To meet global conservation needs, an estimated $300 to $400 billion must be invested. In order to bridge the current funding gap, a fundamental shift needs to happen to include not only traditional donors and funders, but also new potential capital sources such as banks, financial intermediaries and institutional investors.
Some industry experts suggest that new investors, such as high net worth individuals, pension funds, endowments, family offices and mainstream retail investors could provide as much as $200 to $300 billion annual for conservation activities. However, this shift to more market-based funding would require that projects produce long-term cash flows to support conservation while also generating a positive financial return for investors. To meet this need, investable cash flows from conservation projects would need to be at least 20 – 30% greater than current levels.
To this end, the Milken Institute Asia Center convened a day-long Financial Innovations Lab in February 2015 with industry stakeholders, NGO’s, donors and investors to discuss the potential innovative financing mechanisms for conservation. The Lab was based on a previous pre-Lab workshop which addressed current funding gaps and barriers to investment, to help conservation organizations better understand how to find the right types of financing to meet their needs.
The Lab participants reviewed existing case studies and explored various emerging financial tools to attracting a larger audience of investors. The participants created a series of financial and policy recommendations for implementation. The financial recommendations included exploring innovative financing options such as:
- Conservation community investment notes
- Social and development impact bonds
- Investment and revolving funds
- Better positive ESG screenings
- Risk-sharing products such as guarantees or advanced market commitments, specifically tailored to conservation
The policy recommendations developed included training and educational platforms to help bridge the communication gap between the conservation industry and the financial community, a mapping of natural capital for conservation projects, allowing conservation NGO’s to serve as investment advisors to certify projects as investable opportunities, and requiring regional and domestic banks to develop better understanding and implementation of sector level ESG policies and guidelines.
The results from the Lab, including recommendations for next steps for implementation, have been published: view full report here. For more information, contact Caitlin MacLean, Director of Innovative Finance at firstname.lastname@example.org