Turning Green into Gold

A private-equity firm invests in alternatives to oil around the globe.

Jeffrey Leonard proudly drives a REVA electric car.
The key to a more energy-efficient vending-machine industry

H. Jeffrey Leonard ’76 holds up a simple, orange-metal box not much bigger than his hand. Developed by two twenty-somethings in a garage in Berkeley, the device “has the ability to transform the entire vending-machine industry,” he asserts, “taking trucks off the road and saving enormous amounts of energy.” 

This winning combination—of profitability 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 “replac[ing] the incandescent light bulb, the internal combustion engine, and the use of fire in the generation of power” into a top-tier firm with $1 billion invested in dozens of energy-related concerns across the globe. “What makes us different from Silicon Valley, which is now trying to do for the energy crisis what they did with the Internet,” says Leonard, “is that we do not typically invest in new technology. We deploy existing technologies and improve business models that help traditional industries become more efficient and reduce their carbon footprint.”

When plugged into a vending machine, the little orange box transmits inventory, sales, and financial data directly to the supplier’s computer. “Right now, these vending companies have guys in big trucks driving around with their whole inventory, checking and filling the machines,” he explains. “Most of the time they come back more than half full. It’s incredibly inefficient.” The box also has an appealing secondary gain: the data eliminate opportunities for drivers to pocket cash skimmed from the machines—apparently a significant industry problem, he says. “We have to be very good social scientists at the front end to make the right choices about investments, and know how these industries work, inside and out,” he adds. “We’re not just dreamers about saving the environment.”

Leonard came to the business world from an academic grounding in government and economics—in the context of the 1970s energy crises. He was impressed as a freshman when President Richard Nixon vowed “by the end of the decade we will have developed the potential to meet our own energy needs without depending on any foreign energy source.” While working for the Crimson (his last two years as managing editor), he covered campus energy initiatives, the formation of the Harvard Management Company, the early days of the Advisory Committee on Shareholder Responsibility, and controversies surrounding University investment policies—which led to his senior thesis on corporate social responsibility. 

He went on to study comparative political/economic systems at the London School of Economics and earned a doctorate from Princeton in 1984 (with a dissertation on pollution control and multinational corporations). He has written numerous articles and five books, including Pollution and the Struggle for World Product: Multinational Corporations, Environment and Comparative Advantage (1988). By then he was vice president of the World Wildlife Fund and the Conservation Foundation. He and a former colleague there, John Earhart, founded GEF in 1990.


Leonard loves the social-science aspect of the job most—mining the interplay among politics, policy, and pollutants, and creating an acute understanding of energy investments within the volatile context of world markets and consumer demands. He and his staff (40 at the new Chevy Chase, Maryland, headquarters, and others abroad) find unusual mid-size companies ripe for growth, and then build them up within six to 10 years with a hands-on approach. Almost every staff member has a background in business or finance coupled with another professional degree—in engineering, environmental management, physics, water resources, forestry, and so on. Earhart, for example, who oversees GEF’s environmental analyses and compliance and its investments in sustainable forestry ventures, graduated from the Yale School of Forestry and Environmental Studies. Leonard considers himself “the intellectual driver of the underlying, long-term themes that we try to take advantage of—which is very stimulating work. In 1994, for example, we laid out maps of the world and asked, ‘Where are the big energy bottlenecks and how can those problems best be solved?’” 

That led to one of GEF’s first significant ventures in Brazil, where charcoal is made, he explains, by burning trees, “cut down in large swaths in the Amazon and the northeast, until they are carbonized. Sometimes they take two tractors and hook up a chain between them and drive through immature forests to clear the trees faster.” GEF decided to invest in a São Paulo natural-gas distribution company, with plans to help the company take advantage of a pending government pipeline (the 3,000-kilometer Bolivia-Brazil pipeline, completed in 1999) that ultimately enabled it to feed demand for gas throughout the Paraîba Valley. “It was a boon to industries that were using other dirty fuels…or burning charcoal to fuel boilers,” Leonard says. “We helped reduce local air pollution and CO2 emissions and prevent deforestation.” It also netted GEF and its investors attractive returns.

With known global oil reserves projected to last another 40 years, and longer, but still finite, timelines predicted for natural gas and coal, the energy industry is “an exciting place to be for private investment,” asserts Leonard. His three current portfolios focus on clean technology (e.g., the vending-machine box), sustainable forestry, and emerging markets. They have included privately owned hydroelectric plants in Latin America and Asia that are using technology pioneered in the United States; a South Africa-based sustainable forest-products concern; and a Hungary-based co-generation plant fueled by biogas (the future of energy resources in central Europe, Leonard adds).

Still, “it is a tough and humbling business,” he says, “It’s easier to lose money than to make it.” He credits Harvard with teaching him discipline, focus, excellence —and the fact “that I will never be the smartest person in the room.…It is critical to check your ego at the door in private equity, because the minute you’re not willing to listen to someone else is the minute you’re taking a risk you shouldn’t.”

One notable wipeout was a 1990s venture in Peru. GEF used a licensed South Africa-based biotechnology to recover gold from existing mine tailings that were leaching cyanide and other chemicals into rivers that flowed into Lima’s water supplies. “We invested in cleaning up the gold piles and recovering the commercial gold, but the price of gold slid from above $400 an ounce when we made the investment to below $200 an ounce and we lost all of our money,” he says, able now to laugh a little about it. “I learned never again to bet on single-directional trend lines for commodities as an investment thesis.” (GEF aims primarily not for home-run investments, but a series of base hits, yielding investors—primarily family foundations and universities—a 29 percent annualized rate of return, according to its Securities and Exchange Commission filings.)


Leonard is fiscally conservative. But he also drives an electric car made by the Indian firm REVA (one of his funded companies), outfitted GEF’s headquarters with sustainable wood floors and dual-flush toilets, and designed its open space to maximize natural light. He eschews domestic oil-drilling programs for their shortsightedness—such drilling will never be a long-term solution to dependence on foreign oil, he says, because even the best estimates put the U.S. supply at about 3 percent of all oil reserves on the planet. Instead, he heavily promotes electrification as the prime energy source of the future. “It is the ultimate ‘flexible’ solution because we can produce electricity from so many domestic sources: biomass, renewables, coal, nuclear, hydro,” he says. “We can solve balance-of-payments problems and reduce national-security threats by shifting more energy to electricity from oil in coming years, and then focus on making electricity-generation cleaner and, finally, carbon-neutral in the coming four or five decades.”

He also thinks Congress “should consider a point-of-sale excise tax based on miles per gallon or the horsepower of internal combustion engines…this would at least send the car companies a clear long-term signal that they should produce more efficient vehicles.” He says he and his wife, Carolyn Pisano Leonard, a psychologist with Head Start in Montgomery County, are “bleeding hearts,” and makes it clear that his drive to harness renewable resources and promote efficiency stems from the liberal politics and policies of his formative years.

When President Jimmy Carter left office in 1979, Leonard notes, 2 or 3 percent of all government research and development was directed toward energy—compared to the 0.3 percent allotted in recent years. “A lot of new technologies were invented, including renewable energy—wind, solar, hydropower—through tariffs,” he says. “Dow Chemical and others were doing all of the R&D, and then it all went on the shelf for 20 to 30 years because petroleum prices dropped below $10 a barrel and we had a long era of Reagan deregulation.” He believes significant increases in federal funding for research and development of energy-generation sources are merited, but should stop short of providing “perpetual subsidies for the commercial development” of new technologies—that’s the purview of private capital.

In recent years, Leonard has helped governors in Maryland and New Jersey launch energy programs that emphasize increased efficiency and the use of renewable energy sources. He hopes the Obama administration—through direct funding and tax incentives—can shift commercial and consumer behaviors so that developing green energy sources becomes an economic stimulus. His recommendations include the creation of a nationwide Renewable Portfolio Standard that requires utilities to purchase a fixed percentage of their electricity from renewable generation (levels are now set by states); a broadening of the current tax law that permits the sale and purchase of credits for capital costs incurred in renewable energy installation (such as solar panels); and following California’s lead (since 1976) in fostering ways for utilities to achieve increased consumer efficiency. (California’s per capita electricity usage has remained almost flat in the last 30 years, while usage has nearly doubled in the rest of the nation). He advocates as well the creation of a more secure, smarter electrical grid that will enable increased reliance on electrical power—even for cars.

These ideas, he notes, don’t involve any new technologies, and are relatively easy to implement politically. “Who is going to argue against this plan?” he asks. “Not even the oil companies, since even they will be diversifying more into renewable and new energy sources themselves.” In the end, he says, the new administration and Congress, “may have the last best chance to address energy issues before the real crisis sets in.”

Read more articles by Nell Porter-Brown

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