Impact investing: Conservation gets finance boost


Helen Avery
Published on:

Credit Suisse leads banks with coalition for investments; forest resilience bond slated for next year.

The Forest Service’s budget towards fire suppression is expected to rise to 66%

Conservation finance got a boost in December when the Global Environmental Facility (made up of 18 agencies) allocated over $8 million to the Coalition for Private Investment in Conservation (CPIC). The Rockefeller Foundation also gave its in-principle support in providing grant funding.

CPIC was set up in 2016 and launched formally in September. It brings together non-profits in the conservation area, including the Nature Conservancy, Rainforest Alliance and WWF, with consultants such as Baker and McKenzie, impact investment managers like Althelia and development agencies, including the European Investment Bank. Credit Suisse was a founding member of CPIC and is the only commercial bank involved at that this point.

Since coming together, the stakeholders have been forming working groups and sourcing projects suitable to be put into conservation investments for private investors. 

Over 12 months, the CPIC put together a portfolio of potential projects (so called ‘blueprints for investments’) around the world in sectors such as biodiversity, climate change, land degradation and international waters. 

Potential projects include sustainable cattle ranching, climate-smart coastal resiliency and a vertically integrated sustainable seafood model.

It is hoped that the injection of money from the Rockefeller Foundation and Global Environmental Facility (GEF) will allow the projects to become investment-ready and help anchor them once they are brought to market. 

The appetite is there, but the deal pipeline is not. We need to create suitable vehicles around meaningful projects to bridge the gap for investors 
 - Leigh Madeira, Blue Forest Conservation

Fabian Huwyler represents Credit Suisse on CPIC’s steering committee and leads the bank’s conservation finance efforts. He says the coalition is unique because it brings together members from the whole project value chain to create investment blueprints. 

“There has been a lot of trust by the GEF, the Rockefeller Foundation and others to fund the initiative with significant amounts of money, hoping that we can unlock significant private capital through that approach,” says Huwyler.

Indeed, conservation investments have been limited until now. 

Swiss advisory firm, Clarmondial, and the WWF put out a report in November called ‘Capitalising conservation’, exploring the role of private investments in the conservation sector. 

The report points to a recent survey by Ecosystem Marketplace focusing on land-based investments but excluding renewable energy, which reported an allocation of $8.2 billion to conservation investments so far. 

There is great potential for the conservation investment market to grow, say the report’s authors: “It is estimated that conservation investments would need to grow 20 to 30 times from current levels to address the estimated funding gap of $250 billion to $350 billion [a year].” 

New challenge

Part of the challenge in the growth of conservation finance is simply that it is new. A case in point is the forest resilience bond (FRB) that has been two years in the making, and is expected to have a phase one launch next year – most likely in the form of a loan. 

The structure is the brainchild of four MBA graduates who won Morgan Stanley’s Sustainable Investing Challenge with their idea, and went on to found Blue Forest Conservation, which is leading the development of the FRB.

The vehicle seeks to match investments from institutions and individuals with projects designed to make forests more resilient. The decreased costs to beneficiaries, such as utility companies and the US Forest Service, will serve as the repayment to investors if the projects are successful.

Leigh Madeira, Blue
Forest Conservation
Co-founder Leigh Madeira says the exact structures are still being fleshed out among the many collaborators, which include investors, state governments, land owners, research and development partners. The benefit to the US Forest Service and similar entities would be the upfront money to put to work in restoring forests to their natural density so that they can withstand events such as fires.

Madeira says about 16% of the Forest Service’s budget used to be put towards fire suppression, now it is over 50% and is expected to rise to 66%. 

“What has happened is that instead of having the resources to proactively manage the forests with prescribed burns and mechanical thinning – efforts that are proven to reduce the risk of severe fire – those resources are being spent instead on controlling blazes,” says Madeira. “Effectively, the Forest Service is having to borrow funds from other budget lines like restoration to suppress fires. We are paying for today’s fires with funds that would prevent tomorrow’s fires, so a new approach is needed.”

Utility benefits

In addition, utility companies stand to benefit from forest restoration projects, because water quality is impacted by forest fires. After large fires, such as the Hayman fire in Colorado in 2002, sedimentation can find its way into local reservoirs and may take many years to be removed. 

The projects will be designed by the Forest Service and other groups that have experience in forest resilience.

Madeira is hopeful once the initial FRB is launched, similar structures will follow. 

She says grant money was required to fund the research and resources in getting the project off the ground: “There are a lot of moving parts – the measurement, contracting, stakeholder engagement, implementation, planning and, of course, governance. But it’s like any innovation, it takes a while to set up, but once the foundation is there, it can be replicated more easily.”

Madeira says she has no doubt that conservation finance will grow

“Part of the reason we felt confident in moving forward was that investors were approaching us looking to get involved. That appetite is there, but the deal pipeline is not. We need to create suitable vehicles around meaningful projects to bridge the gap for investors.”