Tom Manning, a Senior Research Scholar at the Center for Sustainable Business, researches financing structures designed to support environmentally beneficial policies and practices. Below, Tom gives a recap of the Conservation Finance Investors Conference on January 9th. The conference brings together practitioners to explore and highlight effective financing strategies for conservation, restoration, and sustainable use of land, water and other natural resources. Key points from the conference include:
- The conference itself, in earlier years dominated by people from foundations and NGOs, is now not only much larger, but predominantly attended by investors from across the private debt and equity spectrum. This is an encouraging sign as there is no route to the needed scale absent massive private investment.
- While this is a field largely driven by environmental regulation that effectively internalizes what are otherwise externalities, there was also discussion of market-based drivers, including opportunities for efficiencies that can go straight to the bottom line, as well as consumer demand (ever-growing, as very high percentages of millennials cite sustainability and climate concerns as high personal priorities).
- The non-profit and public sectors remain a necessary piece of the financing mix in many situations, providing guarantees, subordinated financing, and other forms of credit enhancement to attract private capital to investment structures that have yet to prove themselves over time.
- Market-based pressure points favoring conservation and resilience investment could multiply quickly. Insurance costs, for instance, may soon become a driver, with rates incorporating the greater likelihood of catastrophic weather-related events. Similarly, cities' credit ratings may soon reflect exposure to climate risk, which will drive public resilience investment.
- There were discussions of trade-offs: Sustainable mining sounds like an oxymoron, but of course we enjoy the fruits of mining -- cars, smart phones, etc. -- so what does sustainable mining look like? We should fully price water to drive conservation, but rapidly rising water costs are a problem in low-income communities. We need more affordable housing; will it be greenfield development?
- Given the scale needed to address conservation and resilience challenges, replicability was a mantra -- transaction structures that are readily understood in the marketplace and can be repeated time and again. Participants gave examples of apparently replicable transactions for such goals as reducing combined sewage outflows and capturing and selling methane that would otherwise leak into the atmosphere (from, yes, manure lagoons, but you knew this was glamorous work!).
- Have we found those replicable, factory-line ready, financing structures? For some applications, quite possibly. There is no question that the financial community is putting its considerable creativity towards solutions and ready to invest where there is the prospect of return. But lots of conservation solutions, as valuable as they are, don't create a direct and immediate flow of revenue. That's where regulation and policy can come in. In the meantime, where there is something to sell, like methane gas, scale will be built one manure digester at a time.
- Alongside the emphasis on strategies to induce private investment seeking market-rate returns, the conference has something of a mission-oriented mindset. Dave Chen of Equilibrium Capital, one the conference organizers, reflected this by concluding the gathering with a pair of poems: Vaclav Havel's, "It is I Who Must Begin," and "The Journey" by Mary Oliver ("One day you finally knew what you had to do, and began...")
The conference agenda, with each speaker panel, can be found here.
2019 Conservation Finance Investor Conference Recap
Friday, January 25, 2019