By Paul Davies and Michael Green

Broadly defined, conservation finance is the raising of capital to support the conservation of land, water and resources. This concept started with “debt for nature” swaps during the 1980s and 1990s whereby developing countries agreed to protect ecosystems using revenues freed up by sovereign debt relief (such deals usually being arranged by international environmental groups). Recently, there has been an increasing focus on cash generating investments in this area, thereby excluding certain philanthropic and grant based activities. Market commentators note that, ideally, conservation finance should capture both elements. For example, in two reports (2014 and 2016), Credit Suisse and McKinsey suggest that “cash flow” should “in part remain with the ecosystem to enable its conservation” and also, in part, be “returned to investors”. In Ecosystem Marketplace’s assessment of the current market, it was emphasised that the key focus should be on “conservation impact” and that this should not be a “by-product of an investment made solely for financial return”. The difficulty appears to lie in striking the right balance between the conservation of the environment and financial gain.

Against this shifting landscape, a wider range of investors are being drawn to conservation finance projects. For example, “impact investors” such as high net worth individuals, family offices or foundations are increasingly attracted to this area as they place a greater emphasis on the environmental or social impact of their investments. They are often prepared to take on high risk projects or accept lower returns in exchange for these positive impacts. In addition, private sector investors (clients of banks, asset management firms and beneficiaries of public pension funds) are looking into investment products in this area, drawing into sharper focus the shift away from traditional philanthropic element of conservation finance. As Ricardo Bayon, a partner at Encourage Capital (an investment management firm offering conservation finance funds) recently told Environmental Finance Magazine, high impact investments no longer means investors are giving up their returns – it is possible to “have your cake and eat it.”