By Hugo Ferreira, Compagnie Benjamin de Rothschild
It is possible to combine the principles of ecology and finance to reach a sustainable development under the regulating umbrella of responsible policy makers.
Our strategic development in green finance is not about philanthropy, it’s about profit. Corporations have to manage new risk created by constraints imposed by the Kyoto treaty limiting carbon emissions.
Promoting those sustainable investments is possible if the corporations are convinced they can improve their ecological impact and reduce their costs in the long run. For example, with the help of BeCitizen, an engineering group in sustainable development, we have helped an important European company to structure the financing of photovoltaic panels on the roofs of its building.
How? In several European countries, the electric utilities have to purchase that kind of produced energy at a fixed price on a long duration. The free cash flow generated minimizes the risk for the investors and helps the company to value those dormant assets. A stable regulatory environment with the right financial incentives is the key ingredient. Customer pressure is also a strong motivation.
The government role is pivotal in passing new laws and incentivizing corporations to adapt their technologies to the new environmental constraints. The Kyoto protocol has forced many companies who don’t match the emission quotas of carbon dioxide to consider investing in projects which reduce emissions in emerging countries. Such an investment receives a certificate which compensates the deficit. Those certificates can help with financing or backing loans.
To help financing such projects, we are about to introduce several private equity funds dedicated to polluted land remediation, sustainable development, green buildings and clean tech.
Corporations will invest only in profitable environmental programs. There are still too few of those projects on the planet. The finance community has to show flexibility and creativity in this transitional phase of sustainable and positive economic development. It won’t be long before sustainability and profitability are successfully meshed.
Hugo Ferreira is member of the management board of Compagnie Benjamin de Rothschild. Compagnie Benjamin de Rothschild is a global leader in asset management and in structuring public/private partnerships.
