Developing scalable financial mechanisms for natural capital
Jeremy Pannell is Senior Corporate Finance Manager at Triodos Bank, Europe’s leading sustainable bank and the headline sponsor of the Natural Capital Investment Conference. In this blog he discusses the potential for private sector investment to play a transformative role in restoring our natural capital.
Our mission at Triodos Bank is to make money work for positive social, environmental and cultural change. In natural capital investment we see another opportunity to do just that.
We’re all familiar with the consequences of consumer overspending – overdrafts; credit cards; and expensive credit agreements all present opportunities to spend beyond our means. Translating this financial capital model to natural capital is crude but nonetheless valid. When we take too much from the global stock of natural assets – whether through excessive deforestation or overfishing – we threaten biodiversity and risk destabilising communities. Ultimately, we risk bankrupting our greatest gift.
We need to start by ensuring we don’t think of financial capital and natural capital in discrete silos. We often hear that ‘nature is priceless’ and of course this is true. But we must also think about how we fund the preservation of our planet and its resources to provide stability and sustainability to its inhabitants.
If we start to marry the languages of the natural capital and finance capital worlds we start to realise that the environmental, social and economic ‘price’ of not acting to preserve our natural assets is huge. And the multi-layered ‘return’ available to investors looking to fund credible natural capital programmes is potentially significant.
...the multi-layered ‘return’ available to investors looking to fund credible natural capital programmes is potentially significant.
For nature to continue giving – whether clean air or food provision – we must embed our approach to natural capital into our more familiar financial frames of reference. Natural capital investment can help address imbalances by funding the preservation and replenishment of our ecosystems. Low interest rates and demand from impact-driven investors are providing some much-needed momentum to the natural capital investment movement.
A notable proportion of natural capital funding to-date has been grant-based. However, against a backdrop of austerity, public funding is under pressure and so we must continue to look to private capital to play a transformative role. At Triodos Bank we’ve seen first-hand through our work with social impact bonds how the involvement of private investment in the provision of social good can be very successful – the same could potentially be true of the natural capital sector.
We need to start laying the foundations
Whilst natural capital investment remains an embryonic concept, global precedents have emerged - not least the concept of ‘Nature Conservation Notes’, where individual investors can invest in projects where financial returns are generated through conservation land sales, carbon markets and premium agricultural products. Investment, whether from green-minded banks or environmentally-focused institutional investors, is available for deployment in the right projects. On top of this ordinary people are increasing looking to direct their savings and investments into local, environmentally conscious schemes.
Some form of financial return is needed to access this investment and such returns have not been readily accessible in the sector to-date. A challenge sometimes levied is that ‘investment-ready deals’ are few and far between. The Natural Capital Investment Conference will seek to address this by bringing together key stakeholders – the natural capital community, investors and government – and encouraging honest dialogue. This is the best way to deliver tangible opportunities for investing going-forward.
Of course, blending public and private funding is likely to remain the key. In the charitable space we’ve seen the introduction of social investment tax relief (SITR) as a means of encouraging individual investment. Government initiatives, such as supportive regulatory and tax environments, and financial incentives such as funding first loss layers, or providing grant funding to access investment-readiness advisers are likely to play an equally catalytic role here too.
The Conference will provide clarity on what ‘investment-readiness’ means and how we can collectively create clear models for investable projects
The Conference will provide clarity on what ‘investment-readiness’ means and how we can collectively create clear models for investable projects – crucially to identify what’s needed from all stakeholders to “get deals done” and bring about positive environmental change. We cannot address global ecosystem challenges unless we seek to operate at scale but creating credible local investment opportunities is part of the critical pathway – in aggregate, funded schemes of this scale provide the platform for positive national and global change.
Jeremy Pannell works within the corporate finance team at Triodos Bank UK, advising on capital raising projects. Prior to joining Triodos seven years ago, Jeremy worked for a regional corporate finance boutique. During his two years there, Jeremy worked closely with SMEs, advising on management buy-outs, equity raising and company valuation. Previously Jeremy spent five years with Smith and Williamson, focusing on audit mandates for both owner-managed businesses and AIM listed clients.
Contact : Jeremy.Pannell@triodos.co.uk | 0117 980 9592