Nature-based solutions are here and private money is moving – which is good news for everyone: latest research shows that the global economy is better off with more nature protected.
However, investment in the conservation, restoration, and sustainable use of nature has so far been limited in scale and is often seen as too risky by most investors. But bridging the yawning, US$700 billion finance gap will not be possible without massive private sector investment. Moving much-needed private capital towards global conservation priorities will require three things:
- Consistent policy signals that give certainty and direction to investors
- A solid pipeline of investable projects
- Proven investment models and financial innovation
In order to mainstream conservation finance, the Coalition for Private Investment in Conservation (CPIC), aims to address all three points. The coalition is enabling a proactive environment for nature conservation by engaging, and providing market participants with lessons learned and proof of concept. CPIC also facilitates exchanges between project developers and investors to help project developers improve projects – and investors to find them.
Most importantly, together with its 85+ members, CPIC has been working on investment models for investors to get behind: conservation finance blueprints that could provide a basis for replicating proven investments, and allow financial institutions to more comfortably step in and provide financing.
Blueprints: investment models for financial innovation
Today, there is a growing number of innovative finance models that yield environmental and social impacts – and financial returns. By capturing the various successful models and financial transaction structures in 'blueprints', CPIC aims to set a precedent and track record to orient private investors in the emerging asset class of conservation finance. From market rate returns to capital preservation, from boutique deals to institutional investment funds, conservation investments can diversify the portfolios of investors and reduce overall volatility due to a lower correlation with mainstream asset classes.
CPIC members and working groups have so far developed 12 blueprints on financing mechanisms geared towards accelerating the development of investment deals:
- Public-private partnership model for Marine Protected Areas - Blue Finance
- Environmental Impact Bond for Green Infrastructure - Environmental Defense Fund and Quantified Ventures
- Forest Resilience Bond - Blue Forest
- Forest Land Acquisition for Sustainable Management - Lyme Timber
- Blended finance for cocoa farm renovation & rehabilitation - Rainforest Alliance
- Guarantee-backed lending for clean textile production - WWF
- Conservation-smart credit line for agriculture - F3 Life and Financial Access
- Resilience Bond for risk reduction - re:focus Partners
- Sustainable timber hub for community forestry - Nb Lestari
- Smallholder forestry Special Purpose Vehicle - Komaza
- Blended finance facility for Fisheries Improvement Projects - WWF and Wilderness Markets
- Organic dairy farm transformation through a hybrid bond - Envirostrat
The blueprints provide investors and conservation agencies with unique insights into business models and anticipated cash flows, necessary stakeholder ecosystems, estimated potential for scaling and replication, as well as effective ways to measure environmental and social impacts.
From supporting cocoa farm renovation and rehabilitation in Ivory Coast to an innovative forest resilience bond in the US, CPIC's blueprints are set in a range of geographies across both developed and emerging economies.
Closing the biodiversity finance gap and realizing returns
CPIC's blueprints have been designed to attract different types of investors as they are based on a range of instruments, including traditional commercial loans and hybrid bonds exhibiting both equity and debt characteristics, with varying risk profiles, maturities, and rates of return.
The blueprints have already shown how they can benefit project developers: not only do they help them reflect on and strengthen their business model and impact measurement approach, but they also facilitate replication in other areas. For example, the Environmental Impact Bond developed by Quantified Ventures in the US has inspired the development of the Hadrian Bond concept, currently moving forward with a 3,000 ha pilot and a feasibility study to scale investment in regenerative agriculture around the UNESCO Hadrian Wall landscape.
CPIC's blueprints help overcome the most pressing roadblocks hindering private investment in nature conservation – answering questions around deal structures, suitable investor types, and necessary enabling conditions.
The next step is for forward-thinking private sector leaders to recognise the value of investing in nature and to take CPIC's work across the finish line – by channeling finance to deserving projects via proven blueprints.
South Pole is an award-winning project developer and leading advisor on climate action solutions. South Pole also acts as the Platform coordinator for CPIC. For more information on CPIC and its activities, visit http://cpicfinance.com/ and sign up to the CPIC bi-monthly newsletter.