Green capitalism

Can portfolio companies be both environmentally responsible and commercially attractive? Jo Nash investigates.

Environmental responsibility is compatible with strong financial performance in emerging markets, according to the latest research by the International Finance Corporation, the private sector arm of the World Bank.

David Wilton, head of private equity at the IFC, said that environmentally responsible companies are attractive investments for two reasons – the global political climate and energy efficiency.

“The environment has become a politically charged topic, and environmentally friendly companies have become politically tactical investments. This facilitates exits, both IPOs and trade sales, because investors of all types are interested.”

Energy conservation is another factor highlighted by the report, “The Promise of Private Equity”, which enhances financial performance.

Wilton said: “These companies have more energy efficient resources, so fuel, gas, water and electricity consumption declines, and costs are decreased.”

In one of the report’s case studies, Morion, a Russian manufacturer of technology devices, decreased its natural gas, water and electricity consumption. Between 2000 and 2004, Morion decreased its gas consumption by 55 percent, and its water consumption by 10 percent, and that this has substantially lessened its production costs.

Meanwhile America Latina Logistica, the largest rail-based independent logistics operator in South America, reduced its fuel consumption. It decreased the company’s production costs and improved its financial performance. Indeed, between 1997 and 2004, the company’s EBITDA growth was 1560 percent.

The IFC was created in 1956, and has evolved from foreign direct investment to the creation of complex financial products, such as local currency bond issues, securitisation and carbon emissions credits. Between 1956 and 2005, the IFC committed more than $49 billion to developing country projects, and arranged $24 billion in syndicated loans for more than 3,300 companies in 140 countries.