Wealth Matters: Seeking Investments That Are Profitable and a Little Bit Green

SARAH KUPFERBERG’S youthful rebellion was slightly unconventional — she wanted to invest in green companies, not the big industrials her parents had preferred. But like most novice investors, she stumbled along the way, once putting money into a company that was trying to use buoys to turn ocean waves into electricity.

“When I started investing in companies on my own, I made a lot of bad choices,” Ms. Kupferberg, an ecologist who works on issues related to energy and power. “These were companies at the leading edge of technology. They weren’t great investments.”

Today, Ms. Kupferberg, 50, said she has taken a more pragmatic approach to investing. She is no longer looking for companies at the vanguard of the green movement. Instead, she’s interested in those that are making a profit while also acting in a way that takes into account sound environmental, social and governance practices.

A focus on these factors — known by the shorthand E.S.G. — is a distance from the pure green investments that had less to do with returns. She has invested in Starbucks (even though she prefers to drink Peet’s Coffee) because of its policies toward its employees, like health benefits for part-time workers.

Applying an E.S.G. screen in this instance is a way to look at how companies in similar sectors compare, said Matthew W. Patsky, chief executive of Trillium Asset Management. He drew a contrast between Starbucks and McDonald’s, which does not offer health care benefits for part-time workers. Ms. Kupferberg’s view of looking for the best-behaved companies in a sector is consistent with others who are using their investment dollars to try to push companies toward more socially responsible policies. Rebekah Helzel, a retired proprietary trader for an investment bank, for example, said her focus was on eliminating “carbon-based business models” from her investment portfolio. Yet she has invested in United Parcel Service, which, of course, moves packages around the world in planes and trucks.

“They have a lot of carbon in their business model but they have done remarkable things to reduce it,” Ms. Helzel said. She mentioned their use of new technologies to reduce their carbon footprint but also the company’s oft-cited mapping technology to allow drivers to make as many right-hand turns as possible on their routes.

And many of those who embrace green have distanced themselves from the view that to be environmentally conscious is to lack investment rigor.

“This doing good while doing well thing is getting to be a bit out of date,” said Garvin Jabusch, co-founder and chief investment officer at Shelton Green Alpha Fund. “We’re looking past mere tree-huggery.”

He said E.S.G. investors needed to focus on ways to generate electricity and recycle existing products that could save resources, make a profit and be widely used.

While most E.S.G. investors are not ready to give up on tree-hugging altogether, they are taking an approach that has come a long way from simply screening out certain companies — like oil and gas, military and tobacco. They are moving toward companies that are just as focused on being profitable businesses as operating in a way that is generally better all around.

But this approach lends itself to questions — at least it did for me.

First, let’s talk returns. Are they as good as a portfolio without an E.S.G. screen? The short answer is yes. But that does not mean the returns are always spectacular.

Joseph F. Keefe, president and chief executive of Pax World Management, a mutual fund company focused on E.S.G. investments, said there was no evidence that managers focused on companies committed to improving environmental, social and governance factors were at a disadvantage.

He said that the company’s Global Environmental Markets Fund has outperformed the MSCI World Index since the fund was started in March 2008. A newer fund that invests in exchange-traded funds with the same screen has also outperformed a broader index.

“Do we have funds that are underperforming?” Mr. Keefe asked. “We sure do. We’re in the stock-picking business.”

Advisers who have been taking E.S.G. factors into consideration for years bristle at the suggestion that their process is somehow less rigorous or still based on excluding certain sectors.

Wealth Matters: Seeking Light Amid the Heat of Energy Investments

It took last week’s heat dome, with the searing heat outside and that equally uncomfortable arctic blast when you walked inside, to get me thinking about energy — and not just how much of it I was consuming. I started wondering about the investment opportunities and the associated risks around the boom in oil and gas production and the push for alternative sources of energy. So many people seemed so sure that investing in energy was the way to go, and naturally that spooked me.

The United States is set to become the world’s leading producer of natural gas in 2015 and oil in 2017, according to the International Energy Agency, and there is money to be made in getting both out of the ground, to the coasts and on ships. Some energy companies and new technologies will surely be wildly successful, while others that seem promising will no doubt fail. But as people rush to invest in energy, how should they think about what they are doing?

“The energy renaissance is very similar to the Internet renaissance that started to develop in 1985,” said Anton Bayer, chief executive of Up Capital Management. “In order to find the next Apple, you need to find the next industry. Then you need to drill down to find where the innovation is.”

I thought that was an apt way of describing this moment. Looking back, it’s easy to talk about what a great investment Apple has been, but as a youngster in the early 1980s my bet would have on the Commodore 64, with its eight-tracklike game cartridges, that I had in my bedroom.

What do investors need to keep in mind when they are looking for the Apple of energy, not the Commodore?

Finding Energy The technology that has allowed horizontal drilling — as opposed to drilling straight down — has radically changed how oil and natural gas are extracted. Yet drilling has always been boom and bust; five years ago, the price of natural gas was over $13 per million British thermal units before beginning a steady fall to its low of less than $2 per million B.T.U. in April 2012.

There are less speculative ways to benefit than investing in the exploration and production boom. Jason T. O’Connell, director of equity research at Boston Private Bank & Trust, said he had been talking to clients about companies like Schlumberger, Cameron International and Dril-Quip that make the equipment to reach the oil.

“It’s become a lot harder to get this stuff out of the ground or from under the sea,” Mr. O’Connell said. “There is an increasing capital intensity that’s a little more insulated from the price of oil.”

He said he was also interested in companies that work in areas related to drilling, like those that look to reduce the environmental impact of newer types of drilling, such as hydraulic fracturing, which pumps high-pressured fluids into rock to increase a well’s production. Fracking has helped increase the productivity of wells, but it has drawn concern about what the process does to drinking water and the areas around wells.

He said he liked companies like Waste Connections and Clean Harbors that could benefit from energy companies paying them to prevent damage and also to clean up if damage occurs.

Christopher Grisanti, co-founder of Grisanti Capital Management, said he believed that companies that refine oil, like Valero Energy, Marathon Petroleum, HollyFrontier and Western Refining, are going to do well, even though the sector has struggled this year.

“In the past, refiners have needed a robust economy to make strong profits, but because of the new export market brought about by the American oil renaissance, refiners are making a lot of money right now, in a mediocre economy,” he wrote. “As the U.S. economy strengthens, the refining industry should enter a sweet spot of profitability.”

Yet Matthew Rubin, director of investment strategy at Neuberger Berman, said he had urged clients to look at companies with track records, and warned about those that have rushed to make money in the Bakken shale around North Dakota.

“The evolution of wealth there is being talked about as the new Saudi Arabia,” Mr. Rubin said. “Where the dangers and pitfalls exist is looking at companies that are much more speculative in nature, that don’t have the technology to do the fracking.”

Moving Energy Once the oil or natural gas is out of the ground, it has to go somewhere.

Vermont Resort Pulls in Big Foreign Investments

He is expanding the Jay Peak ski resort, which he co-owns, but he is also building a biomedical research firm and a window manufacturing plant, extending the runway at the local airport and rehabilitating much of the nearby town of Newport, where he lives. There, he is developing the waterfront, adding the town’s first hotel and a conference center and rebuilding an entire downtown block. He is also creating what he says is the largest indoor mountain bike park in the world and a state-of-the art tennis center.

The price tag for the entire project, which Mr. Stenger says will create 10,000 direct and indirect jobs over several years, is $865 million.

But even more unusual than the size of the undertaking is the method by which Mr. Stenger and his business partner, Ariel Quiros, are financing it. They have tapped into a federal program that gives green cards, or permanent residency, to foreigners who invest at least $500,000 in an American business — the reward for the investment is a chance at United States citizenship.

Mr. Stenger has already attracted 550 foreign investors from 60 countries to put up $275 million for the first phase: a hotel here at the Jay Peak ski complex, an indoor water park the size of a football field, an ice hockey arena, condominiums, restaurants and stores.

The second and third phases, now under way, require 1,000 additional foreign investors to put up $500 million to overhaul Newport and to develop the nearby Burke Mountain ski area.

Mr. Stenger and Mr. Quiros are putting up $90 million themselves. But even at $785 million, this is one of the single biggest projects in the country financed under the investor program.

Congress created the visa program in 1990 to help stimulate the economy. Because of a cumbersome process and complaints of fraud and corruption, it was long underused.

But a confluence of events in recent years has led to its rather sudden revival: the program was improved; the financial crisis of 2008 made it hard for developers to get loans from commercial banks; and foreign nationals, especially in China, were accumulating vast wealth and were eager for their children to study and live in the United States.

In 2006, the government issued just 802 of these EB-5 visas to investors and their families; this year, it granted 7,818.

The program is now growing so rapidly that in the next year or two the number issued will probably reach the annual limit of 10,000. For the first time in the program’s history, applicants may be turned away.

Mr. Stenger, 64, who began his career as a ski instructor, and Mr. Quiros, 56, who spent years in the import-export business and already owned thousands of acres here, began leveraging the visa program five years ago, in the early stages of its revival. Along with state officials, who monitor and audit their projects, and Senator Patrick J. Leahy, a Democrat who has championed the program in Washington, the two men have sought to make Jay Peak a national showcase for the investor program.

Mr. Quiros said these projects would have been impossible without it.

“It’s too hard to get money of this magnitude,” he said, “especially with the economic situation that exists today.”

The immigrant investors do not have to get involved in the business, though it must create or save at least 10 jobs, and they can live anywhere they want.

One potential investor in Jay Peak is Steve Green, 49, an Englishman who has had a successful career in banking and reinsurance and has lived in Bermuda for 25 years.

“The reason to explore this and potentially to do it — and I’m more than 50-50 inclined to do it — is that it would give me an opportunity to relocate in the United States, keep a small home in Bermuda, spend the majority of my retirement in the United States and confer those rights on my children,” he said in a telephone interview from Bermuda.

Mr. Green said his hesitation about investing here stemmed from uncertainty over what kind of financial return he would get. “There is a substantial risk that you don’t get anything back,” he said.

Investors must put up $1 million for a visa, but if they invest in a rural area or one with high unemployment, that is reduced to $500,000.

DealBook: Brazil Steps Up Investments in Overlooked Tech Start-Ups

André Vieira for The New York TimesMarcio Spata, left, head of the Criatec investment fund at BNDES, Brazil’s state controled development bank, and Eduardo Klingelhoefer de Sa, the bank’s director of investment funds.

RIO DE JANEIRO — For the last few years, Brazilian start-ups have begun to successfully draw blue-chip Silicon Valley venture firms. But in the process, promising technology segments have been ignored.

Although private firms are readily investing in e-commerce and other hot areas, fields like nanotechnology, robotics and information technology — considered critical to transforming Brazil’s commodity-export, consumption-dependent economy — are falling by the wayside.

Rather than leave innovation financing solely to private investment firms, Brazilian officials decided several years ago to step in and shepherd nascent companies. And in 2007, Brazil’s national development bank, BNDES, started Criatec I, a 10-year venture capital fund of 100 million reais, or about $48 million, aimed at start-ups. Foreign venture capital firms have been welcome to make follow-on investments. To date, not one has.

Instead, Brazil has doubled down on its goal of promoting technology growth. This week, the bank awarded a new fund of 186 million reais, or $89 million, to Icone Investments. BNDES is providing most of the capital, with contributions from regional public banks.

Though the government has been taking the lead, it has not been for a lack of interest from private venture capital. Over the last two years, Redpoint Ventures, Accel Partners and Sequoia have become active here, as have Peter Thiel, Dave McClure and European and Israeli investors. But BNDES believes a huge void remains in early-stage financing.

“They are voraciously investing in all the paste-and-copy stuff, the copycats. They are not really into technology innovation,” said Robert E. Binder, whose private firm, Antera Resource Management, comanages the initial Criatec fund with São Paulo-based Inseed Investments.

Innovation is an urgent matter in Brazil, economists say. According to the Research Institute for Industrial Development, this year through September, the country ran a $38.7 billion trade deficit in technology-intensive goods, an increase from last year. Brazil’s economy is highly vulnerable to global economic uncertainty, which is reflected in the country’s recent third-quarter growth figures.

A looming demographic shift is also a concern. In 2030, Brazil’s population is expected to decline and get increasingly older, potentially straining government resources.

Venture capital firms investing in Brazil’s start-up boom regard Criatec as well intentioned. Eric Acher, a founding partner at Monashees Capital, called it a “great learning experience to focus on innovation.”

Anderson Thees of Redpoint e.Ventures also praised the fund. “They are probably tapping into very good opportunities early,” he said.

Yet these and other venture funds have yet to team up with Criatec on investments.

For instance, Criatec looks for companies developing technology and with clear intellectual property that can be licensed or retained, Mr. Thees said. “Silicon Valley is less interested in this,” he said.

Mr. Acher agreed: “I don’t think at the moment Silicon Valley is looking for technology innovation in Brazil,” adding that the return did not yet justify the level of risk involved.

BNDES expected such risk aversion when it created Criatec.

“Not even Brazilian funds were showing interest in early-stage companies,” said Eduardo Rath Fingerl, one of the fund’s architects. “We knew it would have to be entirely a BNDES effort.”

BNDES, short for Banco Nacional do Desenvolvimento (the National Development Bank in English), has long played an important role in Brazil’s rise. Formed in 1952, the development bank initially financed major infrastructure. Its scope and size grew considerably under former President Luiz Inácio Lula da Silva, who thought Brazil needed brand-name multinationals to gain respect overseas.

In 2003, the bank disbursed $11.7 billion, but by 2010, that figure had skyrocketed to $96.3 billion. It has provided subsidized loans to most large Brazilian companies, including the oil giant Petrobras and the mining concern Vale. The bank has also supported foreign companies, including $3 billion to American Airlines to buy planes from Embraer, a Brazilian manufacturer.

Its dominance here has drawn criticism. Some contend the government bank has the wrong priorities, including financing mergers and acquisitions, which some contend should be left to the private sector.

“Long-term credit is still a problem in Brazil,” the Brazilian economist Mansueto Almeida said. However, “Brazil today is very different from what it was 20 years ago. It has very active capital markets.”

Criatec, however, is one of the bank’s smallest and least-controversial programs. Mr. Almeida said that with this initiative, “it is trying to do the right thing. That’s exactly what one expects from a development bank.”

Criatec I has had a slow track record of success. Usix Technologies, an insurance market exchange technology firm that received backing from Criatec, was acquired by the publicly traded Ebix in 2010. It has also backed companies with promise, like Amazon Dreams, which has developed patented techniques to produce açai and other berries with higher antioxidant content.

Some foreign investors are starting to look at the Criatec I portfolio. Intel Capital, the venture arm of the chip maker Intel, is evaluating the location intelligence software company Geofusion, according to a person briefed on the talks, who asked to be anonymous because the discussions were ongoing.

Kleiner Perkins Caufield & Byers showed interest this year in the agro-pesticide company Bug Agentes Biologicos but said the start-up first needed $10 million in revenue. Now that company is discussing a strategic partnership with Israel’s Bio-Bee Biological Systems. But such potential deals again indicate that foreign venture capital firms are still not courting the smaller start-ups.

“They all want to find these companies with $10 million to $15 million in revenue, but there just is not deal flow at that size,” said a person familiar with Kleiner Perkins’s outreach plans, who also asked to remain anonymous as the talks were private.

Based on 2012 estimates, only one Criatec I company of the 33 in business will cross $10 million in revenue.

Amazon Dreams’ revenue, for example, is still negligible despite the health craze in the United States for açai berries.

BNDES also established the fund to help out academics who have great ideas but don’t have the same success in obtaining the private sector financing that entrepreneurs do.

“Brazil has a lot of intelligence,” said Mr. Rath Fingerl, who retired from BNDES last year, but “the great difficulty is bridging the divide between the scientific and business communities.”

The fund also has limitations. For example, the bank holds veto power on most company decisions even though it is a minority shareholder. Yet, it appears quite flexible as it seeks co-investments.

BNDES’s political influence in Criatec companies “is totally negotiable,” said Marcio Spata, head of the Criatec fund at the development bank. “We are always open to changing our rights” for appropriate offers.

Eduardo Klingelhoefer de Sa, head of the department of funds at BNDES, said, “We would be very happy if private investors come so that our stakes are reduced.”