NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, November 6, 2014

ARLINGTON, V.A., Nov. 06 /CSRwire/ – The first-ever survey of conservation impact investing reveals a fast-growing market totaling approximately $23 billion in the five-year period from 2009-2013. During the same period, private investments accounted for almost $2 billion of this market—an amount that is growing at an average of 26 percent annually, and is expected to reach more than $5.6 billion by 2018.

Investing in Conservation: A landscape assessment of an emerging market is the first data-driven study of the market for conservation-related investments based on direct feedback from investors. Conservation investments, also referred to as conservation impact investments, are intended to return principal or generate profit while driving a positive impact on natural resources and ecosystems.

The report was co-authored by EKO Asset Management Partners and The Nature Conservancy’s NatureVest division. It was overseen by a steering committee that also included the David and Lucile Packard Foundation, The Gordon and Betty Moore Foundation, and JPMorgan Chase & Co. The report presents findings from a survey of 56 investors, including five for-profit and nonprofit development finance institutions (DFIs) and 51 private investment organizations.

This report shows the growth of the market for conservation impact investing; its authors anticipate that its publication will lead investors who were not able to be counted in this survey to share their portfolio activity in future work.

The report shows that private investments in this space are expected to more than triple over the next five years (2014-2018). However, the report also finds that a substantial amount of potential private capital has not been deployed, demonstrating the need for a significant increase in the number of risk adjusted investment opportunities.

According to survey findings, the approximately $23 billion committed to conservation impact investments from 2009-2013 was invested in three main categories:

• Water quantity and quality conservation, including investments in watershed protection, water conservation and storm water management, and trading in credits related to watershed management

• Sustainable food and fiber production, including investments in sustainable agriculture, timber production, aquaculture, and wild-caught fisheries

• Habitat conservation, including investments in the protection of shorelines to reduce coastal erosion, projects to Reduce Emissions from Deforestation and Degradation (REDD+), land easements, and mitigation banking

Other key findings include the following:

• Private investors expect to deploy $1.5 billion of already-raised capital over the next five years, and to raise and invest an additional $4.1 billion

• Of the nearly $2 billion already invested by private investors, 80 percent came from only 10 sources

• The total market for conservation investment is expected to increase to $37.1 billion over the next five years

• Of the three categories of conservation investment studied, DFIs invested largely in water quality and quantity projects ($15 billion), while private investors invested largely in sustainable food and fiber production (about $1.2 billion)

• Survey respondents noted a shortage of investable projects and opportunities, indicating that they need more deals with adequate risk-return ratios and more seasoned management teams

Impact investment is one way to address the critical global deficit in conservation funding. An estimated $300 billion annually is needed to meet the world’s conservation challenges, according to a Global Canopy Programme report. Yet current levels of investment, mainly from governments, multilateral agencies, and philanthropic sources, total only about $50 billion.

To address the shortage of conservation impact investment opportunities, the study co-authors are working to structure conservation opportunities that can be supported by private capital. In 2014, with support from JPMorgan Chase & Co., the Conservancy launched NatureVest, a dedicated division focused on deploying $1 billion in impact capital for conservation over the next three years by convening investors, developing and executing innovative financial transactions, and building an investment pipeline across multiple sectors.

Survey respondents provided information about their impact investments from a five-year period, 2009-2013, including intended conservation impact, size and type of investment, target internal rate of return, and performance to date. Respondents were also asked about the structures of their investment portfolios in the period from 2004 to 2008, and their perceptions of and long-term visions for the future market for conservation-related impact investing.