Conservation finance

What if you could save endangered species, help solve the climate crisis, and offer economic development opportunities to rural communities--all while generating market-rate financial returns on your investments?

That is the promise of Conservation Finance, an industry that has been quickly developing over the past decade. Conservation finance is using traditional investment tools, such as public and private equity, fixed income, and insurance contracts, to achieve measurable and positive impact on the environment.

Companies, and their investors, are increasingly aware of their impacts on nature and on the communities depending on it. With the advent of social media, consumers are using their influence to spotlight bad actors and promote more conscientious competitors. Developed states are also starting to act against certain industries, such as palm oil production in Indonesia, that they have identified as drivers of biodiversity loss. Investors may unknowingly be exposed to these financial and reputational risks through their portfolio.

Companies, and their investors, are increasingly aware of their impacts on nature and on the communities depending on it.

The growing interest in environmental conservation is also creating a wide range of investment opportunities. The sector is bubbling with creativity. For example, U.S. cities have started issuing municipal bonds with a pay-out in part linked to the success of green infrastructures designed to improve water quality, such as urban wetlands and water gardens

The mitigation and conservation banking market in the U.S. allows developers to meet their legal obligation to offset their impacts on certain species and habitats by purchasing credits from projects that restore and protect in perpetuity sensitive properties located near the impact sites.

In developing countries, several debt funds and real asset funds focus on blending environmental and social impact and support local enterprises in the ecotourism and sustainable agriculture space. Many of those funds reduce the risk to investors by using guarantees from development agencies. In some cases, these funds also generate carbon credits that can be either sold or distributed to investors in the fund.

The sector is bubbling with creativity. U.S. cities have started issuing municipal bonds with a pay-out (in part) linked to the success of green infrastructures

The commonality among all these investments is that they are seeking to create measurable, positive conservation impacts while generating financial returns. They are very attractive to impact investors because, if successful, they have the potential for long-term change at a large scale. An impact investment that proves to more risk-adverse investors and entrepreneurs that the business model is sound and can generate the expected environmental benefits and financial returns can be catalytic.

Once this initial hurdle is cleared, projects can be scaled-up and replicated using more traditional (and more plentiful) sources of capital. There are additional benefits to conservation investments. Because they are for-profit endeavors, they are usually run more efficiently than non-profit projects, create economic development in the communities where they are located and they do not rely on long-term financial support from donors to continue generating conservation benefits.

Impact investors—whether individuals, mission-driven funds, foundations, or others—interested in being involved in conservation finance may want to explore a few avenues:

Talk with your investment advisor about your allocation to sustainable investments. Most environmental investments strategies are solely focused on renewable energies. Are you supporting conservation investments?
Engage in the conversation around companies’ disclosures of their impacts on biodiversity. For example, read the upcoming Dasgupta Review on the economics of biodiversity, follow the upcoming Task Force for on Nature-related Financial Disclosures, or join the Natural Capital Coalition.
Join the Coalition on Private Investment in Conservation to learn more about the innovative business models that are being develop around for-profit conservation.
Develop a grant or a program-related-investment initiative to support early stage conservation ventures and niche investment funds. Because of the perceived risk of those new models, blended finance (the mixing of concessionary capital with traditional capital) can be catalytic in this space.

Conservation finance

Further reading

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