In 2015, the United Nations adopted its 2030 Agenda for Sustainable Development, at the heart of which are 17 Sustainable Development Goals (SDGs). These SDGs aim to tackle the social, economic and environmental problems facing humanity, and include things like improving access to clean energy, restoring and protecting ecosystems, and combatting climate change. Naturally, meeting such ambitious goals by 2030 will be expensive, with ecosystem restoration and protection alone estimated to cost up to US$ 400 billion.
So far however, the bill is not being paid.
At present, public, philanthropic and governmental sources invest US$1.7 trillion annually in activities conducive to meeting the SDGs, well short of the US$4.2 trillion that is required. Meanwhile, funding for activities that harm the environment far outweighs that for protecting it. There is therefore an urgent need to find additional sources of capital to fill the SDG funding gap and properly finance the protection of our planet.
Private investment could potentially make a drastic difference to this situation, closing more than half of the SDG funding gap. This in turn would allow environmental conservation projects to dramatically amplify their impact. There is already some appetite for this amongst the private sector and some financial institutions, as many private sector operations depend on natural resources that are at risk from environmental degradation.
However, on the whole, the private sector tends to avoid investing in environmental projects, which they perceive as unacceptably risky and offering limited returns. Therefore, any project looking for private investment must already be low risk and involve reliably profitable income-generating activities.
Blended Finance
Obtaining greater private investment for environmental conservation is crucial to meeting the SDGs, as the funding gap will be almost impossible to close without it. However, many projects that could potentially be attractive to private investors are currently in their infancy, when the risk of failure or low returns is high. They therefore need to be de-risked and financially supported (incubated) until they can predictably generate their own income. One approach to this is blended finance.
Blended finance refers to the combined use of grants (sometimes known as risk capital) and investment capital from both philanthropic sources and return-seeking institutions –including major donors, banks and institutional investors– to incubate a project in its early stages until it eventually becomes financially viable enough to attract private sector investments. This incubation period also allows for early identification and addressing of risks to further increase the project’s attractiveness.
The process of funding a project via blended finance happens in the following stages:
- Scoping:
- Survey a landscape of conservation importance for pressures on its ecosystems and income-generating projects that could reduce those pressures.
- Consult with stakeholders about ideas for bankable conservation projects (taking local economic and environmental dynamics into account).
- Structure a high level landscape plan with potential project ideas that will provide investable opportunities to all involved whilst maximising profits and environmental benefits.
- First round of capital:
- Once the project’s design has been finalised, find like-minded, financially stable partners with adequate, appropriate experience to sponsor and develop projects (typically through grants).
- Formulate a detailed business plan to assess financial feasibility and funding required for projects, as well as describe and quantify desired impacts. Negotiate a mutually agreeable plan that takes differing objectives of partners into account.
- Incubate and structure projects to alleviate ecosystem pressures and improve the quality and availability of natural resources, whilst identifying and addressing any risks that might deter private investors.
- Gauge the interests of private investors in the projects.
- Scaling up:
- Once projects are proven to be financially viable, the risks have been minimised and the environmental targets identified, engage with private investors to help scale them up and attract more private investment later on.
Nature-based Solutions
When designing bankable conservation projects for maximum benefit, it is useful to consider whether they can incorporate nature-based solutions (NbS) to maximise their positive environmental impact.
NbS encompass actions and policies that harness natural systems and processes to address societal problems, by protecting, restoring, and sustainably managing ecosystems to increase their resilience and ability to address these problems. In preserving the resources and services provided by ecosystems, they can also provide social and economic benefits for humans. For example, restoring seagrass meadows helps sequester carbon, provide habitat for commercially important fish, and absorb pollutants and pathogens that could harm marine ecosystems and communities that rely on them economically.
The power of NbS to conserve ecosystems and biodiversity, and tackle climate change, make them highly aligned with the goals of the SDGs. And like the SDGs, NbS are also underfunded by private finance, which currently contributes to just 14% of annual investments into land-related NbS.
To help meet the environmental SDGs, investments in NbS need to increase three-fold by 2030 and four-fold by 2050, requiring a total investment of US$ 8.1 trillion. However, it is important that the incorporation of NbS into a bankable conservation project is scientifically informed so as to avoid unintended environmental damage. For instance, planting non-native plants in an area as a carbon sequestration method is likely to do more harm than good.
Case Study: Conservation Caviar – A Bankable Sturgeon Conservation Project
Scoping
Sturgeons are an ancient group of freshwater fish that have survived virtually unchanged for 250 million years. Today however, all 26 species are critically endangered due to habitat loss and especially overharvesting of their eggs for caviar. As long lived, slow breeding animals, many populations are now unable to replenish themselves. Captive breeding is therefore essential for their recovery, but the long and complex life cycles of sturgeons make this a lengthy, expensive process.
Sturgeon aquaculture farms could provide source fish for reintroduction to the wild, as well as the technology and expertise to rear them to large enough sizes to survive after release. Crucially, having a valuable source of income (caviar) means that they would also be financially stable enough to support long term conservation efforts. Moreover, European caviar companies could be persuaded to participate in exchange for placing a premium on their caviar, to make up for losses incurred and to compete with Chinese companies that are increasingly dominating the market.
Seneca is working with WWF and a well-known caviar producer in Italy to design and implement a pilot project to breed the Adriatic Sturgeon in captivity for release into the wild. While captive breeding is the norm with sturgeon farm operators, the project design incorporates several novel features:
- The farm operator will work closely with conservation organisations like WWF and others to ensure the project complies with conservation best practices.
- 10-20% of the farm’s sturgeon stock will be earmarked for conservation purposes and released into the rivers once they reach a suitable size.
- Sturgeon fingerlings will be reared for 6-18 months in captivity before release to increase their chance of survival in the wild.
- The project will run for 7-10 years with regular release of fingerlings and juvenile fishes into the wild. The release schedule will be jointly decided with the farm operator and WWF., which will be separately branded and marketed as ‘sustainably produced caviar’.
- The project will provide a blueprint for similar projects in the future.
Replicability
If this project succeeds, it could be used as proof of concept for other sturgeon aquaculture companies to replicate it. Companies will be chosen based on:
- Ability to bear logistical and financial costs.
- Level of expertise and technology.
- Existing product brand value
- Willingness to work with public sector partners and be subjected to external certification for premiums.
- Access to rivers (for companies planning to partake in sturgeon releases).
WWF’s sturgeon initiative has contacted companies in Austria, Bulgaria, Romania and Germany on collaborating in conservation breeding. This project will provide the model for co-operation between sturgeon farms, operators and conservation organisations to repopulate endangered sturgeon species in the wild, while ensuring the farm operators do not have to bear the cost of the initiative.
Author: Thomas Gomersall, Seneca Impact Advisors
For more information, please contact info@senecaimpact.earth
