Banking on Conservation
by Thomas Gomersall
Saving our planet was never going to be cheap and already, we’re failing to pay for it. Each year, only US$1.7 trillion of the US$4.2 trillion needed annually to meet the UN Sustainable Development Goals is invested, mostly from public, philanthropic and governmental sources.
Greater private-sector investment could potentially close this funding gap by more than half. But the private sector has traditionally been wary of investing in sustainable projects due to limited investment opportunities and their perceived risks, small sizes and relatively low returns.
One potential avenue for sparking greater private-sector investment is through WWF’s new Bankable Nature Solutions (BNS) initiative. BNS aims to mobilise private sector investment into projects that not only build more sustainable, climate-resilient ecosystems for people, nature and economies, but are also financially viable enough to be scaled up and replicated, increasing both environmental and financial gains.
Historically, however, conservation efforts similar to BNS have rarely been carried out on a large enough scale to attract sufficient capital for major environmental gains. Additionally, many are still in their infancy — when the risk of failure or low returns is high — and private investors currently have no way of knowing which ones are likely to succeed, making them reluctant to invest in them.
To help address these problems, WWF aims to create a pipeline of projects — scalable to operate on a landscape level and with a reasonable likelihood of success — for investors to choose from in order to redirect financial flows into more sustainable projects. This happens in three broad stages:
1. Early Development: WWF works with local stakeholders to identify the pressures on a landscape of conservation importance, then highlight potential bankable projects to reduce those pressures and build a sustainable, climate-resilient landscape. Through stakeholder engagement, WWF will then encourage key partners, including the private sector, to sponsor and develop the projects, on the basis that benefiting the environment they rely on for their operations will in turn benefit them.
2. First Round of Investment: Using grant and donor capital and with the support of landscape partners, WWF incubates and structures projects to alleviate ecosystem pressures and improve the quality and availability of natural resources. Once projects become investable, investors take over, construct and implement them with the local sponsor or developer.
3. Scaling: Once projects become financially viable and less failure-prone, WWF aims to attract more capital from private and public sector finance to scale them up and catalyse greater private investments.
Take the Kafue Flats in Zambia as an example. As well as threatened species like the Kafue lechwe, this global Key Biodiversity Area also supports major commercial and agricultural activities and the livelihoods of over 900,000 people. Private companies graze cattle on the flood plains and use water from the Kafue River to irrigate crops. The river supports a large fishing industry, supplies 50 per cent of Zambia’s hydroelectric power (which accounts for 90 per cent of its electricity) and 44 per cent of its capital city’s water. The Kafue Flats are also an important area for tourism, which accounts for more than five per cent of Zambia’s GDP (Shanungu et al, 2015; Brand, 2020).
However, the very activities that depend on this ecosystem are also degrading it. Hydroelectric dams, irrigation and pollution are reducing water quality and flow to downriver areas, risking water shortages that threaten agricultural yields and electricity generation. Meanwhile, overgrazing and disease transmission by cattle threatens local habitats and wildlife, which in turn threatens tourism (Brand, 2020; Shanungu et al, 2015).
In 2015, WWF set up the Kafue Flats Joint Action Group (KFJAG) to bring together private-sector companies, community leaders and social groups to identify the risks these ecosystem pressures posed to their businesses and livelihoods, as well as environmentally friendly solutions. As they rely on the ecosystems resources for their operations, private sector companies were keen to help protect it, building on their own responsible business practices and taking additional steps. Some contributed money for studies on the feasibility and bankability of some proposed projects, while others agreed to become partners with WWF on these projects (Kumwenda, 2020; Brand, 2020).
Following an initial assessment of project type, sustainability, revenue model and return, risks and constraints, projects then underwent a three-stage incubation process. The first involved developing a high-level business plan proposal through analysing project viability and bankability. The plan was then developed using grants and technical expertise, and once ready, handed over to investors. Each stage requires a project to meet certain milestones before progressing to the next and as most projects did not, they didn’t come to fruition.
A healthy pipeline of projects is being developed to address local ecosystem pressures. Although not all are bankable (and will need to be grant or donor-funded), the ones with potential are helping to catalyse full stakeholder support for all projects, bankable or not. As a result, Kafue Flats is looking at such projects as building water-treatment systems to reduce pollution, an improved irrigation system, better grazing management and restoring national parks.
BNS is a long-term commitment with plenty of work remaining in Kafue Flats, including exploring alternative energy sources and shifting to more climate-resilient crops. Greater capital will be needed to achieve these and to replicate the success of Kafue Flats elsewhere in the world.
“Through the support of both public and private stakeholders, we are starting to see the strengths and results of collective action and bankable opportunities in Zambia,” says Aaron Vermeulen, Head of Green Finance for WWF-Netherlands. “By working together, we can build resilient landscapes for people, nature and the economy.”
References:
· Brand, K., interviewed by Thomas Gomersall, 2020, WWF-Netherlands.
· Kumwenda, C.M., WWF-Zambia, Water and climate change: Why should businesses take the lead?, [website], 2020 https://www.wwfzm.panda.org/water_and_climate_change__why_business_should_take_the_lead__/ (Accessed: 27 July 2020).
· Shanungu, G.K., Kaumba C.H. and R. Beilfuss. 2015. Current Population Status and Distribution of Large Herbivores and Floodplain Birds of the Kafue Flats Wetlands, Zambia: Results of the 2015 Wet Season Aerial Survey. Zambia Wildlife Authority, Chilanga, Zambia: 1pp.–56pp.
