Thursday, October 17, 2013

Thesis: Differences in Investment Behavior of traditional Investors and Impact Investors into Brazilian Biomass Projects

A five month internship in a consultancy for environmental services in Sao Paulo set the foundation of Estelle Tanner's Master thesis. In collaboration with the Impact Investing Platform of the HSG Hub Sao Paulo she conducted her thesis at the Chair for the Management of Renewable Energies at the University of St.Gallen.

Although Brazil has a high renewable energy share compared to the world average, there is potential for improvement. The growing Brazilian agroindustry, as well as a study from the International Energy Agency (IEA) promoting the production of bio-energy from residual biomass and energy crops, indicate potential for biomass projects in Brazil. However, so far this type of biomass projects has not gained momentum in Brazil. Assumed reasons for this phenomenon are (amongst others) the dominance of hydro-power plants, extensive oil resources and difficulties in financing biomass projects. This thesis suggests that Brazilian biomass projects could be a viable investment opportunity for impact investors seeking long-term sustainable investment opportunities, which have not only financial return but also measurable social and environmental impact.

Therefore, this thesis investigates the assumed differences in the investment decision making processes of traditional investors (PE, VC) and impact investors in emerging markets, via the example of Brazilian biomass projects. Through empirical research (based on 13 in-depth-interviews with six traditional and seven impact investors, all of whom are assessing a Brazilian biomass business plan) new insights are gained. The scope of this thesis does not allow for the deduction of general applicable theories, thus new insights for further research are created. In general, the investment decision-processes of traditional investors and impact investors do not differ significantly.

However, there are differences within the return and impact expectations. Although impact investing may propose one mean to foster biomass projects in Brazil, it is not the magic bullet accelerating the industry in general. Impact investing makes sense under certain circumstances. Dedication to create an intended and measurable social and or environmental impact in a less developed region, the inclusion of locals (e.g. better education, access to energy, creation of economic value), are just a few examples to point out what defines an impact investment.

For more information please also consider her presentation held at the 2nd Conference for Impact Investing, you can access it here.

13 comments:

  1. The agroindustry never rests, as they say, because the demand is constantly high. The moment I read about the Biomass project, my right brain can't seem to shut up as there are many ways to market bio-energy products. I did a survey once for a feasibility project (I'm a product of aBusiness School Entrepreneurship) 16 out of 20 house moms prefers non-toxic, all natural dish-washing product over the overly-advertise dish-washer solution that I cannot name here. Anyway, it seems people are more open to a healthy life-style nowadays. So if I have money to invest, anything that involves natural resources should be worth every penny. But alas the ROI will still depend on how you market these products.

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