enhancing biodiversity

Scaling private investments in conservation: five barriers and five solutions

Oct 27, 2021
The author

CPIC Secretariat

Business leaders no longer doubt the inherent value of nature or the importance of managing it sustainably. A recent Credit Suisse and Responsible Investor study found that 80% of surveyed investors are “very concerned” about biodiversity loss.

The radical transformation that our financial system needs to undergo was made painstakingly clear in the latest review of the economics of biodiversity, commissioned by the UK Treasury. It highlights how redirecting capital towards protecting and enhancing nature is the only way that we can avoid “financing ourselves into extinction”.

But while the recognition that more than half of global GDP depends on nature has fueled greater ambition to protect our forests, oceans, and wetlands, the biodiversity finance gap remains at over USD 800 billion a year.

Why are private investors lagging behind on conservation finance? And how can the conservation community address the remaining barriers to scale up private investment in nature?

These questions were at the heart of the latest semi-annual meeting of the Coalition for Private Investment in Conservation (CPIC), a 85+ member strong multi-stakeholder initiative. Participants identified key bottlenecks to scaling private financing for nature: unfavourable risk/return ratios; small deal sizes; uncoordinated efforts from public and private investors; limited capacities and resources of some project developers; and the absence of a recognized framework to monitor and report conservation impacts.

To address these barriers, CPIC will explore and share insights on five potential solutions throughout 2021, which will hopefully be the long-overdue “super year” for biodiversity.

1. Blended finance – de-risking investments with concessional capital

Blended finance is key to providing guarantees for the more risk-averse of investors. Reports show it plays a critical role in mobilizing investments from institutional investors.

Catalyzing private investments with risk-tolerant concessional capital is precisely the aim of the recently launched Nature+ Accelerator Fund. The Fund – which will start investing in the second quarter of 2021 – leverages USD 8 million of concessional financing from the GEF to build a USD 200 million investment portfolio.

The aim of this portfolio is to achieve significant ecosystem conservation impacts, such as measurably reducing extinction risk of IUCN Red List threatened species. The Fund will create a track record of bankable projects in several focus areas, including coastal resilience and fisheries, forest protection, sustainable agriculture and freshwater management. This commercial fund uses an innovative business model that supports deals through seed, early venture and venture financing windows, which in turn helps accelerate the creation and growth of viable and catalytic projects.

2.Enabling partnerships between private and public stakeholders

Beyond blending public and private capital, drawing on a wider pool of expertise within the realm of conservation finance – from public donors to local banks, and development finance institutions to NGOs – will help address resource gaps and create enabling conditions to increase private investments in nature.

Over the next six months, CPIC will explore how synergies between public and private stakeholders can be taken one step further. This could include enabling collaboration at the regional level, for example through members’ regional offices and networks or dedicated “regional hubs”, or exploring ways to engage with project developers on the ground in CPIC’s key target regions, such as East Africa.

CPIC will also engage with multinational corporations that are stepping up their ambition on nature, and help address some of their specific needs – including ways to assess the impact of conservation investments on business resilience.

3. Creating and raising awareness of successful investments blueprints

Despite the perception that attractive conservation deals are few and far between, a plethora of projects have demonstrated both financial returns and positive impacts on ecosystems. Twelve of them have been “blueprinted” by CPIC, and some of them have already been successfully replicated in new geographies. Examples include the Blue Forest’s Forest Resilience Bond in the US, and WWF’s guarantee-backed loans for clean textile production, originated in Turkey.

But more needs to be done to raise awareness of successful examples and to facilitate their replication through targeted technical advisory services and funding.

4. Providing technical assistance to project developers

Conservation project developers come in many shapes and sizes: from NGOs – with in-depth knowledge of the local ecosystems and the species that inhabit them, but little experience dealing with return-seeking investments – to small local businesses with limited know-how or resources to design impact frameworks that can meet the requirements of impact investors.

Gaps related to expertise and resources need to be urgently addressed if we want to turn promising conservation concepts into financially attractive projects, and business propositions into initiatives with positive conservation impacts. The CPIC Structuring Working Group aims to fill these gaps through tailored assistance for project developers. This will range from designing impact metrics to better understanding available financial instruments.

5. Sharing data on the benefits of conservation finance with the broader market

Lack of data is the single biggest challenge according to the aforementioned study by Credit Suisse and RI. This information gap is twofold: firstly, we lack information on the current state of private investment in conservation: who is investing in nature, and how much and how are they investing? Those are questions that CPIC aims to answer with its first ever Conservation Finance report.

Secondly, measuring and reporting the conservation benefits of investments is a challenge given the abundance of unaligned tools and metrics, which limits the ability of investors to compare the performance of different projects. Initiatives such as the Taskforce on Nature-related Financial Disclosure (TFND) and the IUCN Global Standard for Nature-based Solutions are working to solve this challenge by developing global reporting standards on nature financing.

The five solutions outlined above will guide CPIC’s strategic priorities throughout 2021, as we strive to create the enabling conditions that will support a material increase in private, return-seeking investment in conservation.

Are you interested in supporting our efforts? Please contact the Secretariat to explore ways your organization can get involved.

This blog is part of a series developed by CPIC members and partners to explore the key barriers and solutions to enable private investments in conservation.