Greening finance & Financing Green
Recent innovations are closing the gap between conservation and finance sectors, potentially unlocking billions for nature.
Door Baud Schoenmaeckers
How to connect the worlds of finance and biodiversity for the good of nature and people?
This was the theme around which the Netherlands Ministry of Economic Affairs organized two sessions in Cancun, named Greening finance & Financing Green. After the sessions, the gap is not closed but as one of the participants said, “there is more possible than assumed.” About at least one thing all speakers agreed: There is a large amount of money available for green investment – and an even larger need for good proposals to receive it. The two worlds do not really speak the same language, yet.
From 4 to 18 December, Cancun, Mexico was host of the 13th Conference of the Parties on Biological Diversity (COP13 CBD). About 10,000 people from 130 countries joined to discuss nature, biodiversity, ecosystems and the services they provide, their rapid decline or degradation around the world, the urgency of action, and the possibilities and hurdles for success. The Netherlands was particularly keen on events exploring the question of how we (as in the world) can find ways to pay for biodiversity to prevent its further decline and even finance its restoration.
Common language and a community of practice
It was remarkable that a lot of the participants were not per se interested in the subject; apparently finance still is a terra incognita for many biodiversity experts. But governments, wherever in the world, can not be the only ones paying the increasing costs of conservation, protection, management and exploitation of biodiversity. Mainstreaming biodiversity conservation within agriculture, forestry, fisheries and tourism therefore was the key theme of the CBD; but bridging the gap with the financial world is “an even more challenging task,” according to one of the speakers, Arthur Eijs from the Dutch Ministry of Environment. “Given the many different experiments and initiatives aiming to ‘bridge the gap’, greening finance and developing a pipeline of sufficiently large green projects, there is a need to organize an international community of practice or learning network.”
Caroline van Leenders, Sustainable Enterprise expert with the Dutch government has helped establish such a Community of Practice (CoP), called Financial Institutions and Natural Capital (CoP FINC), and issued a report, Finance for One Planet, as part of the Natural Capital Coalition. The aim is to incorporate natural capital in financial business and the CoP is focusing on three themes: Water (too little, too much, too polluted) climate change and land – new and scattered. Van Leenders noted, “People looking for private finance for keeping ecosystems resilient (halting the loss of biodiversity, investing in nature conservation, financing landscape) should be more aware of what goes on in the financial sector worldwide. Trends like impact investing (doing good with less financial return) and divesting from investments with negative impacts are fast growing and can be linked to their agenda. And after divesting from negative impacts, investing with positive impact will follow.”
Innovations represent a remarkable leap
Sara J. Scherr, President of EcoAgriculture Partners and Chair of the Landscapes for People Food and Nature Initiative pointed out that “The financial community has made a remarkable leap in innovation around investments in land, with sustainable management increasingly seen as both a source of financial value and a means to reduce risks to other land- and resource-dependent investments. The necessary tools are emerging, for value and risk assessment, sustainability standards, business models, fund structures and spatially-sensitive investment coordination, that will soon put sustainable landscape investment into the financial mainstream.”
Andrew Deutz, Director of International Government Relations of The Nature Conservancy, gave some good examples from the Nature Conservancy’s NatureVest portfolio. For example, they invested $7 million in Northern Kenya in a livestock-to-market project. The idea is that investing in better market access for local farmers leads to sustainable grassland management. The conservation impacts are potentially huge: 1.2 million acres of grassland managed in a sustainable way, 30 percent reduction in elephant poaching, along with sustainable livelihoods for 5000 households.
Matt Walpole from UNEP talked about the integrated biodiversity assessment tool (IBAT) and the need to implement safeguards on biodiversity when financing new development. More than 15 financial institutions use this huge database (with more than 290,000 records) already. In order to scale up, cultural and language issues require close collaboration with end users.
Organizations and financial institutions are making considerable progress overcoming differences in language, deal size, risk tolerance, and other aspects between the nature conservation and finance worlds, but there is still much to be done to bridge the divide, experts at the “Greening Finance, Financing Green” event said.
Eijs spoke about Verified Conservation Areas (VCAs), a new standard under development that seeks to make conservation outcomes at landscape scale publicly accountable and transparent. VCAs specifically seek to recognize conservation efforts “where we live and work.” VCAs will provide a new asset class for investors, a risk management tool, assurance of continuity and a learning platform. In a particular example of a pilot VCA, in Tullstorp in Sweden, the living conditions for wild fauna and flora in intensively cultivated farmland improved while at the same time the eutrophication of the Baltic Sea declined.
Session moderator Andre Brasser, of Beagle Sustainable Solutions, summarized the “Greening Finance” session. In his view, the most important message was that “there is a great need in understanding user needs, in knowing the culture, the language that is spoken. Finance people do not talk in terms of budgets, but in balances and cash flows. They speak in terms of risks, not in terms of threats. Good business cases are needed, and one way or another: some security, trust, and public transparency. There is a need for landscape strategies and more tests, perhaps even centres. Finally, we talk about impact investors, so how is impact measured?”
Financial institutions want to hear about “big and boring and seen it before”
Deutz kicked off session two of the side event, “Financing Green,” by asking “How do we build conservation into an asset class? Money is not the problem. The problem is that we do not have the right kind of investment vehicles to attract that money and steer it to the places where we can make the difference in conservation. How do we get there?”
Deutz noted that there is about 90 trillion dollars a year available in pension funds. ‘Only’ one percent is needed to solve the global conservation problem. Financial institutions increasingly want to invest in sustainability, clean energy and nature not only because of the return, but also because pressure from organisations like Google is getting higher. The struggle is finding projects that fit. “There is a small investing ecosystem developing, but projects are too small and too risky. So how can we get from risky and small to simple and repeatable? For years the NGO world, mainly depending on philanthropy, talked about ‘look at our cool, unique, innovative financing scheme.’ These words really work well in the NGO world. But financial institutions want to hear about big and boring and seen it before.”
Deutz identified five sectors where NatureVest is working to turn natural assets into an asset class for investors: agricultural intensification, coastal resilience, forest restoration and conservation, sustainable fishery management and water funds and water markets. “We try to make investment blueprints and in six months we figure out how to invest more in these sectors and what the Investment opportunities for each of them are. What are the common deals, what are best business cases that are scalable – and then aggregate them. One 30 million dollar deal does not work, but if we can combine six into a 200 million dollar deal, then it becomes interesting.”
Building capacity to make deals at the landscape level
Scherr talked about mobilizing private finance for integrated landscape investments. She gave a good example of a landscape initiative seeking green finance in Lake Naivasha, Kenya. This very important economic area generates 20 percent of Kenya’s national export and is home to 250,000 smallholders farmers, plus a very large population of pastoralists and their herds. Economic growth in the area has been rapid. The town of Naivasha has grown from 70,000 inhabitants a few years ago to over 250,000 people today.
Scherr identified nine different types of investors and users in Naivasha and the complexity of having all these different interests and users being well looked after. The lessons learned echoed Deutz’s remarks: fostering new partnerships between finance institutions and landscape stakeholders is critical; assisting stakeholders to develop bankable project proposals that contribute to landscape goals and demonstrate a clear investment case is a central challenge; packaging small deals together into a conversation-starting proposal for institutional investors will be vital going forward.
She emphasized that landscape initiatives need to think about finance while they are thinking about land and resource management, not after. “An action plan without a financing plan is an action aspiration,” she notes. Citing LPFN research on more than 420 landscape initiatives, noted that not a single one reported having a financial advisor. “Most of them do not even know how to go after grants,” let alone large private capital. Philanthropic and public finance could help unlock private finance by focusing on developing these capacities within landscape initiatives.
An action plan without a financing plan is an action aspiration
Scherr summarized: “The field of investments from Africa, Europe and Latin America highlighted in this session illustrate ingenious financial solutions emerging to integrate investments in agricultural production and ecosystem conservation/restoration. These call for new types of partnerships, innovative design synergies, and blended or coordinated strategies of private, public and civic finance.”
Caroline van Leenders referred to the role of Natural Capital accounting.”This is a powerful tool to help business, governments, financial institutions understand their dependencies and impacts on to the underlying ecosystem services. A landscape approach can help to keep the ecosystems providing those services resilient”.
Arthur Eijs gave more insight on the Commonland and returns of Landscape restoration. Commonland speaks of a “4 Returns” model, a holistic framework to restore degraded landscapes based on business cases and stakeholder participation, financing and investment, and knowledge and learning. One of the examples he showed was from Andalusia, Spain, a landscape of 630.000 hectares, with water scarcity, abandonment – but with new business opportunities. In creating a 4 Returns 20-year masterplan with a natural restoration project, with demonstration and regenerative farms and the promotion of restoration business cases, Eijs says they learned a critical lesson that was at the heart of both sessions: “One of the main lessons was to use a common language. It sounds so logical – but is so little done.” He continued, “Take your time to scout. Act local and be expert driven, build on local initiatives. And do not judge! It is a social process so building trust and creating inspiration are key drivers.”
Listen to a recording of session two, “Financing Green.”
Read the white paper on financing integrated landscape management from the Landscapes for People, Food and Nature Initiative, Scaling Up Investment & Finance for Integrated Landscape Management: Challenges & Innovations.
Learn more about the LPFN’s ongoing project, Business for Sustainable Landscapes.
January 16, 2016
Photo: Tim Swaak