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July 11, 2002

Investment Partnership Has SRI Mandate
    by William Baue

The Global Environment Fund Group manages four funds and is a majority owner of a South Africa-based forestry company.

SocialFunds.com -- The Global Environment Fund (GEF) Group, a Washington DC-based international investment management partnership, was established in 1989 to invest in environmentally and socially responsible companies. The firm's clients include three types of investors.

"One group is what are called high net-worth individuals. They're all U.S.-based private investors that have been with us for a long time and who share our mission of investing in environmental businesses abroad with a double and/or triple bottom line," GEF Chair John Earhart told SocialFunds.com. "The second group is 'strategic investors.' These [investors] might be banks or multinational entities looking to access a particular market, sector, or geographic region by investing in one of our diversified funds."

"Our third and largest investor is the Overseas Private Investment Corporation (OPIC), a U.S. agency that supports the economic development of emerging market countries through private equity investment project management and political risk insurance," Mr. Earhart continued. "We manage two of their funds."

In 1994, GEF launched the Global Environment Emerging Markets Fund (GEEMF), whose $70 million in private equity is partially capitalized with promissory notes guaranteed by OPIC. The fund concentrates its investments in clean energy, potable water, wastewater treatment, and resource recovery. GEF launched a second GEEMF through the same arrangement with OPIC in 1997. The fund's $120 million in equity is concentrated in natural gas, power facilities, water and mass transportation systems, and quality of life services in emerging market countries.

GEF manages two other private equity funds. The $60 million Latin Healthcare Fund was launched in 1997 as a joint venture with Ascendant Healthcare International to invest in integrated healthcare delivery systems in Latin America. The Global Environment Strategic Technology Partners, launched in 2000, invests in emerging U.S.-based companies that have developed technologies that offer environmental, social, and economic benefits.

In addition to these four funds, GEF holds a controlling interest in Global Forest Products (GFP), a South Africa-based forestry company. GFP is exemplary in terms of the sustainability of its operations.

In 1997, 64,000 of GFP's 92,000 hectares were certified as being managed in an environmentally appropriate, socially beneficial, and economically viable manner by the Forest Stewardship Council (FSC). The FSC is an internationally recognized organization that audits forestry management practices. GFP set aside the remaining 28,000 hectares for biodiversity conservation. In 1998, the FSC conferred chain-of-custody certification to all GFP's processing facilities, which now include three sawmills, a plywood plant and a specialty-products plant. FSC chain-of-custody certification ensures consumers that the final wood products actually came from well-managed forests.

GFP is currently undergoing a capital expenditure (capex) program thanks to a $30 million loan from the Industrial Development Corporation (IDC) of South Africa. IDC is a state bank whose fundamental purpose is to promote economic and industrial development.

"The forest sector in South Africa has been on the decline of late, so IDC sees this loan as a strategic entrée back into the sector," Mr. Earhart told SocialFunds.com. "The underlying basis of the capex program is to use the wood much more efficiently. For example, we're wasting about 52 to 55 percent of the wood by using 1950s vintage machinery."

A goal of expanding exports demands that the company increase its wood-use efficiency.

"We're gradually going to shift from a ratio of about 10 percent export to about 70 percent over a 5 year period," explained Mr. Earhart. "In order to export your wood products, you need to significantly ratchet up the quality: the standards, the drying techniques, sanding and planing techniques, and the actual end product. So our business model is to spend the $30 million on new machinery. It's not brand new; we're actually getting most of it off the Web as second-hand products coming out of Canada, the United States, and Europe. We're installing it in South Africa to add as much value to the final product as we can at the local level, so that we maintain local employment."

Also at the local level, GFP sponsors eight medical clinics and a primary school as well as employing a full-time AIDS awareness nurse and educator. GFP thus helps improve the quality of life in its local communities while it simultaneously helps protect the global environment by outputting sustainably produced forest products.

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