Exploring three game-changing structures to drive private investment in conservation

Feb 10, 2022
The author

CPIC Secretariat

Unlocking private capital is essential to closing the biodiversity financing gap and solving the nature crisis. At the most recent semi-annual meeting of the Coalition for Private Investment in Conservation (CPIC), a panel discussion, titled ‘Innovative structures for conservation finance’, delved deeper into new techniques for channeling additional investments into conservation efforts, and fundamentally restructuring global systems to become more sustainable.

In this blog, we will unpack some of the key ideas and innovations that are at the frontier of conservation finance.

Scaling sustainability companies, faster

A tremendous number of companies are being held back by difficulties associated with raising the necessary capital before they can tap into public markets. This challenge is in the sights of the Growth for Good Acquisition Corporation. Dana Barsky, Growth for Good’s newly appointed President and Member of the Board, focused on the potential of special purpose acquisition companies (SPACs) to bridge the gap between the raising capital phase, often laborious and ineffective, and the point at which companies can access the public markets to scale quickly.

Dana said, “The beauty of SPACs, particularly around sustainability, is they allow companies to access the public markets earlier through the use of projections and the ability to tell a growth story, allowing them to scale much more quickly.”

By using the SPAC, or blank cheque structure, Good for Growth aims to support those companies to reach their potential. This could ultimately reshape many, currently polluting, global systems. Dana continued, saying, “the number of companies I’m speaking with that have the potential to change our food systems, our recycling systems, and the impact these will have on our world at large is just amazing.”

GDP and nature growing together

Our inability to clearly define and measure the goods and services nature provides has been a major barrier to making conservation at large an investable proposition. “Nature is a productive asset that has value, and it produces goods and services which have a lot of value as well. So we thought if we were a little more thoughtful of how these industries engage we could unlock a lot of capital that can come into the conservation space,” contributed Erin Summe, Director of Investment Strategy & Partnerships at Intrinsic Exchange Group (IEG).

IEG is bringing to market a Nature Asset Company (NAC), ‘a corporate structure designed to hold the rights to and manage the ecological performance of natural assets.’ IEG partners with leading experts to quantify and assign a financial value to the services nature provides through a process called ‘Ecosystem Service Valuation’. The privately-held NAC owns the rights to the ecosystem services and productivity of a specific area, farm or piece of land, similarl to carbon credits or mineral rights.

Through an exciting partnership with the New York Stock Exchange, an IPO for the NAC can be issued. Funds generated from that public offering can only be used in a way that will restore or grow the natural capital of that ecosystem, and therefore increase the productivity of the ecosystem services produced. This in turn will be tracked in the value of the company, and reflected in the price of the equity being traded.

“We want the true force of capital markets behind us because we have a productive asset that is creating real value,” continued Erin, explaining investors will be looking for financial returns based on capital appreciation, driving forward a promising conservation finance approach.

Belize Blue Bond

A year and a half in the making, the largest financing in favour of ocean conservation ever attempted was closed by Nature Vest, Credit Suisse and others in the Belize Blue Bond transaction. Svetoslav Gatchev, Deputy Managing Director, Sustainable Debt at NatureVest and Ramzi Issa, Managing Director at Credit Suisse, provided fascinating insights into how this deal was made possible through various challenges, not least an election and a new Belizean government.

In many ways, the Belize Blue Bond demonstrated what is possible when it comes to debt swaps for countries who have defaulted but are committed to investing in and protecting their own natural ecosystems. The deal swapped $553 million of Belize’s existing debt with $364 million of new issuances closing in November 2021.

Introducing the deal Svetoslav Gatchev said: “In Belize, the stars aligned because it was a financial environment that lent itself to a debt for nature swap.” With the fundamental goal of expanding commitments to protect and conserve 30 percent of Belize’s world famous marine ecosystems, the debt restructuring generated $180 million for conservation.

Credit Suisse acted as the structuring bank and arranger of the financing, while DFC provided crucial political risk insurance. “Through this technique, many investors saw a new solution to a problem for allocating resources to the environment, or conservation, while not overburdening the country with debt,” said Ramzi Issa.

Conservation finance – a hope story

While conservation finance is a hot topic, we’re at a critical inflection point where the need to turn momentum into action is crucial. There are many models, businesses and systems that are already unlocking – or have the potential to unlock – capital at scales we could only have dreamed of a decade ago.

The task is formidable, but the collective skills, expertise and motivation of CPIC members holds the potential to drive record levels of investment into conservation.