Impact Investing: Aligning Capital with the Conservation of Nature
(First published Sept 2015) Today’s environmental challenges are bigger than ever. And a rapidly growing population coupled with climate change will only exacerbate current threats. Big challenges like these will require bold solutions. The environmental movement must try new approaches and scale up our work so it’s bigger, better and faster.
Although our usual sources of funding—traditional philanthropy and government grants—are critically important, those sources can only take us so far. That’s why we’re excited about impact investing, a new conservation strategy that could have a tremendous impact in the environmental arena.
Impact capital—money invested in projects that provide a return on investment while driving positive societal impacts—is taking off in areas ranging from childhood education to clean tech. Although it’s still an emerging way to finance conservation, impact investing could unlock significant environmental progress—and significant returns for investors looking to align their portfolios with their values. Investors receive a below-market financial return coupled with a measurable environmental return. Together, the two pieces add up to a robust return on investment. Meanwhile, investees put the capital to work on large-scale, replicable conservation projects.
A year ago, my organization The Nature Conservancy (TNC), joined forces with JPMorgan Chase to launch NatureVest, an impact capital initiative that bridges the gap between conservation projects and potential investors. The conservation field is ripe with opportunities for impact investing—activities that offer cash flows, adequate risk-to-return ratios, solid track records and broad impacts. Projects range from sustainable timber and ranching to water and carbon offset markets. NatureVest and other groups are now building a robust pipeline of projects that wouldn’t be possible without impact capital.
For example, NatureVest’s first project was a traditional land transaction taken to a whole new scale—a 165,000-acre, $134 million acquisition in Washington’s Cascade Mountains and Montana’s Blackfoot River Valley. The deal is enormously strategic. It links millions of acres of wildlife habitat, protecting privately owned parcels that were dispersed among public lands and at risk of being developed, fragmenting the habitat. The lands also preserve the headwaters of the Yakima River, an important source of drinking water for the region.
It would have been very difficult to accomplish a deal with such a high price tag through traditional philanthropy alone. That’s where impact investments came in. Through NatureVest, impact investors provided 95 percent of the capital for the deal, allowing TNC to act quickly to purchase the lands. The bulk of the capital was provided at very attractive terms, as low-cost, long-term financing.
And it’s not just traditional land conservation that can benefit from impact investments. In northern Kenya’s rangelands, NatureVest is investing in cattle herding communities who agree to improve grazing practices. Through a $13 million deal—a combination of philanthropy and impact investment—we’re scaling up a program launched by Northern Rangelands Trust that buys cattle directly from herders at reasonable prices, feeds the cattle on sustainably grazed, nutrient-rich grasses, then processes the meat to sell to the Nairobi market at higher prices than the herders would have received on their own. The initiative generates positive financial, social and conservation outcomes. A portion of the additional profits received at the market goes directly to the herding communities for conservation, healthcare, education and anti-poaching security measures.
Here in the U.S., there’s a big opportunity for impact investment as cities turn to nature to manage storm water runoff, a major source of pollution for local waterways. Natural solutions such as rain gardens, green roofs and artificial wetlands soak up runoff, slowing the water’s flow and reducing its volume before it reaches already-stressed sewer systems.
With stretched municipal budgets, “green infrastructure” is a no-brainer—it’s a smart and cost-effective approach to protecting water sources while improving quality of life. To tap into this, NatureVest will launch a new development company to take advantage of an innovative Washington, D.C., regulation that creates a market for impact investors to finance green infrastructure that helps with storm water retention. The company will build green infrastructure projects and sell credits for storm water capture to developers, catalyzing an important new environmental market. The retention projects will create green space in underserved D.C. communities and protect waterways, while credit sales will create returns for investors. Through projects like these, impact investing can benefit everyone involved—local communities, investors, financial institutions and NGOs.
While our big capital-intensive conservation projects have long been supported by investors such as Hansjörg Wyss, Julian Robertson, Jeremy Grantham and others, for TNC, impact capital allows us to get more conservation done at scale. It helps us develop relationships with new types of capital providers. And, perhaps most importantly, the resulting dialogue with investors about how our projects perform against projected cash flows pushes TNC to be ever more precise in measuring the outcomes of our conservation work. And for JPMorgan Chase, the company’s employees get to use their financial expertise to help solve big environmental challenges.
Looking forward, our organizations are excited about what lies ahead. We now have a pipeline for novel transactions that will have big conservation impacts and would be very difficult to do without this partnership. We don’t view this type of collaboration as exclusive to TNC or JPMorgan Chase—we’re eager to work with other conservation organizations and other financial institutions. In fact, non-financial private-sector players and other nonprofits—including those outside the environmental space—could also benefit from this type of partnership.
We’re looking forward to discovering the countless conservation solutions impact investing can bring about, and we’re excited about the deals that nonprofits and private investors can make possible by working together.
Article by Mark Tercek, president and CEO of The Nature Conservancy (www.nature.org), the world’s largest conservation organization. He is the author of “Nature’s Fortune: How Business and Society Thrive by Investing in Nature,” released this summer in paperback. Before joining the Nature Conservancy in 2008, he was a partner and managing director of Goldman Sachs where he worked for 24 years. Follow Mark on Twitter @MarkTercek