A new IUCN-backed report released yesterday identifies three new investment structures that could help catalyse finance to meet the world’s pressing environmental challenges and sustainable growth goals.
The report, Conservation finance from niche to mainstream: The building of an institutional asset class, highlights the need for new investment structures to overcome key market barriers and enable the conservation market to flourish.
“Currently, there is a lack of conservation deals available at the scale required to meet the world’s environmental challenges and institutional investors’ interest,” said Gerard Bos, Director of IUCN’s Business and Biodiversity Programme. “Moreover, these deals need to be ‘fit-for-purpose’ to deliver a good return on investment for biodiversity and conservation."
Collaboration between the conservation and financial communities is critical for developing innovative solutions that will protect biodiversity and natural resources, says the report, which outlines a pathway for building a new asset class around conservation benefits.
Conservation finance combines real assets, like tropical forests, with cash flows from operations in fields such as sustainable timber, agriculture and ecotourism.
Produced by Credit Suisse and McKinsey’s Center for Environment and Business, with support from IUCN, the Gordon and Betty Moore Foundation and the Rockefeller Foundation, the report builds on a previous study that identified the unmet demand for conservation funding.
According to the 2014 study, US$ 200-300 billion in additional capital is needed to preserve healthy ecosystems on land and in the oceans, including clean air, fresh water and species diversity. Currently, conservation spending is estimated at about $52 billion per year.
In order to fill this gap, and establish conservation as an asset class, the report examines three areas that have the potential to establish conservation finance in the mainstream investment markets. It proposes growing conservation projects in the early stages through an incubator approach that involves all of the key stakeholders; scaling up and replicating proven conservation projects to minimize high transaction and structuring costs; and finally, moving tested medium-sized projects to large-scale projects for a much wider spectrum of investors.
For more information, download the report here.