BONN, Germany (Landscape News) — Attracting private capital into conservation is a hot topic. Conservation agencies, governments and financial institutions are increasingly joining hands to generate the funds needed to address the world’s environmental challenges.
However, there are also concerns that private investments in nature could have negative effects on local communities. A recent white paper by Althelia and Ecosphere+ addresses these concerns, arguing that involved organizations should hold themselves to the highest standards of accountability to both investors and local communities.
Althelia is an international asset manager focusing on sustainable production and environmental protection. It has a Climate Fund, which invests in projects that mitigate climate change through reduced deforestation and sustainable land use, while offering financial returns on private capital. Ecosphere+ manages the sales and marketing operations for Althelia’s climate fund, aiming to create demand for carbon projects.
Research suggests that the costs of lost ecosystem services from land degradation and desertification are $6.3 to $10.6 trillion per year.
Despite decades of tireless efforts by conservation agencies to protect the environment, natural habitats and biodiversity continue to decline, while the concentration of greenhouse gases in the atmosphere continues to rise. The problems are massive, and solving them costs money.
However, there is a large gap between the funding that is currently available for conservation and the funding that is needed. According to a 2014 report prepared by Credit Suisse, World Wildlife Fund for Nature and McKinsey & Company management firm, annual funding for conservation from non-governmental organizations, donors and governments amounts to around $41 billion, while effective conservation would require $300-400 billion per year.
This gap can be filled by attracting private investments, according to the report written by Althelia and Ecosphere+, who are jointly participating in a Global Landscapes Forum digital summit on May 24.. But private funding is different from government and philanthropic funding, as private investors expect to receive financial returns. In other words: They need a business case.
THE BUSINESS CASE
The approach adopted by Althelia and Ecosphere+ depends on two sources of potential revenue. First, there are the premium prices that customers are willing to pay for products that are produced in an environmentally and socially sustainable way, primarily through certification schemes.
Second, there is the carbon market, which offers income-earning opportunities for communities in forested landscapes. For example, when these communities manage to reduce deforestation (reducing carbon emissions), and restore degraded lands (increasing carbon uptake), they can sell carbon credits to companies or governments that want to decrease their climate impacts.
Although certified products and the carbon market offer prospects of financial returns, in the short-term they imply costs, for example to switch to sustainable practices and to set up monitoring and reporting systems. A major barrier is that small-scale farmers are often not able to get loans from banks.
Althelia and Ecosphere+ therefore work with local partners to improve farmers’ access to credit. They also help to make sure that the income from carbon and certified commodities is used to create enterprises that provide employment to local people (see the 2017 impact report for an overview of the achieved outcomes).
Private investment in conservation has its critics. Some fear that, when there’s a price tag on nature, conflicts over who has the right to benefit follow. When such conflicts emerge, local communities may lose out. For example, in a case of unclear tenure rights, local people may lose access to the forest resources they depend on for their livelihoods, when a more powerful actor (like a local government or company) claims the forest for a carbon project.
Some criticize the marriage between conservation and private capital at a more fundamental level, characterizing it as “sleeping with the enemy.” They are concerned that nature will be commodified. Kate Dillon Levin,vice president of marketing at Ecosphere+, says she does not want to spend too much time on this discussion.
“I prefer to focus on getting the work done. To those who feel that nature should not be commodified, I say: Look at your wooden lawn furniture—nature already is a commodity,” she told Landscape News.
“We have been exploiting nature for all its goods for so long, while degradation has been treated as an externality, and conservation has been set aside as a task for philanthropic organizations. This has clearly not been enough. We need to create a better balance, and by creating markets for environmental services we can put a positive value on nature. And businesses that integrate payments for environmental services, such as forest carbon credits, are actually playing a significant role in scaling land-use finance.”
REDUCING RISKS FOR COMMUNITIES
Although some of the more practical concerns are legitimate, not doing anything is not the solution, Dillon Levin said. From her perspective, the only way forward is to confront the challenges head on, by installing rigorous standards for accountability, transparency, social equity and environmental performance.
An important aspect of this is to consult indigenous communities well ahead of any project that may impact the lands that they depend on, to ensure free, prior and informed consent. For this, benchmarks are available, for example in the IFC Performance Standards.
It is also crucial to have formal mechanisms in place that local people can turn to when they have grievances. And, most importantly, any project will need to be able to provide measurable social and economic benefits to local communities, said Dillon Levin.
REDUCING RISKS FOR INVESTORS
Projects that involve small-scale farmers in developing countries are seen as risky by private investors, because the outcomes depend on many factors that are outside of their control. The higher the perceived risk, the higher the returns that investors expect. So, reducing the risk for investors will reduce the returns that they demand in exchange for their capital.
For this, Althelia adopts a “blended capital” approach, which means that they combine private capital with funding from governments and philanthropic organizations. For example, Althelia works with government-owned development banks, which can take more risks than most private investors, because they have an explicit development agenda, and because they do not pay dividends to shareholders. Combining different sources of funding decreases the risks of private investors. Over time, once a track record has been established, the hope is that private investors will accept lower returns.
Althelia and Ecosphere+ are organizing a Global Landscapes Forum Webinar on the role of private capital in conservation on May 24. Learn more by clicking here.