We all benefit when the world’s rainforests flourish, but some of us can profit from protecting the planet’s most biologically diverse ecosystems. Investing in rainforests through the carbon-credit markets can provide profit and peace of mind, but first you must understand how investments in the world’s most vulnerable habitats are made.
Role of Carbon Credits
As enormous swaths of fragile rainforests are lost to logging, clearing, agriculture and human encroachment each year, governments and nongovernmental organizations alike are responding by seeking investors to put money in the carbon-credit market. Carbon credits are bought, sold and exchanged as a strategy to offset the output of carbon emissions. Through the trade of carbon credits, companies and industries purchase the right to emit a set amount of greenhouse gasses with each credit purchased, thereby providing financial incentive to companies to reduce emissions.
Is Carbon-Credit Investing for You?
Since Merrill Lynch and Co. purchased the first carbon credits in 2008, a litany of firms dedicated a portion of their capital to profiting from saving the world’s forests. If doing well by doing good feels like your kind of investment, there are some basic realities you'll have to consider.
Consider buying pre-verified credits, indicating the carbon offset has not yet been verified for a specific project, at a discount, which can be profitable when the offset is confirmed and the credits reach full market value. Credits can also be purchased at full market value and then held until the price increases, like any other commodity. Do your homework. A simple Google search reveals dozens of companies that promise profit from a carbon-credit investment. Consider a larger fund in which carbon credits only represent a portion of the risk you’re assuming.
Beware of schemes. Investors are always targets, especially when they’re investing with their conscience in mind as well as their wallets. As the market takes off, more and more investors are reporting scams that left them with overpriced, unsellable carbon credits. Be wary of overseas sales pitches, cold calls and anyone promising wild or immediate returns. Avoid any land deal that promises a tract of rainforest will become profitable once you put up the funds to “rescue it from loggers.” Although carbon credits can provide another layer of profitability to your portfolio, if it sounds too good to be true … well, you know.
The truth is, buying and selling carbon credits can be both profitable to the individual and beneficial to the whole, but like any investment, it comes with risk. Be careful and research before you take the plunge. If you’re an environmentalist, these investments may help you sleep better at night -- and with all those carbon emissions you’re helping to reduce, you can breathe a little easier.
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