A transformational journey

Paul Morling, Principal Economist at RSPB, gives his reasons for thinking that 2019 will be the year in which environmental finance in the UK embarks on its own transformational journey.  Paul is a delegate at the 2019 Natural Capital Investment Conference, taking place in London on 28th February 2019. His colleague Gwyn Williams will be a panellist in the session on ‘investing in the marine and coastal environment’.

 

As we look forward to the 2019 Natural Capital Investment Conference, we have been reflecting on what has happened since we launched our conservation finance discussion paper on the day of the inaugural conference last March. We were proud of the partnership we had with global management consulting experts Oliver Wyman to produce this forward-thinking document.

I left last year’s inaugural Natural Capital Investment Conference buzzing with fresh ideas and possibilities for financing conservation.  I suspect the same was true for many other delegates.

I am pleased to report that 2018 did turn out to be a year of considerable financial innovation for RSPB.  We have now deployed debt financing to secure a cost saving roll out of renewable energy on our estate and to acquire compensatory habitat delivering multiple biodiversity, flood mitigation and recreational benefits.  We’ve learnt it takes considerable time and a few new skills to arrange new deals but we’ve also learnt that financial innovation can bring significant benefits to an organisation like ours.

[[“...financial innovation can bring significant benefits to an organisation like ours.”]]

Debt financing is now a very real option for us in initiatives which either make us more operationally efficient, the case with our renewables initiative, or enhance our ability to generate future revenue streams.  There are many potential activities which are compatible with land management and new possibilities for organisations like us to partner with others to deliver valuable ‘ecosystem services’ in tandem with our conservation goals.

Natural capital finance is surely set to grow as resource owners like us deepen our financial engineering and as the creative minds in the finance sector tailor new products and help design new governance vehicles.  The holy grail for me, though, is overcoming the current hurdles which prevent existing benefits of nature being paid for simply because they are, in the jargon, public goods or externalities which unfettered markets cannot value or allocate. An allied complication is that these goods and services vary hugely in scale and in the way they are created and delivered.  Incentivising carbon storage needs very different interventions compared with enhancing flood mitigation or improving water quality.  Attaching real value to these services requires government intervention, with new or adapted institutions and appropriate governance arrangements.

[[The holy grail for me, though, is overcoming the current hurdles which prevent existing benefits of nature being paid for simply because they are, in the jargon, public goods or externalities which unfettered markets cannot value or allocate.]]

The good news in the UK is that the direction of travel does appear to be towards more creative use of environmental policies to stimulate new private financing opportunities.  We see this with the current exploration on biodiversity net gain.  Done well, such a mechanism, designed to compensate for biodiversity lost though development, will create new funding and certainty for environmental gain.  We also see this in current plans for a future agricultural policy based on the principle of ‘public money for public goods’.  Again, done well, such an approach can provide an invaluable injection of secure foundational funding which will serve to stimulate additional private flows.  Imagine future large scale habitat creation projects, underpinned by blended finance, with government providing guaranteed flows to pay for public goods, like flood mitigation, but where private flows help secure additional benefits, like recreational activities, or carbon sequestered.

We are very fortunate in the UK in having great examples of how Government support can stimulate sustainable new business opportunities to achieve our collective social and sustainability objectives.  This has occurred in terms of funding and in creating the right institutions, governance arrangements. We’ve seen it with social impact investing (in which the UK is a recognised global leader) and with the revolution in renewable energy technologies and deployment.  Maybe 2019 will be the year environmental finance will embark on its own transformational journey. 

 

Prepared by Paul Morling, Principal Economist at RSPB, January 2019

Notes:

RSPB (2018) Bridging the Finance Gap. How do we increase financing for conservation? Discussion paper published March 2018.