What are eco-investments?
There are many misconceptions about what an eco-investment is and a bewildering array of products have appeared on the market. Many of these make extravagant claims that cannot easily be verified. Some are more closely associated with ‘green’ rhetoric than serious investment. So what are eco-investments? Why should they be part of your portfolio? What characteristics should you look out for to distinguish a good one from an inferior product? And what is the relationship between eco-investments and property?
An eco-investment is a commodity that comes from a natural source, which is grown and harvested rather than mined or manufactured. Usually, eco-investments are staple products used for food, building or new sources of energy. Wheat, Bamboo and Millettia (used for biofuels) are examples of each of these three types of eco-investment. However an eco-investment can also be a luxury item, such as Sandalwood or Agarwood. Often, they are rare products for which there is great demand both in the West and new economic powers such as India and China.
The crucial green element in an eco-investment is contained in the product’s relationship with its local environment and local economy. The sources for many of the commodities we promote are either very scarce or threatened with extinction. A good example is the Aquilaria tree, used for the production of Agarwood resin, which is under serious threat in South-East Asia.
Agarwood is used for the production of some of the top range perfumes, as well as soaps and incense used by some of the world’s great faiths. In the Arab world, it is known as Oud and is a byword for wealth and status. The Gulf States market alone is worth $3.2 billion dollars. Still somewhat mysterious in the West, it has recently been discovered by companies like Yves St Laurent, who now insist on Agar for some of their most prestigious products.
The commercial harvesting of Agarwood ensures the survival of the trees in a safe environment and creates a product of high value at the same time. Our investment packages have another green component: they help create lasting local employment so that communities are able to remain viable and preserve their traditional ways of life.
Eco-investments respond well to new market conditions, as well as reflecting the concerns of a growing number of investors, summarised above. Very popular with institutions, they have recently become more widely available to individual investors. They enable investors to diversify their portfolios – whether geographically and over many distinctive products and sources. Eco-investments are independent of stock market fluctuations: this means that they will provide a reliable and steady source of income, capital or both combined.
A good eco-investment
The eco-investment market is expanding rapidly and so it is important for you to choose your product with care. In particular, you should be sure that it has security of tenure and that the commodity has lasting value. In other words, it should be something that consumers are going to need or want, rather than merely following the latest green fad.
Hardwoods and staple crops are likely to be more reliable investments than the various forms of ‘carbon trading’ currently on offer – whatever they claim! We select our products carefully and with an eye to the discerning investor. Here are five characteristics to look out for when choosing a good eco-investment:
• Land and leases or title in your name
• Realistically calculated returns
• Good exit strategy
• Experienced grower and manager of product
• Commodity with proven and lasting value
Why eco-investments should be part of your portfolio
Eco-investment commodities are not subject to the fluctuations of the stock market. This means that they offer you a good opportunity to build up reserves safely in an uncertain economic climate. At a time when pensions are falling in value, eco-investments offer a positive alternative or supplement. Many eco-investment products can also form part of a Self-Investment Pension Plan (SIPP) – and there is a marked swing towards SIPPs because they give you greater control over your personal pension plan.
In short, eco-investments offer an alternative approach to commodity markets that combines diversity with reliability.
Eco-investments and property investors
Superficially, these two investment types might seem to have little in common. But closer examination reveals that both are solid, tangible assets in times of economic uncertainty and flux. Both yield more reliable and consistent returns than other commodities. And both, if well-chosen, combine flexibility with a good exit strategy.
Eco-investments are affordable and so they are within reach of first-time investors. For example, with Agarwood, our most recent product, you can invest from as little as $8,310 and gain a return of $25,088 in 7 years: an Internal Rate of Return of 19.5%. Obviously, the more you invest, the higher your returns will be!
If you are a new investor, you can therefore use eco-investments to build up a varied and interesting portfolio in a relatively short time, with good returns. Such a portfolio could be a useful springboard to property investment. In turn, if you are an experienced investor, you can use eco-investments as a way of diversifying or spreading your assets and the returns can help you maintain a property portfolio.
There is therefore a good complementary relationship between eco-investment and property relationship. They balance and reinforce each other.
Aidan Rankin is Economic Analyst at Property Frontiers.
Can be contacted on arankin AT propertyfrontiers DOT com