Turning Green to Gold a Private-Equity firm Invests in Alternatives to Oil Around the Globe
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ALUMNI Turning Green to Gold A private-equity firm invests in alternatives to oil around the globe. jeffrey leonard ’76 holds up a simple, orange-metal box not much bigger than . his hand. Developed by two Htwenty-somethings in a garage in Berke- ley, the device “has the ability to trans- form the entire vending-machine indus- try,” he asserts, “taking trucks o≠ the road and saving enormous amounts of energy.” This winning combination—of profita- bility and social benefit—is what Leonard finds most alluring as a private-equity manager. That coupling—along with the current energy crisis—has helped his company, Global Environment Fund (GEF; www.globalenvironmentfund.- com), evolve from an idealistic dream of Jeffrey Leonard proudly drives “replac[ing] the incandescent light bulb, a REVA electric car. the internal combustion engine, and the use of fire in the generation of power” into entists at the front end to make the right tation on pollution control and multina- a top-tier firm with $1 billion invested in choices about investments, and know tional corporations). He has written nu- dozens of energy-related concerns across how these industries work, inside and merous articles and five books, including the globe. “What makes us di≠erent from out,” he adds. “We’re not just dreamers Pollution and the Struggle for World Product: Silicon Valley, which is now trying to do about saving the environment.” Multinational Corporations, Environment and for the energy crisis what they did with Leonard came to the business world Comparative Advantage (1988). By then he the Internet,” says Leonard, “is that we do from an academic grounding in govern- was vice president of the World Wildlife not typically invest in new technology. ment and economics—in the context of Fund and the Conservation Foundation. We deploy existing technologies and im- the 1970s energy crises. He was impressed He and a former colleague there, John prove business models that help tradi- as a freshman when President Richard Earhart, founded GEF in 1990. tional industries become more e∞cient Nixon vowed “by the end of the decade and reduce their carbon footprint.” we will have developed the potential to Leonard loves the social-science aspect When plugged into a vending machine, meet our own energy needs without de- of the job most—mining the interplay the little orange box transmits inventory, pending on any foreign energy source.” among politics, policy, and pollutants, and sales, and financial data directly to the While working for the Crimson (his last creating an acute understanding of energy supplier’s computer. “Right now, these two years as managing editor), he covered investments within the volatile context of vending companies have guys in big campus energy initiatives, the formation world markets and consumer demands. trucks driving around with their whole of the Harvard Management Company, He and his sta≠ (40 at the new Chevy inventory, checking and filling the ma- the early days of the Advisory Committee Chase, Maryland, headquarters, and oth- chines,” he explains. “Most of the time on Shareholder Responsibility, and con- ers abroad) find unusual mid-size compa- they come back more than half full. It’s in- troversies surrounding University invest- nies ripe for growth, and then build them credibly ine∞cient.” The box also has an ment policies—which led to his senior up within six to 10 years with a hands-on appealing secondary gain: the data elimi- thesis on corporate social responsibility. approach. Almost every sta≠ member has nate opportunities for drivers to pocket He went on to study comparative a background in business or finance cou- cash skimmed from the machines—appar- political/economic systems at the London pled with another professional degree—in ently a significant industry problem, he School of Economics and earned a doctor- engineering, environmental management, says. “We have to be very good social sci- ate from Princeton in 1984 (with a disser- physics, water resources, forestry, and so 56 March - April 2009 Photographs courtesy of H. Je≠rey Leonard Magazine, Inc. at 617-495-5746 Reprinted from Harvard Magazine. For more information, contact Harvard on. Earhart, for example, who oversees —and the fact “that I will never be the ternal combustion engines…this would at GEF’s environmental analyses and com- smartest person in the room.…It is critical least send the car companies a clear long- pliance and its investments in sustainable to check your ego at the door in private term signal that they should produce forestry ventures, graduated from the equity, because the minute you’re not will- more e∞cient vehicles.” He says he and Yale School of Forestry and Environmen- ing to listen to someone else is the minute his wife, Carolyn Pisano Leonard, a psy- tal Studies. Leonard considers himself you’re taking a risk you shouldn’t.” chologist with Head Start in Mont- “the intellectual driver of the underlying, One notable wipeout was a 1990s ven- gomery County, are “bleeding hearts,” long-term themes that we try to take ad- ture in Peru. GEF used a licensed South and makes it clear that his drive to har- vantage of—which is very stimulating Africa-based biotechnology to recover ness renewable resources and promote work. In 1994, for example, we laid out gold from existing mine tailings that were e∞ciency stems from the liberal politics maps of the world and asked, ‘Where are leaching cyanide and other chemicals into and policies of his formative years. the big energy bottlenecks and how can rivers that flowed into Lima’s water sup- When President Jimmy Carter left o∞ce those problems best be solved?’” plies. “We invested in cleaning up the gold in 1979, Leonard notes, 2 or 3 percent of all That led to one of GEF’s first signifi- piles and recovering the commercial gold, government research and development cant ventures in Brazil, where charcoal is but the price of gold slid from above $400 was directed toward energy—compared made, he explains, by burning trees, “cut an ounce when we made the investment to the 0.3 percent allotted in recent years. down in large swaths in the Amazon and to below $200 an ounce and we lost all of “A lot of new technologies were invented, the northeast, until they are carbonized. our money,” he says, able now to laugh a including renewable energy—wind, solar, Sometimes they take two tractors and little about it. “I learned never again to bet hydropower—through tari≠s,” he says. hook up a chain between them and drive on single-directional trend lines for com- “Dow Chemical and others were doing all through immature forests to clear the modities as an investment thesis.” (GEF of the R&D, and then it all went on the trees faster.” GEF decided to invest in a aims primarily not for home-run invest- shelf for 20 to 30 years because petroleum São Paulo natural-gas distribution com- ments, but a series of base hits, yielding prices dropped below $10 a barrel and we pany, with plans to help the company investors—primarily family foundations had a long era of Reagan deregulation.” He take advantage of a pending government and universities—a 29 percent annualized believes significant increases in federal pipeline (the 3,000-kilometer Bolivia- rate of return, according to its Securities funding for research and development of Brazil pipeline, completed in 1999) that and Exchange Commission filings.) energy-generation sources are merited, but ultimately enabled it to feed demand for should stop short of providing “perpetual gas throughout the Paraîba Valley. “It was Leonard is fiscally conservative. But he subsidies for the commercial develop- a boon to industries that were using other also drives an electric car made by the In- ment” of new technologies—that’s the dirty fuels…or burning charcoal to fuel dian firm REVA (one of his funded compa- purview of private capital. boilers,” Leonard says. “We helped reduce nies), outfitted GEF’s headquarters with local air pollution and CO2 emissions and sustainable wood floors and dual-flush toi- prevent deforestation.” It also netted GEF lets, and designed its open space to maxi- and its investors attractive returns. mize natural light. He eschews domestic With known global oil reserves project- oil-drilling programs for their shortsight- ed to last another 40 years, and longer, but edness—such drilling will never be a long- still finite, timelines predicted for natural term solution to dependence on foreign oil, gas and coal, the energy industry is “an he says, because even the best estimates exciting place to be for private invest- put the U.S. supply at about 3 percent of all ment,” asserts Leonard. His three current oil reserves on the planet. Instead, he heav- The key to a more energy-efficient vending-machine industry portfolios focus on clean technology (e.g., ily promotes electrification as the prime the vending-machine box), sustainable energy source of the future. “It is the ulti- In recent years, Leonard has helped gov- forestry, and emerging markets. They have mate ‘flexible’ solution because we can ernors in Maryland and New Jersey launch included privately owned hydroelectric produce electricity from so many domestic energy programs that emphasize increased plants in Latin America and Asia that are sources: biomass, renewables, coal, nu- e∞ciency and the use of renewable energy using technology pioneered in the United clear, hydro,” he says. “We can solve bal- sources. He hopes the Obama administra- States; a South Africa-based sustainable ance-of-payments problems and reduce tion—through direct funding and tax in- forest-products concern; and a Hungary- national-security threats by shifting more centives—can shift commercial and con- based co-generation plant fueled by bio- energy to electricity from oil in coming sumer behaviors so that developing green gas (the future of energy resources in cen- years, and then focus on making electric- energy sources becomes an economic stim- tral Europe, Leonard adds).