December 2017 was a month of ups and downs for environmental issues in finance. The up was ExxonMobil agreeing to regularly disclose analyses of the impacts of its business on climate change and the policies meant to fight them. That was thanks to pressure from shareholders.
But conservation took a blow when US president Donald Trump announced the reduction in the size of the Bears Ears National Monument in Utah by two million acres, potentially opening the land up to oil and gas extraction, logging and other commercial activities. It is the largest rollback of federal land protection in the nation’s history and it may not be the last under this administration.
As US comic Mark Maron joked recently, we seem to have entered a new era – conversations like the following no longer seem absurd or fanciful: “‘Did you hear they’ve turned the Grand Canyon into a landfill site?’ ‘Really?’ ‘Well…yeah, I guess that seems pretty normal.’ ‘And, apparently we can hunt at zoos now.’ ‘Well, I guess that makes sense.’”
Conservation has not been particularly high on the radar of responsible investing, chiefly because it has tended to be left to local governments, non-profits and philanthropists.
Research conducted by Credit Suisse, the World Wide Fund for Nature (WWF) and McKinsey in 2014 showed a gap in conservation funding globally of $250 billion to $350 billion a year – that’s between 20 and 30 times the current amount of money that goes into conservation.
Because of that gap, efforts are being made to bring private and public investments together to tackle some of the world’s conservation challenges.
I spoke last month to Fabian Huwyler. He leads Credit Suisse’s conservation finance efforts and represents the bank on the steering committee of the Coalition for Private Investment in Conservation (CPIC) – a collaboration of 43 organizations in the public and private sector working together on what he calls “blueprints” for conservation projects that can be financed as impact investments.
Credit Suisse was one of the founders of CPIC in 2016 and is the only big bank involved.
In November, CPIC got a boost when the Global Environmental Facility (made up of 18 agencies) allocated $8 million to it to help get the blueprints ready for investors.
|Bears Ears National Monument in Utah|
It is a big step for conservation finance because, as with many of the impact investment projects happening around the world, it is essential to get some projects off the ground so that investors can see that returns are possible.
That will mean that more scalable projects can follow.
When it comes to land management, the United Nations REDD+ initiative has been helpful in providing a testing ground for exploring conservation interventions at scale. It is a policy mechanism offering financial incentives to developing countries to keep their forests standing – deforestation and forest degradation account for approximately 17% of carbon emissions, more than the global transportation sector and second only to the energy sector.
Many countries have stepped forward to commit to REDD+ initiatives, and it is changing the way countries are viewing their forests.
The Mai Ndombe Provincial Green Development Programme in the Democratic Republic of Congo, for example, provides an early indication of how this new approach may play out, say Clarmondial and WWF in their report.
Covering an area the size of Greece, the programme seeks to stabilize the loss of nine million hectares of forest, reduce greenhouse gas emissions and support sustainable livelihoods through forestry, agroforestry and sustainable energy production.
This latter part is crucial. The economies of many developing countries rely on the agricultural production of commodities that degrade forests. Local populations need an economic incentive to take part in conservation – one that is sustainable.
CPIC’s projects take that into consideration by offering things such as sustainable cattle ranching, climate-smart coastal resiliency and sustainable seafood models.
It amazes me just how obvious the economic benefits are in many conservation finance projects. Take the forest resilience bond (FRB) that has been two years in the making and hopefully will launch this year in the US. Investments will be provided for improving forest resiliency against fires. The idea is to return money to investors with interest paid from funds saved by the US Forest Service and utilities.
The costs saved by the Forest Service in having to put out fewer fires is perhaps obvious – but forest fires also contaminate water supplies and cost water utilities large sums of money to clean up. The economic benefit is as clear as the environmental and social benefit.
It is a positive step. If the private sector can see a direct benefit in conservation and environmental protection, even if that benefit is shareholder support and not necessarily a direct cost saving, then there is a better chance of minimizing the impact of decisions such as Trump’s on Bears Ears.