Missing the Target with Conservation Finance

By Sean Penrith

“Are we doing enough?” This was the question Patrick Westerlund of the Wells Foundation asked a packed room in a session titled “Missing the Target” at the 2016 Mission Investors Exchange (MIE) conference in Baltimore. He added that with just the money represented in the room, we could change the world. Based on Patrick’s comments, clearly we are not doing enough.

I recently met with a very large and respected carbon project developer who explained he was in growth mode, and was scouting for expansion capital to keep his pipeline of projects moving. His challenge was finding financiers who were more, as he put it, “planet focused,” which is exactly what led him to us. With all the available capital seeking impact and returns, there is a sharp disconnect in channeling it to where it is most needed; initiatives reducing carbon emissions.

At the MIE conference, I heard a lot of well-intentioned heads of foundations and impact firms proudly describe how they had crafted bespoke investment deals carefully sourced with tons of due diligence, structuring, and contracting. Their point understandably, was that they were putting their philanthropic capital to work in a very diligent and prudent manner to ensure that projects delivered real results. A perfect sentiment; but one that is too limiting to achieve the scale of conservation finance we need to address the alarming rate of our warming planet.

Jenny Yip of the Gates Foundation nailed it when she recommended that the impact community shouldn’t, “trickle out money,” in reality they should, “bet big and commit!” This was right in line with Jesse Fink’s comment at the afternoon plenary at MIE, stating he hoped to see the ease of investing in muni bonds replicated in the sphere of impact investing. Fink expounds on this further in his piece, “Hope and the New Energy Economy,“ where he urges mission-based capital to be the “bridge to accelerate the transition to a low-carbon economy.”

Julia Stasch, who heads the MacArthur Foundation, told the MIE audience that the purpose of philanthropic capital was to “send a signal of confidence to the market.” I agree! The urgent need to transition to a low carbon economy offers a tremendous opportunity to create new and powerful financing mechanisms that support this shift, and offer a strong role for philanthropy, educational institutions, endowments, and pension funds to drive capital to high climate impact areas while still offering an economic return.

The required funding needed to support the low-carbon transition is estimated to be $4.8 trillion according to the 2015 report, “Banks and Climate Change Impact.” Lauren Compere, managing director at Boston Common Asset Management, summed it up nicely; “Paris has created a fast track to a multi-trillion dollar opportunity for the world's largest banks, but they will need to up their game if they want to claim the reward.” Opportunity awaits!

The Packard Foundation is one entity that is sending this vital market signal. As anchor investors in The Climate Trust’s pilot carbon investment fund, by way of a Program Related Investment, they are serving to support and spur the value proposition that investing in greenhouse gas reducing projects does offer triple bottom line results and market-based economic returns.

The MIE professes to deliver a “call to action for the impact investing community to take advantage of the latest investment opportunities and innovations that can help tackle society's most intractable problems.” My hope is that the next time we gather, the thinking and approaches of this pioneering group evolve to offer that vital bridge to low carbon financing.

We need it!

Image credit: Flickr/Bureau of Land Management Oregon and Washington

Sean Penrith is the Executive Director for The Climate Trust.