Conservation finance: investing for the planet and for profit

Jan 21, 2020
The author

CPIC Secretariat

This interview with Dr. Andrew Deutz, Co-Founder and Director Global Policy Institutions & Conservation Finance at The Nature Conservancy – a founding organisation of CPIC – was originally published by IUCN

Through conservation finance, investment in nature generates financial flows and becomes beneficial to both the investor and to the conservation agenda. The Coalition for the Private Investment in Conservation (CPIC) is helping to scale up these investments.

Q: How is conservation finance impacting nature conservation and what is TNC doing to help advance these investments?

Dr. Andrew Deutz: Let me start by drawing a distinction because the term ‘conservation finance’ tends to get used in both a broad and a narrow sense. In the broad sense, we talk about resource mobilization and how government, philanthropy, and the private sector are providing financial resources to support conservation. That includes a whole range of things from government funding for protected areas to private investment in greening supply chains to private philanthropy, etc. Then there is a narrower sense of conservation finance that looks at conservation as an asset class, so looking for opportunities for third parties to invest in projects or activities that have a financial return on investment as well as positive conservation outcomes. In the narrower sense of what conservation as an investment proposition is doing for nature conservation, I would say basically two things; one, it’s bringing new sources of capital to the table for conservation and two, it’s bringing new thinking and rigor to the way we do conservation in some places.

For example, NatureVest is TNC’s in-house impact investment arm, and our most recent deal was a $130 million transaction that purchased forestland in the Central Appalachia region of the U.S. By repurposing the land, we aim to generate cash flow to pay back the investors while simultaneously achieving conservation outcomes. Cash flow can be achieved through sustainable forest management by selling carbon credits into the voluntary and California compliance markets, selling Forest Stewardship Council (FSC) certified timber, and leasing the land for recreational activities such as fishing, hiking, camping, etc.

The point is that you have $130 million that went into purchasing these lands. They are important for biodiversity, connecting different state and national park lands, filling in gaps in the migratory pathways, both for annual migrations and in the face of climate change, and generating multiple revenue streams in what was otherwise an economically depressed area. It’s also helping transition the rural economy in that part of the United States.

Q: How do you think the private sector, through conservation finance, can help drive nature conservation and support the SDGs overall?

When you look at the links within the Sustainable Development Goals, and here I’ll use conservation finance in that broader sense, the big opportunity is to understand what is the risk that companies are facing from declining biodiversity. If watersheds are being degraded, do they need to invest more in water quality improvements to make their products? If soils are being degraded, do they need to invest more in improved agricultural practices? These are the physical risks. There are also market risks coming from consumers that buy their Big Mac from McDonalds but they don’t want their Big Mac to come with a side of deforestation. There’s consumer pressure and we’ve seen that play out whether it’s McDonalds in Brazil or Nutella in Europe.

Companies need to understand these risks in their supply chains; therefore, some of the bigger drivers around this whole notion of conservation finance is that companies are cleaning up their supply chains. Over 1,000 companies in the Consumer Goods Forum have made commitments to reduce or end deforestation in their supply chains. This shows that companies are changing their behaviour and increasing their investment in sustainable sourcing, which is a huge benefit for conservation.

Q: Why did TNC, along with IUCN and other organisations, create the Coalition for the Private Investment in Conservation (CPIC)? What were some of the challenges?

In 2016, TNC was in start-up mode working on a handful of conservation investment deals, and a number of our partners were also dipping their toes in that water. We were all doing relatively small deals, and we thought there was a major opportunity if we’d bring all of that expertise and knowledge together to start accelerating the development of those deals.

For example, around that time I was approached by an institutional investor from the Netherlands who had $15 billion under his management to support impact aligned with the Sustainable Development Goals. His investment committee wanted to double that amount of money, and so he came to me and said “TNC has this NatureVest Team, do you have any deals that we could look at?” I said sure, and at that point we had already done six deals that were averaging about $20 million apiece. He looked at me and said, “I can’t solve a $15 billion problem in $20 million increments. When you’re at the stage of $100 million or $200 million come back and talk to me.”

The challenge that CPIC members were facing was that we were doing small-scale investments that were unique and boutique. Our philanthropic supporters love that but institutional investors hate that. Institutional investors want big and boring; they want to see it has been done before and have a proven model at a scale that is worth them getting out of bed to invest in.

The idea of CPIC was to bring together all the different players in this space and to collaborate and share ideas to start scaling up these investments and learn from each other. One of the big challenges that we faced in CPIC was how to go from a variety of $10-$20 million deals that were unique, to replicating and bundling them so you have a proven investment vehicle that an investor can put $100 million into, and actually have confidence that they’ll get their money back with a positive return. The deal in Appalachia is that size, and the conservation investment pipeline is growing.

Q: If you could have one issue addressed or new idea discussed at the IUCN World Conservation Congress, what would that be?

As much as I hate the term ‘mainstreaming’ in the biodiversity convention, I think it’s actually the most critical thing that we need to deal with. So if I had one message that I’d love the World Conservation Congress to get its head around, it’s the fact that what the CBD calls the mainstreaming agenda – i.e. how do we integrate biodiversity into the agriculture sector, the infrastructure sector, the urban sector, the energy sector – that agenda is actually the same as the finance agenda.

Therefore ‘mainstreaming’, being pro-nature, and generating the finance and designing the underlying policy and regulatory incentives and structures to move the money to where it needs to go, is actually all one complicated, interrelated agenda.