With the dual crises we are facing of climate change and biodiversity loss, the business of investing in natural capital is growing fast. The pace we’ve seen in the past year alone is certainly fast enough to be encouraging, but nowhere near fast enough.
In a recent report The Nature Conservancy co-authored with the Paulson Institute and Cornell University, we found there is a gap of around $700 billion per year, over 10 years, that we need to fill to reverse the decline in biodiversity. That money will take a tremendous effort to find and mobilize, but it seems rather reasonable when you consider it is just about 0.5% of the estimated $125 trillion in value that nature itself represents.
Of course, we know it is not that simple. I am privileged to lead The Nature Conservancy’s NatureVest impact investing team, whose mission it is to transform the way investors value natural capital, and whose job it is to structure transactions that can attract private capital with meaningful conservation outcomes alongside financial returns.
NatureVest has helped TNC and its partners close on a portfolio of investments representing $1.3 billion in committed capital.
It is incredibly difficult work to build science and the delivery of public goods into commercially viable structures. But today, seven years after our founding, NatureVest has helped TNC and its partners close on a portfolio of investments representing $1.3 billion in committed capital, and our biggest accomplishments show the promise of investing in natural capital:
- Our 2016 debt restructuring with the Republic of Seychelles launched a new financing tool that creates a sustainable funding stream for ocean conservation which provides a model for new opportunities in the Caribbean, Latin America, and Africa. Seychelles now has protections in place for 410,000 square kilometers of its ocean– an area the size of Germany
- In 2019, we closed on the Cumberland Forest Project, a $130-million private equity fund that is generating revenues from sustainable timber harvest, carbon sequestration and recreation on more than 100,000 hectares in the Central Appalachians, aiming to drive economic transition in the heart of US coal country and an economically viable model for protecting a globally significant hotspot for biodiversity
- And in 2020, we announced our partnership with Renewable Resources Group on their $900+ million Sustainable Water Impact Fund, which focuses on acquiring land and water assets in Australia, Chile, Peru and the U.S. As technical conservation advisor, TNC works to ensure the fund delivers conservation outcomes, such as terrestrial and wetland habitat protection and restoration, improved waterflow in streams and rivers, and sustainable groundwater management.
These wins were gained alongside difficult but important lessons. One of the first things we learned early on is that novel investment structures are very hard for investors to underwrite, and that it is just as labour intensive and legally challenging to build a $1.5 million deal as a $500 million deal. This helped us understand how important it is to meet the money where it is; creating structures that are acceptable to investment committees, while still seeking profound environmental impact.
We also learned the value that The Nature Conservancy brings to partnerships in natural capital investment. With our scientific capacity and long conservation track record, we think we can access more participants in the capital markets than a traditional investment manager. To do that, we work to ensure our deals meet a strict set of conservation parameters, with our experts delivering technical advice to maximise the impact of each transaction. This approach has helped mobilize substantial amounts of returns-seeking capital into deals that we believe can ultimately deliver conservation at scale.
Despite my optimism for the private markets, when it comes to protecting natural capital, it is important to recognize that private investment is not enough. Systemic change will be required through reform of subsidies for industries that destroy nature, as well as regulations and policies both domestic and international.
Internationally, an agreement around a price for carbon would be a significant advance, alongside risk disclosure commitments for biodiversity and natural capital. The fact is that the challenges the world faces require all hands on deck and the willingness to think differently about our dependence on nature – and more important, the risk of failing to recognize the value we derive from it.
On the domestic front, an effective corporate tax credit program - the likes of the U.S. affordable housing program launched 35 years ago - could also unlock considerable investment if it was well structured.