Seeing green: investing in the environment can bring more rewards than just helping the planet. John Forgash has learned it can also earn you a different kind of green - Strategies

UNLIKE MANY OF HIS counterparts who spend their days analyzing the balance sheets of dotcom companies, John Forgash spends most of his time trekking through the jungle. It's during these expeditions that Forgash, founder and CEO of A2R Fundos Ambientais, looks for ways to preserve Latin America's vast natural resources, help eliminate poverty and turn a profit for his investors at the same time. To a traditional banker, this might sound impossible, but Forgash isn't exactly a traditional banker.

Sao Paulo-based A2R is betting on the future of sustainable development and environmentally friendly projects. So far the company has invested nearly US$100 million, with plans to extend its funds to about US$500 million in the near term.

Forgash has been involved in fund management and banking for nearly 30 years, including stints as a vice president of Chase Manhattan Bank in Paris, New York and Madrid, and as the executive vice president of Banco Axial SA, a private Brazilian investment bank which he founded in partnership with a Swiss-Brazilian investor.

A native of the southern Brazilian state of Parana, Forgash came upon environmental investing partly by chance. In 1995, he founded a non governmental organization (NGO) called S.T.A.R.T., which cares for wild animals confiscated from the exotic animal trade and reintroduces them into their native habitats. In 1996, Forgash was looking for a piece of property in which to relocate large primates, but he soon discovered that even the best-run forest preserves in the Amazon region were on the brink of bankruptcy. "The sustainability of these projects was in question," he says. "The environmental and social aspects of these projects were good, but financially, these projects were very badly managed."

He didn't forget his experience at S.T.A.R.T. when he founded Banco Axial. Together with his partner, Forgash began investing in environmentally sustainable businesses. During the next three years, he found that most of the profitable investments at Axial were "green investments." Last May, Forgash and his partner split. Forgash kept the "green investments" and created A2R, a joint venture with GMO Renewable Resources, the forestry investment arm of Grantham Mayo van Ottherloo & Co. LLC (GMO), a Boston-based investment firm.

A2R is not alone in its belief that investing in the environment makes good business sense. A recent study by consulting firm Dowell Hart and Yeung found that "firms adopting a single stringent global environmental standard have much higher market values than firms defaulting to less stringent or poorly enforced standards."

Other investment funds also have taken a similar approach. The Global Environment Fund, based in Washington, DC, has invested US$500 million in environmentally friendly projects during the past 10 years. GEF President Jeffrey Leonard says, "There are huge opportunities for environmental investing in Latin America, because unlike the United States, where 80 percent has been done and the last 20 percent is very expensive, in Latin America you can make inroads in many areas without making a large investment."

A2R's first fund, Terra Capital, a biodiversity investment fund, is worth between US$15 million and US$30 million and invests in organic agriculture, non-timber forest products, aquaculture, forestry and ecotourism. As with all of A2Rs ventures, investors expect returns of between 20 percent and 35 percent.

Manua Alimentos, a Terra Capital project located on Maraj6 Island at the mouth of the Amazon River in the Brazilian state of Para, has 30,000 hectares of palm trees that produce organic palm hearts and pulp from acai (ah-sigh-ee), a deep purple fruit rich in iron which is the latest healthfood craze in southern California. Another project, Tobasa, located in Tocantins, uses the raw materials from the babacu palm harvested by the Apinaje Indians to make oils used in soaps. A2R also has helped develop a charcoal filter made from babacu bark, which is used in various industries. A third investment, Fazenda Santa Onfre, is an organic farm that supplies supermarkets and restaurants in Southeastern Brazil. A fourth company, Chile-based Certified Pure Ingredients, produces organic strawberries, blackberries, raspberries and asparagus for export.

The second fund, the Brazil Sustainable Forest Fund, is expected to total US$100 million in investments. It will focus on old growth and planted forests throughout Latin America. One of this fund's benchmark investments has been in Gethal-Amazonas SA, one of the largest plywood manufacturers in the Amazon region and the first Forestry Stewardship Council-certified tropical plywood producer in the world. With the help of A2R, this company has been transformed from one of the biggest destroyers of the environment to a model of conservation.

Forgash, almost defensively, points out that these are investments in forestry, not timber: "Forestry operations involve ecotourism, bioprospecting and community work in agro-forestry - timber extraction, which is a necessary evil to employ people. The ultimate goal is to explore genetic resources." The operations will be FSC-certified, a requirement for many European and North American lumber retailers, including Home Depot. Additional investments are already in the pipeline - two in Uruguay, one in Paraguay, one in Chile and two in Brazil.

Two other funds are in the process of being created: the Amazon Biodiversity Permanent Fund (FPBA) and the Clean Technology Fund for Latin America. Forgash says the Amazon Fund, a tropical version of the Alaska Fund, is planned as a US$150 million endowment to operate the Brazilian Government's PROBEM initiative (Brazilian Program for the Sustainable Use of the Molecular Biodiversity of the Amazon). Forgash says the fund will be dedicated to "preserving the raw materials for the biotechnology industry" The Clean Technology Fund, which will close next year, should reach a total capitalization of US$35 million and will invest in target sectors related to clean technologies, such as renewable energy, waste transformation, industrial water conservation, pollution prevention and recycling.

While the environmental impact of A2R's projects has been strong, it has been outweighed by the social dividends. "I was not expecting the social impact, but it has been the most significant," Forgash says. A2R's success led the Brazilian government to seek out the company's advice in both social and environmental projects in the Amazon region.

As a sign of the times, huge multinationals have sought out A2R to source their products, "because they want to make sure their supply chain is clean," he says. "We have had proposals from Kraft, Nabisco, Procter & Gamble and McDonald's. Even Unilever has invited us to help transform their huge palm oil plantation into an organic producer."

For Forgash it's also a good sign for the trend of investing in and supporting sustainable environmental projects. "This is not a fashion or a blip on the map," he says, "it is a fundamental change."

COPYRIGHT 2001 Americas Publishing Group
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