Who Will Pay For Nature? How To Catalyze Private Investment In Sustainability
Mark Tercek
Advisor to companies, countries, and non-profits on financial and business strategies to scale and accelerate environmental progress
As more and more world leaders call for action on climate change, a difficult challenge arises: How do we pay for it?
It will take an estimated $5-7 trillion per year over the next 15 years to solve climate change and to meet the other U.N. Sustainable Development Goals ("SDGs"), from ending extreme poverty to ensuring clean water and sanitation for all. That’s a staggering amount of money.
Annual government grants today only punch in at $142.6 billion. Philanthropy produces about $400 billion per year in the U.S., though only a small percentage of this goes to environment or sustainability issues. That leaves a huge financing gap.
Closing that gap is likely the most important thing an environmental CEO like me can focus on.
Despite the scope of the challenge, there’s good news. Institutional investors—pension funds, insurance companies, sovereign wealth funds—have an estimated $90 trillion in private capital under management, and some have shown a willingness to invest in projects that can achieve strong financial returns while achieving critical environmental goals. The key to unlocking large-scale environmental and social progress is incentivizing those dollars to flow toward addressing the SDGs.
There are three main keys to catalyzing these flows:
1) Design smart government policy.
Designing smart government policy is the most important step toward mobilizing private investment in a sustainable future.
We often get this right. Consider the emerging renewable portfolio standards in the U.S., now in place in 29 states. These policies have unleashed huge investments by the private sector. Likewise, solar tax subsidies in the US (and complimentary policies in other countries) have catalyzed enormous private capital flows and driven the cost of utility-scale solar energy down some 75% since 2009.
2) Develop creative financial accelerators.
From the municipal level to the international stage, we’re beginning to see new mechanisms to unlock private financing for conservation. These new solutions often resemble traditional finance vehicles—with an environmental twist.
Take, for example, the explosive growth of the “green bonds” market, which has grown from $3B in 2012 to $81B in 2016 and are projected to reach $150B in 2017. Or the stellar example of “blended finance” from Overseas Private Investment Corporation’s (OPIC) program of accelerating investments in renewable energy in India. OPIC provided a modest $20 million in government supported grants that is expected to leverage some $400 million of investments in renewables, effectively blending OPIC and private capital to get renewable energy projects off the ground in India.
3) Put data to work.
If we're going to continue to unlock these kinds of financial innovations, we’re going to need compelling evidence that these investments in nature will produce high returns. That means not only more data—but smarter data. It requires environmental engineers to collaborate with business people to turn flow rates, soil carbon stocks, and avoided forest conversion into dollars and cents. We can’t expect funders to invest in these deals based on anecdotal evidence or feel-good reasons.
Looking ahead
A prosperous and healthy future is within our grasp—but only if we can close the funding gap of a few trillion dollars that's standing in our way. At the end of the day, moving big pools of capital will require leaders—from governments, businesses, and NGOs alike—to stick their necks out and try something new. “Business as usual” just isn’t going to cut it.
This article has been shortened and condensed. Continue reading on Forbes.
Mark Tercek is the president and CEO of the Nature Conservancy and author of Nature’s Fortune. Follow Mark on Twitter: @MarkTercek. Read Mark's other columns on investing in nature on Forbes.
Photos (top to bottom): The Nature Conservancy is enabling compliance with Brazil’s progressive Forest Code, while increasing economic opportunity. ? Kevin Arnold; Growth of the green bond market from 2012-2016. Source: Climate Bonds Initiative; Hillock at Valles Caldera National Preserve. The Rio Grande Water Fund is will generate sustainable funding for a 10-30 year program of large-scale forest and watershed restoration treatments. ? Alan W. Eckert for The Nature Conservancy
Senior Lake & Stream designer & Fishery Biologist at Spring Creek Aquatic Concepts
6 年Mark Tercek in this grandiose scheme is there still room for people who leverage private land into creation of sensitive habitat? 60% of land in the USA is privately held. Our work represents these hidden contributors who invest in their own habitats via interest in recreation that results in habitat for rare species. We never ask for contributions, simple acknowledgement helps us unleash this massive pool of contributors. https://www.aquahabitat.com/wildlife.refuge.trout.conservation.html
Nature-Based Solutions | Carbon Management | Green Economy | Sustainable Agriculture
6 年I think there are a number of layers that need to be added to this perspective around catalytic investment in ecosystem services. Mark's article makes reference to soil carbon, flow rates and avoided forestry as key outcomes, but this neglects a number of other revenue streams that can be used to create layered returns to multiple investors. Well thought out biodiversity and ecosystem plans can catalyse tourism revenue, sustainably harvested timber and non-timber forestry products, sustainably produced agriculture including game meat revenues, biodiversity offsets from construction elsewhere, premiums from fairtrade (and other accreditation) service providers and a number of other revenue sources that go beyond water service and carbon offsets. There are many other ways to create revenue streams from sustainably managed land and these need to brought into focus to avoid the narrow lens of catchment management and carbon offsets
CEO | Passionate about our planet
6 年Spot on Mark....if you want to sell anything you need to monetize its value first. Thanks for sharing.
Senior Developer at US Solar
6 年As you say in your conclusion, we need leaders to stick their necks out for their beliefs. But... why should anyone if they wont be around to witness the worst effects of environmental degradation? A bit contrary to your view, if I'm understanding correctly, I believe the real question is who is going to care? Once people care about a future they'll never see, they'll put their money towards it.
Cyber Security Awareness SME
6 年Is anyone else highly sceptical of the private equity investors? Aren't these entities money launderers?