Blueprints for Conservation Investment Can Expand the Market

Colorado river

Forward-thinking nonprofits and environmentally driven investors are increasingly using blueprint reports to help develop conservation finance markets. Blueprints are in-depth proposals designed to provide investors and stakeholders with creative ways to source cash flows and investment opportunities within key conservation areas.

Past blueprint reports have provided strategies for a range of sectors and topics from sustainable timber and fisheries to watershed management and carbon finance.

Blueprints are distributed by investment firms and nonprofits committed to finding market-based solutions to conservation issues.

Using blueprints as informational guides, organizations such as Encourage Capital and Coalition for Private Investment in Conservation (CPIC) offer precise guidance in pioneering conservation investments.

The goal of these reports is to scale conservation finance projects into a widely-accepted asset class. Earning recognition as a mainstream asset class requires large quantities of investable products.

Conservation investments cannot be limited to large institutional investors or mission-based organizations. For conservation finance markets to thrive, streamlined procedures must be developed that attract mainstream investors.

In order to reach the mainstream investor, quality research must be widely distributed to bridge informational gaps. Once conservation finance is able to develop into a widely-known asset class, more private capital will readily flow to conservation ventures.

Blueprint reports are designed for all conservation stakeholders including environmental entrepreneurs, conservation nonprofits, investment firms, and policy developers. They offer a vision for what conservation deals and supporting market infrastructure can look like.

Reports include sector-specific background information and investment solutions. Additionally, they include detailed instructions for assessing feasibility, reporting impact, attracting investors, and managing assets.

Conservation-investment blueprints do more than just offer useful information to investors. They also provide the following advantages:

  • Blueprint authors have input years of research and creative thinking. This upfront commitment lowers transaction costs for deals, helping to facilitate private transactions.
  • Blueprints can help foster connections around conservation issues and projects. Blueprint authors and sponsoring organizations can act as a hub for linking motivated parties.
  • Blueprints detail a number of pathways for developing whole conservation finance markets. The reports can assist policymakers in understanding what conditions will spur conservation investment. Policymakers can use the research to protect stakeholders or otherwise enable market transactions.
Colorado River 2

Guiding Capital

According to John Tobin-de la Puente, cofounder of CPIC and professor at Cornell University, the amount of funding needed for conservation internationally is 5-10x current levels. This amounts to $250-350 billion to conserve ecosystems and their services for society.

While this funding gap may seem insurmountable, Tobin said, it is only 1 percent of yearly new and reinvested capital in private markets.

Moving that small percentage of private capital to conservation projects is the mission of CPIC and its participating organizations. Tobin said he has seen lot of interest in finance markets regarding investments that have tangible environmental impacts.

For instance, according to Ricardo Bayon, partner at Encourage Capital, just about every major global bank now has a sustainable-finance department.

Green bonds, a well-known asset class focused on certified green and low-carbon infrastructure projects, are generally oversubscribed when issued, according to the California state publication “Growing the U.S. Green Bond Market.”

The substantial interest in investments that can create both environmental and social impact is encouraging. Yet there is currently a limited supply of products that accomplish those shared goals.

This is where conservation finance blueprints can help. They propose opportunities to both conservationists and investors to help galvanize and strengthen mutual interest in investable products.

Mapping out Blueprints

CPIC’s mission is to scale ways to connect potential partners, convene them, and deliver executable deals among varied and disjointed parties. To accomplish this goal, CPIC focuses on blueprints to disseminate information and connect future collaborators. Tobin said he sees blueprints as "proposals for transactions that are investable, replicable, and highly scalable."

The organization recently published a report titled “Conservation Investment Blueprints: A Development Guide” encouraging groups to create blueprints of their own, Tobin said. According to the CPIC framework, blueprints should be grounded in reality and offer tangible impact metrics and financial strategies.

With blueprints, investors can get the information they need to do their own due diligence and overcome natural caution and transaction inertia. People in the conservation field can better understand the financial strategies and vehicles necessary to create deals.

Providing Research and Recommendations

Blueprint issuers collect in-depth background research in order to provide ready-made market snapshots and sensible investment proposals.

One example is Encourage Capital’s 2015 report, “Liquid Assets: Investing for Impact in the Colorado River Basin.” The report outlines the environmental and social issues in the Colorado River water basin and describes corresponding opportunities around water usage. The report ultimately illustrates how investors can benefit the millions of people that depend on the Colorado River.

The Encourage Capital report outlines categories of potential points of impact, including municipal water infrastructure and watershed enhancement. These concepts relate to concrete investment products that create opportunity in new or untraditional ways.

For the watershed enhancement category, the report proposes forest-health environmental impact bonds and riparian-restoration environmental impact bonds as double-bottom-line solutions. The report breaks down how to create these investments, states the pros and cons, and shows how to measure and report impact.

Reaching the Middle

Bayon said he wants to see conservation-oriented investment vehicles reach mainstream investors. The value of blueprints lies in addressing the needs of the unengaged middle pack of investors between the existing extremes of environmental investments.

On one end, Bayon said, traditional finance players get involved with large public-equity investments billed as impact investments. In these projects, the actual environmental impact is often secondary. On the other end, philanthropic or charitable organizations back projects primarily concerned with impact. These organizations may not be seeking yields from or even return of their principal.

These two investment extremes must be blended in order to grow the market and overcome the gap, Bayon said. The key is to build impact into investments right from the beginning. True impact investments cannot just appear environmentally attractive. Publishing conservation finance blueprints and raising the profile of conservation investments are important parts of this strategy.

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