Thursday, January 28, 2016

From Davos: 6 Ways Impact Investing Is Transforming the Environmental Movement

By Mark Tercek, President and CEO of the Nature Conservancy and author of Nature’s Fortune. Follow Mark on Twitter @MarkTercek.

Impact capital is revolutionizing the nonprofit world—and conservation.

Impact investing is a big topic of conversation this week at the World Economic Forum in Davos, Switzerland....

By using investor dollars and business principles to transform the traditional nonprofit funding model, I think we can significantly accelerate progress.

Here are six examples of impact investing deals that my organization, the Nature Conservancy (TNC), closed during the past year.

1. Arrange a LBO for Nature.
TNC purchased 165,000 extremely strategic acres in Washington and Montana to save millions of acres of wildlife habitat, protect drinking water sources and eliminate the risk of development.

The purchase price was $134 million. Impact investors provided 95% of the capital at very low-cost financing, and just 5% came from traditional donors. In other words, we did a leveraged buyout for nature. We leveraged our precious donor capital to maximize returns.

2. Partner with Samburu Warriors to Improve their Cattle Business.
We raised $25 million of investor and donor capital to start a livestock business to improve cattle grazing practices of northern Kenya’s Samburu communities.

The program empowers African communities to sustainably manage their grasslands, earn higher prices for their cattle and reduce poaching on their lands.

3. Make a City like a Forest. Save Billions.
Cities around the world face huge challenges from stormwater runoff.  During rainfall, storm drain and sewer overflows send grime, pollution and even raw sewage into nearby waterways.

In Washington, D.C., we’re using impact capital to build green infrastructure that cost-effectively soaks up stormwater right away. It’s a model we plan to use around the world to help cities save money on expensive infrastructure upgrades that take a long time to build—and to help them hugely improve their environment at the same time.

4. Put a Price on Water.
A big challenge for water is that its value is much higher than its actual cost. Using water is a steal, and it shouldn’t be.

We’re putting a fair price on this resource by creating a market for trading water allowances among farmers, cities and conservation organizations.

TNC recently closed its first round of funding—$19 million—for what will be a $69 million fund in Australia.

5. Restructure Debt to Empower Marine Conservation.
TNC used impact capital to help the Seychelles government restructure nearly $30 million of debt.
File:Victoria (Seychelles).jpg
Eskay at German Wikipedia
The arrangement allows the island nation’s government to redirect debt payments to protect their oceans and coasts from the impacts of climate change.

[According to a December 7, 2015 press release by the Nature Conservancy:
Seychelles is a nation of 115 islands in the Western Indian Ocean about 1,000 miles off the coast of East Africa and north of Madagascar.... The financing will promote implementation of a Marine Spatial Plan for the entire Seychelles Exclusive Economic Zone, a territory approximately 3,000 times the size of their land mass. The deal will also ensure approximately 400,000 km2/98.9 million acres (an area larger than the size of Germany) will be managed for conservation as marine protected areas (MPAs) within five years....this debt restructuring converts a portion of Seychelles’ debt to other countries into more manageable debt held by a local entity; this is accomplished by refinancing it with a mix of impact investment and grants. The Nature Conservancy raised $23 million in impact capital loans and $5 million in grants to buy-back $29.6 million of Seychelles debt at a 5.4% discount. The cash flow from the restructured debt is payable to and managed by an independent, nationally based, public-private trust fund called the Seychelles Conservation and Climate Adaptation Trust (SeyCCAT). Debt service payments fund three distinct streams: one for work on the ground that will help reduce risk through improved management of coasts, coral reefs, and mangroves, another to  repay impact investors, and a third to capitalize SeyCCAT’s endowment.]]

6. Bring Nature into Investment Portfolios.
TNC created the Conservation Note, a new financial product that allows investors to make loans to conservation projects.

Investors earn a below-market fixed rate of interest together with an environmental return. Since its initial offering, investors have purchased more than $42 million in Notes.

A Bank for Nature 
To finance deals like these, TNC and JPMorgan Chase formed an investment bank called NatureVest. NatureVest is a TNC unit that structures investments and raises capital from investors who want to fund projects that deliver both environmental and financial returns.

Impact investing has huge potential to scale up solutions to the big challenges we’ll be focusing on this week in Davos.

By Mark Tercek, President and CEO of the Nature Conservancy and author of Nature’s Fortune. Follow Mark on Twitter @MarkTercek.
The Nature Conservancy

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