as sustainable agriculture and forestry. EcoEnterprises prefers to fund ventures that are unable to secure financing from conventional sources due to their small size and innovative nature.

To ensure adherence to strict standards for biodiversity conservation, sustainable use and community involvement, each venture in the fund’s portfolio must collaborate with a nonprofit conservation or community organization on an ongoing basis. Investors have already committed $10 million to the fund, but managers hope to marshal an additional $15 million in the next few years. By 2010, the Fund will have invested in approximately 20 small- to medium-scale ventures. Private and institutional investors may participate in the EcoEnterprises Fund by purchasing shares or making a charitable contribution toward its work.

According to EcoEnterprises President Tammy Newmark, "Environmentalists are paying more attention to the ways that market forces can be used to help protect nature. From helping to conserve rainforest habitat for jaguars to restoring and cultivating degraded lands, these companies are proving that business and the environment can advance common goals. Each successful venture also strengthens nonprofit organizations and creates economic alternatives for local people."

Seed Money

Another major player in this new field is the Environmental Enterprises Assistance Fund (EEAF), which has invested more than $85 million to date in Latin America. The fund, established as a nonprofit in 1990, works to develop sustainable growth in emerging markets by capitalizing smaller, private-sector businesses that can serve as replicable models for local entrepreneurs and investors. EEAF manages three Latin American funds that invest in organic agriculture, sustainable forestry and aquaculture, renewable energy, energy efficiency, recycling, pollution abatement and nature tourism.

As lucrative green investment opportunities in the United States become harder to find, socially conscious investors are doing better than ever by doing good in Latin America. While U.S. venture funds like investors to commit millions of dollars, the Latin American funds tend to be less stringent in this regard, with some even welcoming small sums. Individual investors looking to jump on the bandwagon can contact any of the green venture funds working in the region to find out how to get involved.