Sustainability: Ethical investment

A feel-good investment

The priority of most private investors is to see a healthy return on their outlay—with ethical considerations coming second. But the two do not have to be mutually exclusive, as Becky Done finds out from Lawrie Smith, co-founder of ethical investment company Greenleaf Global.

 

 

 

Greenleaf Global is a London-based ethical investment company that pledges to only invest in projects with long-term potential that are economically, environmentally and socially sustainable. The company’s main project is a plot of land in Togo, West Africa, that is currently being developed into a plantation of jatropha for eventual use in biofuels.

Greenleaf says that its projects are intended to make the world a better place; but when the ultimate aim is to make money, this can be a difficult balance to strike. “We only get involved with projects that are sustainable and ethically sound, because we believe that’s what the investor is actually looking for now,” explains co-founder Lawrie Smith. “People almost want a feel-good investment.”

Ten years ago, feel-good investments might have been viewed as idealistic, not grounded in reality or likely to make much of a return; but the growing number of ‘green’ investment funds (many of which are offered by mainstream providers) is proving that this is no longer the case. “The vast majority of our clients invest because they want to earn money,” acknowledges Smith, “but what they do like is that it’s quite exciting, new and it’s a feel-good investment—the money is going to help someone else as well.”

Unlike more traditional investment models, the fine details really matter when investors are partly motivated by ethics. When Greenleaf was proposing to develop land, for example, the food-versus-fuel debate had to be taken into account, explains Smith. “Take our biofuel plantation. You shouldn’t be growing fuel crops on land where food can be grown; and you shouldn’t be using crops that could be used for foodstuff as a fuel.” This, according to Smith, is why jatropha ticks the boxes that other crops don’t— it’s toxic, inedible and it grows on marginal land i.e. land that wouldn’t otherwise be used for food production because it isn’t sufficiently high-quality.

Choosing the right site to develop was an in-depth process, also driven by detail. “We visited Togo several times and were shown several plots of land that were not suitable for various reasons—one being that the land was too good for fuel crops to be grown on,” explains Smith. “It all comes back to the due diligence process and ensuring that from day one, things are done in a correct, ethical and sustainable manner—and the best way to do that was for us to get an environmental and social impact assessment completed as soon as possible.”

Africa can be a challenging place for foreign companies to do business, but Greenleaf found Togo keen to facilitate investment. “We were introduced by a contact of ours to the chairman of the free trade zone in Togo,” says Smith. Free trade zones are government incentives to encourage foreign investment through measures such as minimal taxes, withtrade barriers and other bureaucratic requirements either minimised or lifted completely. “After several visits there and meeting several ministers, we were convinced that they were encouraging our investment and that they wanted to do business.”

The project makes business sense, of course. The site sits in an area of prime climatic conditions for jatropha, and Greenleaf is also able to employ between 300 to 400 local people in a region that is desperately in need of local employment. “And because it is quite a small country,” says Smith, “we’ve got very good access to the higher echelons of government, so we feel more comfortable [doing business there].”

For Smith, maintaining an ethical bias throughout the project has been a case of striking the right balance. “For the sacrifice of maybe half a per cent or one per cent in your return, you can do things in an ethical way,” he asserts. “For example, we have an irrigation system on site which is basically provided by boreholes. It’s our intention to go to the local communities who don’t have access to water and drill a borehole for them. Yes, it costs us a bit of time and a small amount of fuel; but we’ve got the machinery anyway.”

The jatropha project is currently a 2,300 hectare plantation; but there is another 12,000 hectares around the current site that Greenleaf could potentially expand onto. “But it’s very much a case of starting off in a small contained manner and getting that running efficiently before growing and scaling up,” says Smith.

Growth for Greenleaf is likely to come from other projects as well—for example, it is also working on an anaerobic digestion plant in Devon, UK. Anaerobic digestion is one technology that’s supported by a government-backed financial incentive called the feed-in tariff—a scheme which pays nine pence for every kilowatt hour of electricity produced by anaerobic digestion, with the electricity being sold on to the power companies. “It’s really a case of looking to see where the financial incentives are and where the support is,” says Smith. Given the feed-in tariff is guaranteed for 20 years and index-linked, the technology is proving attractive to prospective investors because it more or less represents guaranteed income.

Looking forward, Greenleaf hopes to grow its portfolio of projects; but for the moment, it is concentrating on gaining investment for those it is currently developing. “This is a different way of investing and gaining the return—it’s different to the stock market or to an ISA,” admits Smith. “It’s no worse or better, or particularly complicated, but it is different. People are often rightly cautious of something that’s structured slightly differently—and with green projects, you can get sceptics. So for us the focus is very much on explaining about the government support and how we gain our return in the long-term,” he concludes. www.greenleaf-global.com