Optimizing a portfolio of agri-environmental investments

Abstract

Purpose. The purpose of the article is to substantiate theoretical-and-methodological provisions for building investment portfolios in agribusiness by the criterion of minimizing environmental risk of selected investment-financing strategies. Methodology / approach. In the article, on the basis of the dialectical method of cognition, the following methods were used: abstract-logical – in the systematization of scientific papers on the problem of diversification and optimization of the agricultural investment portfolio; system analysis and comparison – in the study of portfolio theories and concepts; computational and constructive – in the analysis of environmental-and-economic factors of the profitability of agricultural land use; economic-and-mathematical modeling – in the process of modeling the optimal portfolio of agri-environmental investments by the criterion of minimizing the risk of a particular investor, caused by the action of soil degradation factor in Sumy region. The materials of the Main Department of Statistics in Sumy region and the Sumy regional branch of the Institute of Soil Protection of Ukraine have formed the informational basis of the research. Results. The optimization of the agri-environmental investment portfolio is due to the modification of the approach by the American Economist H. Markowitz “risk-return analysis” and its adaptation to the conditions of real investment. The paper uses a conservative approach to investment, which involves the construction of portfolios on the criterion of minimizing investment risk due to the influence of soil degradation for a particular investor. This factor requires the determination of the investor’s environmentally related risk, which manifests itself in the following directions: a) a decrease in crop yield due to the action of the factor of high soil pH; b) a decrease in the sales price for crop products because of contamination with heavy metals; c) an increase in the cost of agricultural production in deteriorated ecological conditions. Evaluation of agribusiness investment attractiveness on environmental-and-economic grounds provides for the consideration of the above areas from the standpoint of state, banking, foreign investment and self-investment. Assessment of investment quality identification is performed on the basis of calculation of the investor’s income elasticities to environmental risks on the example of Sumy region, which provides investment rationality decisions in the field of agricultural land use, considering environmental factors. It is substantiated that the highest investment quality is characterized by the bank’s investment financing strategy. Originality / scientific novelty. The methodological approach to the definition of investor’s environmental risk in agricultural land use is improved. It is calculated considering the influence of factors of environmental destruction of land and soil resources (soil pH, pollution with heavy metals, etc.) on sources of profit, as well as with the definition of returns on investment resources (crop yield, ecological sales price, and income). The system of environmental-and-economic indicators in the formation of the investment portfolio is substantiated, including the following: the structure of investments, which is developed considering the influence of the environmental factor; portfolio investment risk due to environmental factors; and the investment portfolio yield adjusted for the level of environmental risk which provides an assessment of the investment attractiveness of agricultural land use on an environmental-economic basis. A methodical approach to substantiate investment decisions in the agriculture of the Sumy region is proposed, which along with considering the environmental factor, is in calculating the elasticities of investor’s income to the environmental-and-economic risks, which increase the correctness of financial decision-making. Practical value / implications. Theoretical-and-methodological provisions and conclusions obtained in the study can be used to justify the direction of investment capital in the field of agricultural land use, considering the level of environmental-and-economic constraints.