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Manuel González

Costa Rica   

Impact Investment: Can oxygen be a source of foreign investment in Costa Rica?

The expression "they sold you fresh air" has taken a completely different meaning

Recently, foreign private investors formalized an innovative business relationship in Costa Rica which  involved a relatively unexplored asset; the purchase of oxygen generated by local properties. The parties involved in the transaction used the legal figure of usufruct to make this a reality.

The team, led by Manuel A. González, partner of the firm Facio & Cañas, represented the buyers in this deal.

Doubts may arise: How is the right granted over the oxygen produced by real estate? How is this investment protected internationally? Is this purchase registered to provide legal certainty? For how long? How is oxygen production quantified?

Although it sounds like a bizarre idea extracted from the novel "Lorax", by the renowned children’s author Dr. Seuss, the reality is that in Costa Rica the acquisition and use of oxygen from real estate with forest is a good investment. The oxygen was purchased using the legal figure of usufruct, regulated in Chapter III of the Civil Code of Costa Rica (CC). This right, as one of the elements of the domain, may be transferred and registered in the name of a person or legal entity, national or foreign. According to article 287 of the CC "by virtue of the right to usufruct things, all natural, industrial or civil fruits that things produce ordinarily or extraordinarily belong to the owner".

[1] "Natural fruits" are understood as those that the earth spontaneously creates or animal products. The usufruct of oxygen is possible since it is a spontaneous phenomenon of the earth. In this transaction, the usufruct of the oxygen was registered in the name of a foreign entity. However, a time limitation applies. The maximum term of the usufruct in study, according to article 359 of the CC is 30 years. Nonetheless, it may be transferred again at maturity by express agreement of the parties.

[2] "Impact Investment" intends to promote commercial activity that generates a positive influence in a social, environmental, and governmental level, the so-called "ESG [3]"(Environmental, Social and Governance). These investments, such as the one in hand, attempt among other sustainable consequences, to reduce the carbon footprint [4]. The usufruct of oxygen does not primarily intend to use air space as a commercial asset. It also promotes the conservation of the environment while attracting economic growth without government assistance (such as the successful FONAFIFO programs [5]).
Our country seeks to become a global hub for "Impact Investment". The possibility of buying the usufruct of oxygen is strongly intertwined with this perspective. Costa Rica is a "green country"  where even oxygen is a source of investment and conservation.

Capital spending in Costa Rica is secured by the protection of international treaties. The nation is signatory in more than 14 free trade agreements. In this case, article 1.1(a) of the Costa Rica - Germany Bilateral Investment Treaty allows property rights to be subject to usufruct. This possibility ensured the success of the transaction.

This approach changes the paradigm of the traditional vision of foreign investment. The purchase of something essential to life, such as oxygen, is a step in the right direction for future development.

This transaction offers investors a share of certainty, while allowing local owners an adequate and long-term return for the conservation of real estate with forest.

Without a doubt, the expression "they sold you fresh air" has taken a completely different meaning and an unequivocally positive connotation. Advances such as these certainly represent a breath of fresh air for the future of Costa Rica and the planet.

[1] Costa Rican Civil Code, Arts. 287.
[2] Civil Code of Costa Rica, Art.359.
[3] These are criteria that investors increasingly take into account when choosing an investment.
[4] PEDERSEN, Lasse Heje; FITZGIBBONS, Shaun; POMORSKI, Lukasz. Responsible investing: The ESG-efficient frontier. Journal of Financial Economics, 2021, vol. 142, no 2, p. 572-597.

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