We are consuming natural resources, which seemed nearly infinite mere decades ago, at a pace that Earth cannot sustain. The degradation of Earth’s ecosystems and the air, soil, water, and natural habitats we depend on, along with the looming threat of climate change, urgently needs to be addressed to protect humans and the natural world alike. Conservation finance refers to impact investment opportunities that deliver financial returns while helping protect the earth’s stock of natural capital. While most funding for conservation is still derived from public or philanthropic sources, the share of funding from private sources of capital is experiencing impressive growth, helping fill the estimated shortfall of $300-$400 billion needed to stabilize Earth’s natural processes and ecosystems that we depend upon.
As the conservation finance industry grows, so too do opportunities for investors only interested in market-rate returns, as well as those with different risk-return profiles, time horizons, thematic and geographic interests, and diversification needs. Industry growth also generates much needed data on returns and impact. Certain risk characteristics of conservation finance instruments will likely remain relevant, however, such as a lack of liquidity, climate risks, and environmental regulatory uncertainty. Other issues, such as a lack of deal-ready opportunities, high transaction costs, and a lack of property rights over natural resources, still need to be addressed with scalable and transferable project design solutions.
This report discusses conservation strategies currently being implemented that are most relevant to Boundless’ network of investors interested in this space. These strategies can be grouped into two categories: working land management and environmental markets. We also review financial instruments used to implement these strategies, which include Green Bonds, sustainable land management financing instruments, and conservation and mitigations banks, providing a framework of asset classes available in the conservation space. We present case studies, generated from original interviews with conservation finance experts, of companies, financial instruments, and business models that reflect the innovation and growth of the industry.
There are numerous impact measurement frameworks and tools customized to the needs of different sectors and investors. Some of these evaluate the impact of projects while others evaluate the sustainability or environmental performance of companies. Even as the number of frameworks and metrics continue to multiply, there is a growing recognition of the need to standardize metrics so that projects, companies and instruments can more readily be evaluated against each other. We offer focused insights into a selection of methodologies and metrics that are being used today to introduce impact investors to the range of tools available to them.
We also highlight several emerging trends, such as the use of Big Data and blended finance, and sectors, which include water conservation, sustainable aquaculture, and ecotourism, that impact investors should monitor over the next several years. Finally, we offer a set of recommendations to guide conservation-focused investors, gleaned from our interviews with industry experts and in-depth research.