Conservation finance poised for mainstream markets
Restoring wetlands, protecting working forests and farmland, and enhancing wildlife habitats are some of the most exciting avenues for resilient investing. Such efforts provide tangible returns in the form of regional resiliency, and increasingly, they are being packaged into traditional investment vehicles that offer reliable financial returns as well. Earlier this year, senior executives from Goldman Sachs, JPMorgan Chase, Credit Suisse, and others gathered to discuss what they see as a burgeoning market for conservation finance. “The mantra of this event is, ‘scalability, repeatability, investability’” said John Tobin, managing director and global head of sustainability at Credit Suisse. And the numbers being bandied about are certainly exciting for those of us who’ve been touting the trailblazing—but modest—grassroots efforts of various regional organizations that have, until recently, been the primary movers and shakers in this realm. Consider: while conservation efforts by governments and foundations have been funded to the tune of about $50 billion/year, the annual global need is for 6-8 times that figure. Already, though, Green Bonds are booming, tripling to over $35 billion in 2014; this is the tip of the potential iceberg in the fixed-income market, which holds close to $100 trillion in relatively liquid assets.
According to Dave Chen, CEO of Equilibrium Capital:
We can’t create capital markets until something is boring enough and well understood enough that I can repeat it and repeat it and repeat it. Not just one-off or 10 times but thousands and tens of thousands of times. …We’ve seen this happen in market after market. They go from emerging, unclassified, unknown, lots of scary things about them … to increasingly becoming mainstream. And then the market takes off.
A Credit Suisse report found that less than 1 percent of the new and reinvested capital of institutional investors, high- and ultra-high net worth individuals, and retail investors dedicated to conservation investment could provide as much as $200 billion to $300 billion toward closing the annual conservation investment gap. Already, a slew of exciting projects have raised hundreds of millions of dollars each to restore wetlands, protect farmland, and buy forests; the big shift in the past few years is being able to attract public pension funds.
“The trend is clear. The field is developing. More deals are coming out,” said Credit Suisse’s Tobin. “We will know we have succeeded when more people realize that conservation can also be an investable proposition, that you really can make money in conservation.”
So far, most of these investment opportunities are limited to accredited investors, but it is very likely that the success of these early efforts will lead to a similar explosion of bundled or crowdfunding options for smaller investors before long. Resilient investors will want to maintain a bit of ongoing research in this direction in order to jump on the early opportunities as they arise.