Your Money and the Amazon Forest

Leonardo Letelier:

Welcome everybody. This will be a shorter talk because we don’t have any time to waste. Just look at the figures on deforestation in the Amazon. By the time you’re done watching this video we will have lost another 25 soccer fields. This session is called “Your Money and the Amazon,” because I believe that money is one of the most powerful forces in the universe together with gravitational attraction and love. But those two are quite complicated affairs and I’m not going to be able to explain them. So you might have heard before there are three types of financial transactions.

Consumption: that is money that you trade for something like a good or service that you need or want for yourself. Donation: which is money that you trade without expecting anything in return for yourself except maybe for a warm fuzzy feeling. And investment: which is money that you trade in today for the expectation of getting back more money in the future. Well, all three of them are somehow connected to the Amazon. On consumption: reduce, reuse, recycle as much as possible is a mantra. I’m sure that you already avoid products that are manufactured with child labor and maybe you also try to buy goods that are not connected to illegal deforestation.

But we can go further we can buy products that generate income for families that maintain the forest that is part of their livelihoods. On donations: I am sure that you already have your favorite charities, but consider expanding your portfolio to include organizations working in the Amazon. And please, please, please, make all your giving in the form of unrestricted giving. As a founder and CEO of a nonprofit, I can tell you that one dollar in unrestricted giving is worth between four and forty dollars of project funding. I can promise you that you’ll get that warm, fuzzy feeling as well, which by the way on doing research for this talk, I discovered that it has a name.

It is called kama muta. Oh and do you know what else I discovered? Generous people live longer. So don’t forget to volunteer and donate blood as well. But what I really want to focus on today is the third type of transaction investing. Sometimes you don’t know what you’re investing in and that’s because someone is doing that on your behalf. He or she or the bank might be telling you more or less of what they’re doing with your money. And that means that you know more or less about what your money is generating in the world.

So first order of business is asking those people what is your money invested in? But before talking about investing in the Amazon I wanted to talk about another concept called impact investing. So remember that we defined investing as trading in money now with the expectation of getting back more money in the future. Well, impact investing is defined as trading in money now with the expectation of generating a positive social and/or environmental impact and getting back money in the future. Impact investing is a growing trend with the latest figures adding up to 750 billion dollars globally.

The older sister of impact investing is called ESG that stands for integrating environmental social, and governance aspects into the analysis of investments. And the current growth—that is probably a 40-trillion-dollar industry today globally. Typically impact investing will be connected to more proactive, smaller, more private instruments like venture capital and direct lending and ESG, or responsible investing as it’s also known also known, is connected to larger and more public instruments like the stock markets. Or the global debt markets. Of course, that is a generalization. There are some overlaps, but that helps to paint a mental picture.

But regardless of whether we’re talking about impact investing or responsible investing, both strategies are important to fund a group of businesses that foster sustainable development for the Amazon region and at the same time to defund another group of businesses that are involved in deforestation or practices that have negative implications to the Amazon. Specifically speaking about impact investing in the Amazon impact has to do not only with what you’re investing in but also on how you make that investment. We must take into account that Brazil is not for amateurs. Really that’s not a figure of speech.

Brazil places 124th, so one-two-four, out of 190 countries in the ease of doing business index and if you think that doing. Business in the Amazon is significantly harder given the distances and complexities and costs involved they will probably place the Amazon like 200 out of 190. And the implication is that many ventures that are positive for the Amazon are not financially sustainable and they need some type of subsidy. Or a temporary subsidy, especially if they want to do well, do good but also be fully compliant with the law. Because one of the major issues in Brazil in general and it’s even more pronounced in the Amazon is the rule of law or lack thereof.

But that’s a whole other session. SITAWI published a study on impact investing in the Amazon surveying people that are investors and entrepreneurs in the region. But also people who plan to invest or to start a venture in the region. We came out with a framework that identified several potential roles or needs for those impact investments to be successful. There’s a role for guarantees, patient or concessionary capital. Those are important to attract investors that are not ready yet to take on the risk of investing in the Amazon for a given expected return of a venture or of a financial instrument.

And this is done to protect mostly investors. As an example you can think of an international [cooperation agency; wording uncertain] that takes on a first loss position or a lower interest rate loan in connection to a private loan from a private equity fund. There’s also a role for technical assistance for entrepreneurs. This is important to close capability gaps that might exist and it protects both entrepreneurs and the investors and you can think of this as an example, an acceleration program that has finance, management, accounting, operations, strategy tracks. There’s also a role for social responsibility measures for the affected communities because in general investors are quite diversified.

So if the venture goes belly-up, the investor suffers very little. The entrepreneur, on the other hand, suffers more. He or she will have invested a few years of their lives in this venture but they can always do something else afterwards. But the community that you’re investing in it stays there. It will remain there. So we have to make sure that they are better off after the investment regardless of whether it is a high return or lower return investment for the investor or the entrepreneur. And by the way that is the whole reason we’re talking about such investments.

Because we want them to remain there. We want them to have dignified lives. Because they’re the ones who are protecting the forest. At SITAWI, we manage for example a project in the Middle Juruá territory that includes energy, education, biodiversity protection in connection to supply chain activities. There’s also a role for a purchaser of the goods that are being produced by that venture and who is committed to buying all or a great deal of the volume that’s supplied for several years and that makes a lot of difference in terms of the chances of success of the venture.

In the study, we call them committed off-takers. Think of Natura, the cosmetics company, committing to buy today all the oils produced by a given seed for the next 10 years. Something that we had not put in the report but became fairly obvious afterwards is that there’s also role for companies or foundations interested in purchasing the social environmental outcomes of the venture, something that can increase the returns of the investment. Think of it as someone buying verified carbon credits that are generated from regenerating pasture into forest as part of part of an operation of a an invested company.

It sounds complicated I know. There are a lot of people pretending to do impact investing and in that case it’s not that complicated. But if you want to do it right it is. And that is one of the reasons why impact investing has historically been done mostly by wealthy families, wealthy individuals, and foundations. The complexity makes more sense if you have a lot of money to invest. If that is your case, call me. I want to talk to you. But we didn’t want to limit the discussion to a small group of people because we believe that the more people caring for the Amazon the better.

So after publishing that study we created something to make your life easier. You, as in a person who, on top of consuming responsibly, donating generously, is also interested in investing 200 in the Amazon, but you might not have 200,000 for that. So we created a crowdlending lending platform. We took our track record as the most active impact investor in Brazil with over 50 transactions performed. We evaluated dozens of organizations in the Amazon and ended up selecting five of those to be invested by people just like yourself. In this case, it was restricted to people that live in Brazil for regulatory reasons.

But they could lend from 1,000 reais, which is the 200, as I mentioned before and upwards to companies producing natural juices from local fruits or installing solar panels in riverbank [community description unclear] communities or producing fine chocolate, selling Indigenous arts and crafts, or a co-op that gathers leaves and seeds and helps with reforestation efforts in the region. And remember that I said that sometimes there’s someone investing on your behalf? Not on the platform. On the platform, you’re in control. So you select the company you want to invest in the one that is most aligned to your values, the one you want your money to nourish, and with that, the reality you want to create or help create in the region.

We raised over a million reais directly through the platform and completed the funding round in less than 24 hours. But not to worry we’ll have another Amazon round in the platform in the next year. But I also have to tell you that this was right before the pandemic hit and after that we have had to provide additional support to the organizations. So far, so good, but there’s still a road ahead. Of course there are a lot of partners in this endeavor. I don’t buy the self-made man fallacy. If the expression was “self-made woman,” maybe, but definitely not “self-made man”.

The platform itself is an example of blended finance. It requires philanthropic capital. It generates opportunity for people to invest at market rate or close to market rate returns and provides technical assistance to the entrepreneurs for two years which is about the length of the loan. As a side note I’m personally engaged both as an investor, because I put money in all those companies but also as a consumer, with the chocolate company the chocolates are just divine. But there’s a lot more that can and must be done to protect the Amazon.

This is just the tip of the iceberg or better yet one of the branches of the tree. Speaking about trees I wanted to close this session with a new version of an old saying:. If a tree burns down in the Amazon and we’re not there to see it is the smoke real? You bet it is? And we should use all types of money to help solve the problem. Thank you.