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2011 — A Pivotal Year for Investors

Written on December 16, 2011 by Roland Van der Meer in Community, Economics, investing, stewardship

Impact Investing, Sustainable Investing. Double Bottom Line. Triple Bottom Line. Investing for Change. Three years ago, these were big ideas and messages that 99% of the world didn’t understand or even care about. They amounted to doing good and trying to make some money. It was the world of foundations and charities trying to express that they are not all giving money away, but rather are trying to use some of the principles of capitalism.

This year we have seen a major shift in the choice of words used to describe what is going on and what investors are willing to invest in. We are in the middle of the shift to investing in key resources that are under pressure or becoming scarce. We are seeing mainstream capital pay attention to the value of these resources and how they are being used. Sometimes, unfortunately, not for the betterment of that resource but for the exploitation of the opportunity, but we will get back to that later.

We are now seeing the first of the mainstream investors stepping up and realizing that not only can they invest in agriculture, water, energy and real estate, but they can do it the right way and take into account the environmental and social costs: By first investing in asset managers that understand and make more money (enhanced Alpha,) and then the asset class as a whole. This is a huge and significant step for capital management and the environment.

In public and liquid securities, 2011 has been a turning point as well. This week, Generation Investment Management published the Manifesto for Sustainable Capitalism, citing what companies are doing, should be doing and how investors can view their portfolios differently to encourage long term gain through better management of resources, assets, environment and people. Clearly this message is going mainstream and it is not just a negative screen or positive screen: It is a new understanding of how companies think about their impact and use of resources. It is becoming definable, measurable and investable.

One of the largest data providers, Bloomberg Data Services, makes it possible to analyze many factors of ESG that public entities publish now. For instance, we can evaluate how efficiently energy, water, carbon is being used compared and crossed with revenue, employees, sq. ft. of space, etc. It looks at the social metrics as well, such as how a company invests into its communities of interest. Bloomberg also tracks the governance metrics that look at policies, objectiveness and transparency. These are important metrics and can only get better over time. There are 5 to 10 other interesting metric providers and we can expect that many of these will get absorbed into the mainstream investing as well.

This is also a key year for B-Corporations, a new type of corporate classification that says we are in business to make money but also count into the equation of looking at the environment and social issues that the business effects. They promise to publish even more data and have more transparency in their business operations. This year 5 more states (New Jersey, Virginia, Hawaii, California, and New York) have adopted the corporate form from the original two (VT and Maryland) and it looks like 10 more will for 2012.

Major investors such as Pension Funds, Endowments, Wealth Management Firms and Private Banks are all looking for products in agriculture, water, energy, land, real estate as well as other valuable resource investment plays. While this is good, and can be better, they do not completely understand which ones are creating a better environment and social construct versus those that just exploit the short term value: For instance, an agriculture investment that improves the land, the soil and the natural systems versus one that uses the industrial system of agriculture and also can deplete soils and ruin the environment will perform better over the medium and long term.

More time is needed to inform investors of what is possible using best practices and methodologies. More investors need to take the time to learn which are the driving forces that can make all the difference. As we look back on 2011, we will remember many key milestones — in politics, innovation and environment — and hopefully move forward in our goals to be better stewards of our planet.

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Rethinking Existing Infrastructure Systems — Part II

Written on October 17, 2011 by Roland Van der Meer in Economics, stewardship

I had a good talk at the Wharton School’s IGEL Program (Initiative for Global Environmental Leadership) A great group of MBA students attended. While the presentation was one about the key asset areas that both Bio-Logical Capital and Equilibrium Capital are focused on (energy, water, agriculture, real estate, etc) the questions were even more interesting.

The most awakening realization seemed to be that in these key sustainability sectors, it is possible to build business models that generated outsized returns while “doing it right.” In other words, by becoming a steward of the resource and managing for the long term, the IRR were more stable and higher yielding.

This surprised most people as it should. The work that needs to be done can get done and provides a path for driving change that can make great returns, and in turn, drive more capital into the sector which drives more change. It becomes a virtuous cycle. While I gave examples of how Bio-Logical Capital can turn around an agricultural system, or a wastewater treatment system and generate superior returns, it is often hard to see until you work through the plans, the numbers, and see it in action.

I could see that the audience liked the idea of the potential to work in sectors that are interesting and prospering while taking care of the environment. Rarely do people get to hear this viewpoint. There is a sense that most initiatives in the area of CSR or ESG are just a tax to the corporate P&L. These thoughts exist in Corporate America and even in most business schools.

I began my presentation with this key point: These initiatives (CSR, ESG, impact investing, etc.) all understate the problem and underestimate the opportunity. There will be fundamentally new businesses created in the key resource areas that will drive the changes needed to maintain or restore our much needed natural resources.

One student asked, “Why don’t other people do this?”
My response: It requires a rethinking and systems view and you cannot fear the complexity of what we are doing.

Another asked, “Is there an exit path for shorter term investors? (Typical being 5-10 years for these assets). Are you are talking about being stewards for a longer period of time?”
My response: Yes, once a project is up and running and stabilized the risk/return changes, we can securitize it in a REIT like or MLP-like structure with reduced yield but very predictable returns.

After the presentation, I heard from Wharton professors who said students continued to talk about the ideas for hours after the talk. They discussed how it would be great to create a roundtable/panel discussion to engage students from different parts of the college (policy, social work, design) who could discuss and debate the ideas and approach from multiple angles.

For me, being able to participate in the discussion of creating impact by doing it profitably and doing the right thing is exhilarating. I encourage others to follow what is going on and get in front of this big wave of change. It will be bigger than most people ever thought and it will be paramount to any society that wants to survive.

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Rethinking Existing Infrastructure Systems

Written on October 12, 2011 by Roland Van der Meer in Community, Economics, agriculture, sustainability

On October 13th, I will be giving a talk to The Wharton Program for Social Impact and the Initiative for Global Environmental Leadership (IGEL).

The essence of what I will be speaking about is how the world needs to rethink or redo how we live. This is more than a question of sustainability, instead it addresses what will be needed to allow us to thrive again on this planet. While it might sound lofty, it is all about how to invest into and profit from the redesign of our core services. I will speak in depth on how Bio-Logical Capital, a land development and conservation company, is looking at large landscapes to restore, redevelop, and conserve the land so the human settlement can thrive within the natural environment. We are creating a living model that will not only function well, but be a great place to live and profit so that many can follow.

Our basic services and systems of water, energy, agriculture, transportation and housing are all in major need of not only an upgrade, but a fundamental philosophy and design change. It is not that these services and systems were ever bad, they are now just outdated in function, design and technology. Just because something worked 100 years ago does not mean that it is right for today. These systems were never designed to carry the loads they are experiencing today. More importantly they never really looked at natural systems as an alley, but rather viewed them as an impediment and obstruction that needed to be altered to suit man’s needs. We keep patching a framework that is now a flawed design.

Let’s look at water and wastewater for starters. Water naturally flows down hill. It rains up top and runs in rivers to the ocean, then is evaporated into the atmosphere and back again. Our water systems do the same: We take water from a source use it, filter it and dump it back to the ocean. We take rainwater and wisk it away to big pipes and dump it in the ocean. Good right? Not really. Nature stores water everywhere. Good rich soils, forests, and aquifers store water and hold onto it for dry times.

Natural systems have cycles that the animals and plants learn to work with.

Our water system interrupts all that evolutionary work and short-circuits it. So how do we redesign this? First, we must think decentralized solutions. We need to recycle water on a local basis, using gray water (which is practically potable) where ever possible. We need to use natural water stores for rain in the land, soil, and aquifers. We need to use more decentralized natural filtration techniques (biomimicry). We should use that big brown pipe full of wastewater and harness the energy from the waste, which will either be additional revenue or an offset of cost. We can also resell the nutrients from the wastewater as well as sell the gray water itself as a product. This shift is so fundamental that the costs of such a system are dramatically less and the profits much more.

To touch on agriculture as I have written before, if we use the natural systems we can grow food more sustainably, growing healthy soils and healthy food in a post industry agriculture system that is robust, resilient and abundant. Food and agriculture are central to the health of a community. Knowing where your food comes from is not only necessary for good health but wonderful in that it brings people together. A large part of the failures of our healthcare system can be attributed to our food system. Natural agriculture solutions work in cooperation with nature and leverage its resourcefulness.

I use these two examples to show what is possible in all the basic services. Bio-Logical Capital is in process of rebuilding communities based on the principles of natural systems, as pioneers of stewardship development. How can mankind fit into this landscape and build a living environment that we all would like to see and be part of?

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Building the Economy with Recycling

Written on October 3, 2011 by Roland Van der Meer in Economics, Energy Efficiency, stewardship, sustainability

When we talk about the green economy, it does not mean we are speaking of something that is good vs. something bad. Instead, we speak about an economy where we use and reuse all resources as if they were our last ones. A green economy is about caring for the health of our very vulnerable ecosystems and natural resources: Letting nature do what is does best, and working with these processes, not derailing, blocking or altering them.

So how do you build the new Eco Economy? Is it possible? Yes it is, and it is beginning to flourish. A great example is the Appliance Recycling Centers of America joint venture with GE. These plants are the beginning of what we can expect a lot of in the coming decades. They recycle and reuse 98% of the materials in old appliances. But what is fantastic is the whole system and how it deconstructs the appliance and then optimizes each piece and part to its best application. The website for Planet911 is very interesting as they are tracking each piece that is recycled and the businesses that are being created and pushing this agenda with great success.

This is a complete rethinking of a process and system. A careful evaluation of the economy and the resources needed bring to light many of the opportunities in the Eco Economy. Most economic theory suggests that there are no finite resources in the long term and scarcity is temporary, as every component has a replacement one. The substitution principal guides most economic models. Now it is becoming clear that it is not so. We cannot replace fisheries, nor key minerals, nor even ore itself, or our tropical forests. Even worse, we cannot undo the massive amount of destruction and contamination of water, soil and air from shale oil and gas or coal mountain top removal or industrial agriculture. These resources are truly irreplaceable. These are natural systems that have prospered, thrived and adapted for the ages and we have the ability to destroy them in a mater of years. Nature is dynamic and adapts to all sorts of shocks and events but not at the speed we are moving.

To keep the Earth’s natural systems we cannot extract a resource, produce something, use it and then throw it out. We need to repurpose and reuse everything. We must make sure nothing is wasted. A byproduct or waste stream from one process becomes the input for another. Systems are intertwined and working with nature in a way that is robust resilient and fault tolerant. Why don’t we do this today? It’s simple: The cost of recycling is higher than extracting, building, producing from scratch or new.

We do not have a true costing of the externalities that exposes the hidden cost to people or to the environment. So lets create a system of cost accounting that includes that of natural systems and resources. This will help us appreciate what we have around us and live harmoniously within our environment.

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Urban Farming Is Catching On Fast

Written on September 18, 2011 by Roland Van der Meer in Community, Economics, agriculture, marketing, sustainability

San Francisco is getting smart and ahead of the urban farming game. The city recently passed a law allowing people to sell the produce they grow in their own yard. Urban farming has been accelerating and under the radar for a while now. Approving this practice makes sense, especially in these difficult economic times. The San Francisco Urban Agricultural Alliance can help people get started with advice on how to farm and even how to find land.

This is in sharp contrast to the issues that I discussed in a prior entry about Novella Carpenter, and the challenges she faced in the city of Oakland that was trying to shut her down.

A great piece to read, “Farming the Concrete Jungle,” goes deep into the movement that is sweeping the economy not only for financial reasons, but health and even environmental. The article points out how it’s better to have a pretty garden then a overgrown, littered and abandoned lot next door, and a little extra cash and good food makes life a whole lot better.

Creating a product to sell (and in this case growing a product) is the first step of any business, but then you have to know how to sell it. Most urban farming is not your average lemonade stand, unless you have the property in a major walkway. You need to think about the whole business. Growing the product is one skill set you need, but knowing what to grow and finding buyers for your product is actually more important. Farming is a business like any other and it is a tremendously entrepreneurial.

For most people, you start out by growing only for your family and friends. Then as you succeed, you can expand your ambitions and hopefully your wallet.

I do think there is an opportunity to band together a set of growers for products then identify the customers and the produce they would like and sign a deal. But then you have to deliver the goods. Customers need consistency, so they know they can count on your product. If you think urban farming is for you, think carefully and do your homework, talk to a lot of people and customers to get the lay of the land before you venture too far.

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Are We Running Out of Natural Capital?

Written on September 13, 2011 by Roland Van der Meer in Economics, investing, stewardship, sustainability

This is not a trick question but an honest ask. We are dependent upon nature. We can not live if the earth that hosts us is being expended, used up, exhausted.

This weekend in the New York Times, Nicholas Kristof writes “We’re Rich! (In Nature). The US has fantastic natural resources that we seem to be indifferent towards. He says that we need to get out there to enjoy and walk in nature: It is why we are all here and what we need to center ourselves. Even the US Forest Service has gotten into the act with a fund website and this great video. Yes, we work hard so we can go to the beach, swim, snorkel with fish, watch dolphins, whales, or we go to the mountains and hike in nature, see the wildlife, or go ski and enjoy the beauty and excitement. Or, for some of us we go out to eat fabulous food (food that has to come from a healthy environment.) Nature is what supports us and lets us thrive. If we take it for granted, waste it, pollute it, or destroy it, we will not be here any more.

At the Earth Policy Institute, Lester Brown saw this issue coming decades ago. He describes it best in the Eco-Economy when he discusses that we are now at the point that the Ecological Capital is being depleted and used faster than it can be restored. This is because our economic capital does not value this in its equation, in fact micro economics accerlate the destruction of a limited natural resource.

When a natural resource is starting to be scarce, its value goes up and this drives the push to extract the resource faster until the resource is exhausted. We have to watch out for any natural resource that is being harnessed past its sustainable level or we will all suffer the loss.

For example, the fisheries of the world are in serious decline. Every time we can stop the over fishing we should. In Greece, there are many islands where the fish do not exist as they were all dynamited until their eco systems collapsed. In Scotland, there is a well s tudied fishery, where in the 1890′s the community banned trawling within 3 miles of shore because of over fishing. This worked and the fish returned. Then in the 1980′s, the economic interests put political pressure to reverse this law, and within two decades the fishery was exhausted and not recoverable; and with that, the local industry died. This has played out time and time again all over the world.

In Kristof’s article, he writes about how our national forests are again under pressure where certain industries are pushing for legislation to open up 50 million acres to logging and unsustainable grazing. We have seen this motion before and this is not a good direction.

Lester Brown is urging us to head toward an eco-economy, which is an environmentally sustainable economy that requires that the principles of ecology establish the framework for the formulation of economic policy. Having the two studies integrated is imperative as the differences are fundamental. Ecologists worry about nature’s limits, while economists tend not to recognize any such constraints. Economists have a great faith in the market, while ecologists often fail to appreciate the market adequately. Ecologists see the world as interlinked network of natural systems that cannot exist without one another. Economists see the world as a set of micro economies that can substituted for each other.

There is much to do and so little time, but we do have some very good ideas about how to evolve our economy with the environment. It will just need a lot of political will to get there.

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Good Food Is The Answer To Many Issues

Written on August 30, 2011 by Roland Van der Meer in Economics, Organic, agriculture, stewardship, sustainability

What is good food? First and foremost, Good Food is food that tastes great!

But it is also real food, grown right, prepared right. It is healthy for your body and healthy for the environment. If we grow real food the right way we heal our environment. We create great soil that nourishes the food that nourishes us. This same soil rich with biology will be rich with minerals and store gases and hold water. It is fundamental to a healthy environment.

Good soil does not run off in the rain. Good soil is rich in its biology that for every 1% increase in biological mater in soil will hold water like a sponge, 20,000 gallons per acre.

A friend of mine recently, cited that we need to appeal to people’s greed. Greed for sugar. A carrot grown in a rich healthy soil can have a Brix count(amount of sugars present) of 30, while a industrial grown carrot, 5 to 10. Ask yourself or anyone, “Do you want to eat this sweet delicious carrot or this cardboard rendition?” One costs 25 cents the other 10 cents, but which would you eat?

In a wonderful interview of Alice Waters in a United Airlines Magazine, She said,” We need to pay for it. We need to pay for the food and pay the people who produce it. That’s profound and terribly important. We still think we can get it for free. And you know, it’s that idea that we have been indoctrinated to believe that food should be fast, cheap and easy. And it’s really that kind of thinking that is destroying the world.”

She is talking about the environment and our health. The environmental damage from our industrial agriculture damage is undisputed. The damage to our health is dramatic. Our processed food industry is not about real food or health. It is about tricking our bodies to eat more of a bad thing. Our bodies also have to eat more to get anywhere near the nutrients that we require. The rest we store as fat and then comes Diabetes.

The chart above that summarizes what has happen to us as we journeyed down the industrial agriculture road. Our costs of food fell from 17% of our household budget to 6%. Inversely our healthcare budget has gone form 7% to 17% of our budget. There is almost a direct correlation. This is not entirely due to food, but a very direct correlation to the food industry and diabetes with all its co-morbidities is the major driver of cost in our health system.

Industrial agriculture is also the major driver of our environmental issues, from the methane released by our industrial livestock systems to our releasing of fertilizers and pesticides into our ground, water and air. This culprit needs to be fixed.

Amazingly this is in our control. This is the one area we can tackle if we focus. We need to understand cheap food is not good for anyone nor is it really cheap. The true costs to us as people and our environment is huge. We just lost track of what is really important.

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Keeping What We Have Maybe Harder Then We Thought

Written on August 18, 2011 by Roland Van der Meer in Community, Economics, Uncategorized, sustainability

Any real estate agent will tell you, “If you can’t invest and maintain your own property then it degrades, and so does the neighborhood.”

For the past few years, I have been flying small planes over parts of the country. It is amazing to see the how we have built out our country. It is piece meal and an unplanned hodge podge of suburbs, malls, industry and farms and roads that go all around them. No real thought or care for the land or nature and how we can best use them.

Compare this to flying over Europe and you see mid density towns separated by open space and farms with rail and road network connecting the towns. It is beautifully laid out and planned. European towns have worked for a couple of millennium and will continue to work thousands of years more.

What’s distressing is that the USA’s suburban sprawl is so costly to build out and support, as compared to most of Europe which is cost effective and has lots of resilience in its design.

Now add the problem of the U.S. government’s continual under investment into infrastructure (even with the Stimulus package) compared to other parts of the world. Europe is currently investing a robust 5% of its GDP in infrastructure — more than double the paltry 2% spent by the U.S. And this is not a new trend. Infrastructure investment in the U.S. hasn’t risen above 2% of GDP for more than 30 years.

How can we maintain our standard of living and keep a viable economic engine, if we let our basic infrastructure crumble? Given the financial crisis we have, how are we going to find more to invest into the basic needs of our physical plant? We are going to have to dig deep to figure out what we really want as citizens of this nation in need. I hope we have it in us.

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Recognizing the Changes We Need to Make

Written on August 14, 2011 by Roland Van der Meer in Economics, Energy, Uncategorized, investing, stewardship

Whether we like it or not the world continually changes. It is never standing still and we continually have to learn to adjust. Our planet is an island and we have reached, or maybe even over reached, its limits. Even with all its beauty and vastness it is still finite, and the changes we will see in the coming decades may be severe. Not just in the climate, but in the way we live as we begin to recognize its resources are running low. The commodities we took for granted will begin to be valued dearly.

A very important piece by Jeremy Grantham, “Time to wake up”, was summarized well here. This research dives into the value of commodities and how the pricing will now begin a climbing ascent into the future. It is well thought out and documented and probably as succinct as I have seen. It is alarming for investors and mankind to read through and begin to understand the trends that have been set in motion.

If you really would like to scare yourself, an Article this week in the Times on Grantham, clearly walks through the scenarios that are pending. It is not for the faint of heart. We have a lot of work to do and need to put our economic and political efforts in motion to stop the draining of precious resources and start investing in their proper care. This is probably the biggest opportunity for investors in the century.

So lets pay attention and start to treat our earthly assets with the value and care they deserve.

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Rethinking How We Govern and Invest

Written on August 9, 2011 by Roland Van der Meer in Economics, Uncategorized, sustainability

Tom Friedman wrote a great piece in the Sunday Times this past weekend, “Win Together or Lose Together.” In it, he states we as a nation must invest in the 5 elements that are critical to long term success: Education, infrastructure, immigration of the bright and motivated, policies and laws that encourage the creating of new business, and fundamental science and technology. This is the only way we can keep being in the top performing countries.

The belief that we are the top and we will stay there is long expired. There are hungry nations and people that will compete. The paralysis we have as a nation of politicians and lawyers regulating and arguing is reducing our ability to execute on a model of success we have had for a century or more. Maybe, as many have said, it is analogous to the fall of the Roman empire, maybe this is all inevitable and our time has come; but this does not mean that we need to lay down and give up.

We have the tools and knowledge to rebuild what we know works. We also have the intelligence to adapt and adjust as needed. We need the best of our capitalist systems with the best policies that enable its success without its abuse. If we take a cue from nature, we know no system that is stable survives; systems must be dynamic and adapt. Capitalism self adjusts and adapts as fast as needed, it is like nature always striving to live and competing to survive. Laws and policies almost by definition do not adapt quick enough; but we have to try and create a more fluid method to adjust our policies. We will never prevent the cycles of commerce just like the cycles of nature. We need to learn that this is part of life. We need to define a government that does provide the laws to live by, the basic services, and a safety net for those who need it. And we need to establish a government that is accountable to itself and to the people it serves.

Living within its own means seems like a basic tenet. The new wrinkle is that government can not afford to expand in a non expansive economy. Balancing the budget based on realistic assumptions seems like a very rational thing to do. If our elected officials can not get this done then the system is broken and needs adjustments(for another time).

Let’s step up and reinvest it what matters most, ourselves.

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