State of Green Business
How to find more money for conservation and other causes
As environmentalists, our job is never done.
And as the world's challenges grow each year, there's one thing conservation organizations need more of: money.
Philanthropic gifts and government funds are critical, and we are enormously grateful for our supporters' generous donations and grants. But to truly achieve our mission, we'll need more capital than they likely can provide.
But there's good news — impact capital provides tremendous opportunity to unlock untapped, additional resources for protecting nature.
Impact investments designated for conservation more than doubled between 2009 and 2013, from $892 million to $1.9 billion. However, there aren't enough investable projects out there — only half that funding has actually been deployed.
The Nature Conservancy (TNC), which has used nearly $200 million in impact capital during the past year, is structuring more of our conservation projects so they deliver a cash flow that can provide a return for investors. We also look for ways to replicate and scale up these projects so we can generate more investor-supplied capital to accomplish our mission and get more done.
Using nature to help cities
In Washington, D.C., for example, we're using nature to manage stormwater runoff — a major issue in many cities around the world.
Paving the way for TNC's work, D.C.'s local government in 2013 instituted a stormwater cap-and-trade policy mandating that anyone renovating or building new construction meet strict stormwater retention standards. Fortunately, developers can use offsite natural — or green — infrastructure to meet up to half that requirement.
NatureVest, TNC's impact investing unit, and Encourage Capital — NatureVest's co-founder in this venture — are using impact capital to create a local company that will finance and develop projects in areas of D.C. that would most benefit from nature-based solutions to stormwater runoff. Those projects will generate stormwater retention credits, which developers can purchase to meet D.C. requirements. Credit sales will generate returns for investors.
Buying these green infrastructure credits is attractive to developers for several reasons:
Developers get more value from these offsite natural solutions. Onsite infrastructure, such as green roofs or underground cisterns, is often more expensive and can reduce the amount of space available for desirable amenities such as parking spots and public roof space.
Green infrastructure begins performing right away, immediately retaining and filtering stormwater. Large-scale municipal gray infrastructure projects could take years to deliver results.
Nature-based solutions appreciate in value as plants grow, increasing their capacity to absorb stormwater, while gray infrastructure depreciates.
Projects like this create returns that benefit investors, the environment and communities. Here are three ways we as an organization benefit from impact investing, too.
1. Projects get to scale, faster
Traditional nonprofit funding sources remain critically important, but they are finite. Through impact investing, we're tapping into a new funding stream that allows us to quickly scale up and replicate our work.
Relying exclusively on philanthropy could have taken years to plan and implement our D.C. stormwater project. Instead we focused philanthropy on research and development activities, which hold greater risk and uncertainty.
With this groundwork built, we will draw on funding from the impact investing market to launch our first set of projects. Impact investors provide capital at a cost that is sensitive to time, so we deploy and return their funds as quickly as possible to minimize that cost.
We hope this project will expand people's view of conservation from a charity cause to an investable asset. And the more opportunities we find to develop cash flows from conservation, the more capital we can attract and reinvest in this work.
We envision other cities drawing on what we learn in D.C. to build and adapt their own policies and investment models, catalyzing a movement toward green communities of the future.
What would this look like? In Detroit, perhaps we could help neighborhoods transform abandoned facilities into parks and natural spaces that clean water before it reaches Lake Erie. In Seattle, we could introduce nature to buffer the flow of polluted runoff into Puget Sound’s estuary.
2. Our work is governed by greater discipline
Impact investing shifts nonprofits' relationships with capital providers from a traditional donor/donee pattern to an investor/investee dynamic.
Just as banks rigorously assess any prospective loan, impact investors hold potential investees to very high standards of accountability and transparency.
For example, before finalizing an investment in the stormwater project, our investor tested our cash flows, assumptions and operating capabilities and linked our compensation to our financial model. All of this ensured that the work would proceed on time, on budget and in line with D.C. regulations.
Of course we aim for such rigor in all of our projects, no matter how they're funded or what kind of reporting the funder requires. Some of our most strategic and generous donors expect similar levels of accountability. Yet in the impact investing world, these expectations directly connect our potential funding to our ability to generate environmental impact and financial return.
Detailed, back-and-forth dialogue with the investor about how the project will perform against projected cash flows pushes us to be more efficient and effective in our work. Ultimately, by meeting investors’ expectations and returning their capital, we earn the ability to access it again and can attract other investors with similar goals.
3. Co-benefits broaden our base of support
At TNC, many of our impact investing projects are designed to do more than just deliver conservation results and generate financial returns. They also improve quality of life for local communities.
The more impacts we show, the more attractive investors find these projects. This broadens our base of support by making our work relevant to non-traditional conservation supporters, such as those interested in urban issues or workforce development.
Take our work in D.C., for example. Green infrastructure not only keeps polluted stormwater from running into the Anacostia River and Chesapeake Bay. It also creates jobs to maintain and build green infrastructure. It provides access to natural spaces for recreation and builds community in underserved neighborhoods. And it reduces basement flooding and other runoff-related problems for local residents.
Transforming nonprofit finance
Impact capital is not only driving our urban stormwater work. It's also allowing us to help island nations reorganize their debt in a way that supports climate adaptation and marine conservation. It's enabling us to empower the expansion of community-based, sustainable grasslands management and cattle herding in Kenya.
We're building a robust pipeline of investable projects that use private capital to protect nature. This new source of funding enables us to scale up and accelerate our work while generating co-benefits for communities. It adds a layer of discipline to our work and helps us attract even more resources when we deliver results for investors.
Not too long ago, the idea of buying private lands to protect them was a bold idea in the environmental community. Fast-forward just a few decades, and it's now a tried-and-true approach that has helped TNC protect 119 million acres worldwide.
We firmly believe impact investing will be similarly transformative — and not just for the environmental movement. This new approach to social causes can mobilize significant financial resources to tackle the biggest challenges of our time.