Finding New Wealth for Environmental Gain

Flanked philosophically by harder line ideas of what environmental -- and economic -- purity ought to mean on both sides, a group of 50 implementation leaders from conservation, finance and foundations met last week at the Federal Reserve Bank of San Francisco to figure out ways to achieve gains both environmentally and economically. Billed and run as workshop of "mechanics" rather than thinkers, the group, which included myself, dissected the growing demand of investors that looked beyond maximal returns toward investment goals that included true environmental gains and methods for scaling up that work.

Although social impact investing has been around for a pretty good while (e.g., microfinance, gender lens investing, etc), the reality is that investment vehicles for conservation has lagged behind. But given the urgency and magnitude of 21st century environmental realities, the time has come to intentionally build the rules, tools and models needed so that the Economy and the Environment can work toward dual outcomes rather than operate as drag-coefficients on the other.

To kick things off, Credit Suisse and World Wildlife Fund put forward a report that was shared with planetary leaders at the World Economic Forum in Davos-Klosters, Switzerland. The report examines how to make conservation more investable, and Stanford Social Innovation Review put it up for debate.

The technical issues centered on how assets are invested in and then managed. On the money side, portfolio managers don't necessary like innovation -- it increases risk and holds unpredictability. Yet the mechanics of conservation need to evolve in order to create things that can be invested in. Some of the most successful green projects follow a pretty standard recipe: find a landscape worth preserving with locals that want the same and then raise the money from donors and governments to do the work. Although the land underlying the deal is purchased -- it can show up on a balance sheet -- the buy and hold model doesn't create much actual revenue to pay back an investment unless you sell it.

We are starting to see some environmental successes from purchasing and then lightly managing the land over long-periods for sustainable agricultural or timber yields that don't hammer the land. The wealth preservation and modest return aspects of these create stability for both landscapes and portfolios. And active restoration can provides a path to a new kind of durable prosperity; helping the environment and creating jobs.

An important takeaway for me was the need for the environment and economy to have a lingua franca or common set of currencies to integrate and design transactions in a way that reliably generate gains for the planet and investor alike. This means a needed shift in conservation from the intrinsic to the quantified. With by the rapidly developing science of ecosystem services, we know not to simply consider any preserved acre a good acre -- we can now precisely calculate how many pounds of nitrogen a wetland filters in a year, or precisely how many kilocalories of cooling benefit a tree canopy provides a watershed. These measures of quantified uplift will prove more reliable and precise than the practice-based approaches of the past. And with that, we can better invest time and money to secure the most environmental return on our investment.