Building the 'business' of Biodiversity

I recently had the pleasure of spending time in Costa Rica working with the Eden Project team and Conservation Capital thinking through what potential business models can be created for the reforestation of around 65,000 ha of what was once dry tropical forest (see photo at the beginning of the article for the current state of the land).

Through that trip we were looking to solve the problem of how to deliver the project in a way that is self-sustaining, financially and in creating a solution that delivers against social, water, etc. issues, delivering long term value to the community as well as regeneration of the dry tropical forest. The reason for writing this article was to discuss some of the elements that we covered as part of that visit around how do you create longevity around biodiversity regeneration, the funding approaches and the trade off between commercial activities and reforestation.

In considering these questions we really need to look at three major elements:

1.???? Getting access to the land: There are a few options associated with this, but the main ones are either purchasing that land from landowners who want to exit the region (usually driven by the poor economics of the existing approach to farming/land management) or working with local landowners in a cooperative way to pull together an effective reforestation approach while providing financial returns to those landowners.

2.???? Reforesting/redeveloping the land: These are the capital costs to develop the land from what is usually a relatively denuded state into a functioning high biodiversity site and the commercial activities around that site from agriculture to eco-tourism.

3.???? The operating costs of running the regenerated land: Even where reforestation has been through the land being left to regenerate itself, there is the need for everything from site security through to forestry/fire management, all of which come at a cost. For more complex mixed-use environments, these costs are more extensive.

The critical element to all of this is what is the value or utility that the project creates for all the stakeholders involved. We often focus on the short term, simply driving the regeneration to create the biodiversity outcome. What we need to look at is what makes this land valuable in the new state to all the involved stakeholders; local landowners, communities, government/regulators, corporates, global financial markets, etc. Like the continued call for carbon to be built into our financial system, the same is true for biodiversity – we need to create solutions that embed biodiversity into the businesses and communities that it impacts, creating long term value and longevity.

If we go back to the original three elements and start with the first. Moving away from the purchase of land through to thinking through how to work with the current landowners to change the financial model associated with that land to create biodiversity solutions is on my view the optimal process. This is for two reasons. The first is that capital does not need to be raised for land purchases and the second is that you get a committed owner of the land to drive the change.

This could be working with farmers in the UK to move to regenerative approaches and working through how to deliver in a way that is more economically beneficial than the current highly invasive plough/fertiliser driven process used today. This could equally be working with landowners in Central America to look at development of forestry regeneration blended with agriculture and potentially elements of eco-tourism to redefine their relationship with their land. In working with local landowners, we can stretch limited resources further, focusing on the actual regeneration, potentially impacting much greater tracts of land with resources available. What may be required is some form of an example to prove the case. This may mean buying a piece of land (or finding a local partner willing to experiment), using that land to develop the approaches for biodiversity delivery and then using that as a model to replicate with existing landowners once proven.

The second stage of the process is then determining what will be done with the land. From a biodiversity perspective we need to work at a granular level, matching the regeneration approach to land type, from aspect, through soil type, water levels, etc. to build out solutions that fit with the local environment and drive the biodiversity outcomes. This is complicated as for many environments we have an incomplete understanding of the eco-systems and how they work, so this needs to blend scientific discovery/method with the delivery approach.

We also need to look at the sources and uses of funds in that delivery. Again, this gets into creating utility not only for the owners of the land but also for the surrounding area. For the Costa Rica example there are benefits around reforestation from a biodiversity perspective, but also the reforestation helps to capture and manage water run-off (in fact rivers that had dried up are now running again), which not only has value on the land itself but also to surrounding landowners/farmers and business owners.

It’s very difficult to determine the quantify/value these impacts create before the work has started, so early discussions with potential impacted stakeholders to talk through what’s going to be done and what utility that’s then going to create for them with a view of then pricing that utility over time will be a key element of managing long term delivery. This may manifest in several different ways. For example, if the biodiversity creation acts as an anchor for future business development - think new Eco-businesses, animal parks in southern Africa, etc. - which creates value for not only the landowner but also for businesses around, then some form of a conservation fee in order to protect the asset which is creating the value may be appropriate. If I use the water example, the same is true. Getting organisations to pay effectively for the upkeep of that biodiversity to preserve the water source for long-term use.

Getting the right blend of biodiversity generation and revenue stream creation is a delicate balance and can create some interesting dichotomies. What we’ve been looking at is ways to monetise the process for the landowner/local community, looking at creating economic approaches to drive long-term value. For example, do you pull together land for biodiversity generation and then sell a few small plots for development to businesses or high net worths to create the funding to both do the regeneration and provide the operational cash flow.

If we are then blending business and biodiversity in an area we can create unsustainable pressure on the biodiversity area. Running a horse trekking business through regenerated land will have an impact on that environment, which while minimal, will need to be carefully planned and managed to minimise impacts. You may also want to introduce livestock to do vegetation management (or even simulate the large herders of herbivores that used to roam that environment), but again in a thoughtful way, which doesn’t impinge on the biodiversity approach.

In all these cases, are you perpetuating exploitative practices and how much is too much - something that needs to be carefully balanced in the design of the solution.

Once you have the land up and running, the third element is creating enough revenue to at least be able to cover operating costs (including a living wage for all involved). We also don’t want to be beholden on grant or credit funding. While these are incredibly useful, they have limited longevity. Grants are very dependent on government priorities, economic cycles, budgets, etc. and so therefore simply are not a reliable source of income. Things like carbon, biodiversity, water, social, etc. credits are also extremely useful but have a shelf life in that at some point they will run their course, as businesses and governments get better at self-mitigation. Now the timelines for these may be quite long, maybe even measured in decades, but the last thing we want to do is spend the next 15-20 years thinking we’ve created a long-term solution to then find that the economic situation or political environment changes and much of that land is then lost to poor practices again.

What is needed for all three elements is the creation of an integrated business case around what is effectively a biodiversity business, although it will also cover all elements of sustainability. We need to think about the capital and operational costs and cash flows and ensure that we’ve got a balance of business opportunities that create an effective long-term viable solution.

What is very true about the entire process is that it is very much early days. We know a lot of the models already work, for example, some of the regenerative techniques once you’ve gone through the investment phase can be very lucrative, however, these have not been proven on a significant scale. What is needed is to build these models out leveraging the incentives that are currently available, such as in the UK leveraging SFI grants to fund the development of farming models. Creating the exemplars and proving the model over all three phases will be essential if we want to pull in future investors. Funders are incredibly keen to support this transition, however they are still struggling to see the sophistication in the market to make them comfortable about those investments, and until we fix that problem, we are going to struggle to push this at scale.