EU Business and Biodiversity Platform
Workstream 3: Access to Finance
Discussion Paper
21 May 2015
1
1
Introduction
1.1
About this paper
Workstream 3 of the EU Business and Biodiversity Platform focuses on access to finance
and innovative financing mechanisms for business and biodiversity. It aims to demonstrate
the benefits to business of biodiversity-related investments, and to showcase financing
schemes for biodiversity and champions in the finance sector who are funding biodiversity
related projects or using nature related criteria for financing decisions.
In 2014 the finance workstream undertook a broad overview of initiatives and opportunities in
the field of biodiversity finance, and showcased 15 case studies outlining the activities of
Platform members in this field:
http://ec.europa.eu/environment/biodiversity/business/workstreams/workstream3-access-tofinance-and-innovative-finance-mechanisms/2014-output_en.htm
In response to the views of Platform members, in 2015 the finance workstream is
undertaking a more detailed analysis of financial needs and opportunities in key areas of
biodiversity action (certified products, offsets, green infrastructure, payments for ecosystem
services, biodiversity friendly businesses). The work will include case studies of successful
implementation under various financing instruments, both public and private, and examine
the role of EU funds in this context.
This discussion paper outlines the issues being examined and requests comments and
examples from members of the workstream.
1.2
Investment opportunities
This paper addresses biodiversity investment opportunities under the following thematic
areas:
■
■
■
■
■
1.3
Certified goods and services;
Biodiversity offsetting and no net loss measures;
Green infrastructure;
Payments for ecosystem services and bio-carbon markets;
Other pro-biodiversity goods and services.
Sources of financing
The aim of this discussion paper is to highlight and discuss areas of potential demand for,
and supply of finance for activities that yield benefits to both business and biodiversity. For
each of the themes, the paper reviews market opportunities, examines financing challenges
and discusses the role of different sources of finance, both public and private.
In the accompanying Call for Evidence pro-forma, we pose questions for B@B Platform
members, and request further examples and case studies.
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2
Certified goods and services
2.1
Introduction
There is a growing market for goods and services whose production processes have been
externally verified as having minimal impacts on the environment and/or biodiversity. This
stems from growing environmental awareness, demand for better information on production
processes and corresponding willingness to pay for products with an enhanced ‘green’
profile (or unwillingness to accept products that are potentially detrimental to the
environment). Typically, certification focuses on commodities and other goods and services
that can be perceived as having a high social or environmental impact in their production –
such as forest products, seafood and coffee. It may also cover products from systems that
are beneficial to biodiversity, such as timber, meat and honey produced from Natura 2000
sites.
Evidence suggests that demand for certified goods and services has continued to rise, even
in the face of more constrained spending power, with Eurobarometer surveys indicating that
three-quarters of EU citizens are willing to pay more for environmentally-friendly products, if
they are confident that the products are truly environmentally-friendly1, indicating that better
provision and quality of information are key to capitalising on opportunities for green goods
and services.
The rapid growth of this sector also presents opportunities for companies that are able to
support the provision of information throughout the supply chain – providing further
assurance to both consumers and company investors that supply-chain environmental risks
are being adequately managed. This could be seen as the emergence of a more mature
stage of certification systems, which could further drive performance improvements and
demand for such products.
2.2
Scale of market opportunities
Investment and growth in certified goods and services has continued unabated despite the
economic downturn of recent years, with key opportunities relating to organic agricultural
produce, sustainable forest products and seafood. Market participants include all actors at all
stages of the value chain, including primary producers, exporters, traders, processors,
manufacturers, mainstream and speciality retailers, and end-consumers.
The market is shaped by regulators and standard setters such as the International
Federation of Organic Agriculture Movements, Fair Labelling Organisation, Rainforest
Alliance, UTZ and the Roundtable on Sustainable Palm Oil; and national and international
governmental and non-governmental policy makers and advocates (e.g. UN Development
Programme, Food and Agriculture Organisation, Organic Crop Improvement Association,
UNEP, Oxfam, WWF, ProForest, and the US Department of Agriculture among others)37.
Across 100 countries, there are now a million Rainforest Alliance certified farms and Forest
Stewardship Council certified forests covering a land area around the size of Mexico.
Sustainable tourism is growing at such a rapid rate that analysts note it is increasingly being
accepted as a mainstream element of tourism offerings. Worldwide, 10% of key global
markets are now under some form of sustainability standard and this figure is increasing
rapidly. Consumer engagement online via social media platforms is helping accelerate this
trend2.
1
COMM (2013) Flash Eurobarometer 367- Attitudes of Europeans Towards Building the Single Market for Green
Products http://ec.europa.eu/public_opinion/flash/fl_367_en.pdf
2 Rainforest Alliance (2014) Scaling up sustainability http://www.rainforest-alliance.org/newsroom/pressreleases/2014-sustainability-workshop
3
Current annual growth rates in terms of retail sales and production quantities roughly
average 40% per year for organic and fair-trade products, 10–15% for Rainforest Alliance
certified products, and 25–40% for UTZ certified products. They can be as high as 90% in
individual cases, for example fair-trade cocoa sales increased by 93% from 2005 to 2006,
coffee by 53% and bananas by 31%. The expected medium term annual growth rates lie in
the range of 15–20% for organic and fair-trade and 8–15% for Rainforest Alliance
Certification37.
International research recently commissioned by the Marine Stewardship Council 3 shows
that consumers are increasingly looking for fish products from a sustainable source, and that
ecolabels give increasing credibility to these claims. Global awareness of the MSC ecolabel
was observed to increase to 33% of international respondents to the MSC survey in 2014, up
from 25% in 2010, and was highest in Germany (58%), Switzerland (57%) and the
Netherlands (48%). Countries outside Europe are also seeing significant increases in
recognition of the MSC’s blue ecolabel. Recognition in Australia has almost doubled from
12% in 2010 to 20% in 2014. In Canada recognition of the MSC ecolabel has jumped from
19% in 2012 to 25% in 2014. The survey indicates that the market for MSC sustainable
seafood will continue to grow, with two thirds (65%) of respondents saying that they intend to
buy more MSC ecolabelled seafood in the future, and that they would encourage friends and
family to do the same. The retail market value of consumer facing MSC ecolabelled
sustainable seafood reached US$4.8 billion in 2013-14, an increase of 147 per cent since
2010.
The research also has important implications for retailers and buyers of fish: 71% of
respondents felt that it is important that retailers stock sustainably-caught seafood, whilst
60% felt it was important that restaurants demonstrate that they have sustainable seafood
options.
Certification opportunities are clearly demonstrated within the organic food sector. The Soil
Association’s 2015 Organic Market Report 4 reveals UK sales of organic products increased
by 4% in 2014 – significant growth in a year when food prices (down 1.9%) and food
spending (down 1.1%) fell. Shoppers spent an extra £1.4 million a week on organic products
and the UK organic market exceeded £1.86 billion, with 83% of households purchasing
organic products. Nearly one-third of shoppers sought out ethically-sourced and
environmentally-friendly products, whilst sales in catering have reportedly been aided by the
growth of the Food for Life Catering Mark in schools, workplaces and hospitals.
Biodiversity impacts can occur at multiple stages in the supply chain for various commodities
and other goods, so certification systems should ideally seek to build confidence and
improve communication throughout the supply chain – as well as to end consumers. In this
regard, there is growing demand for services that assess operational and supply chain
processes, in addition to production processes. The CDP (formerly Carbon Disclosure
Project) is one example of this approach, which leverages shareholder interests to drive
improved standards across the supply chain. Such information needs suggest that
sustainability certification may increasingly become a prerequisite for market access in many
key areas and sectors.
3
Marine Stewardship Council (2014) Vast majority of British consumers expect retailers and restaurants to
provide sustainable seafood options: survey http://www.msc.org/newsroom/news/vast-majority-of-britishconsumers-expect-retailers-and-restaurants-to-provide-sustainable-seafood-options-survey
4 Soil Association (2015) Organic Market Report
https://securepayment.soilassociation.org/page/contribute/organicmarketreport2015
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Box 1 European Centre for Nature Conservation Biodiversity
Standard (Netherlands)
The European Centre for Nature Conservation’s European Biodiversity Standard is one example of
effective public-private partnership in the development of information labels, having been developed
with a UK Consultancy, Middlemarch Environmental. The standard has a production site focus and
requires companies to assess their impacts on biodiversity and ahead of a verification audit. EBS
has been implemented by companies as diverse as Nestle Waters, E.ON and Veolia Environmental
Services at production sites, as well as tourist operator Centre Parcs and British Airways.
Box 2 CDP supply chain reporting (UK)
CDP (formerly the Carbon Disclosure Project) is engaged in a range of activities relating to demand
for certified products, through programmes examining dependencies between biodiversity,
production and supply chains. CDP works on biodiversity issues primarily with food, beverage and
animal feed companies and their institutional investor shareholders. The appropriate way to present
biodiversity to this audience is through discussion of commodities, and more specifically, the
security of supply of commodities (specifically, price, quality and availability considerations). The
degradation of natural inputs on which commodity production relies also impacts other sectors
reliant on agricultural produce, like clothing and biofuels. To protect investment, CDP argues that
companies need to integrate biodiversity concerns within their business strategy, through standards
and certification systems for agriculture or specific commodities, as well as landscape-based
approaches bringing together producers and buyers. CDP uses the authority of company ownership
– shareholders – to steer companies in this direction. The intention is to use the learning and
experience of leading companies, to promote improvement across the entire sector.
2.3
Financing challenges
Key challenges relating to certified goods and services include typically high up-front costs
for certification and, in some cases, unproven levels of consumer demand for certified
goods. These issues are compounded by a disconnect between production areas of very
high biodiversity value and consumer areas, where purchasing power is typically higher.
Governmental support and other incentives for biodiversity-friendly production processes
tend to be more scarce in production areas, with implications for the effectiveness of
certification systems in such regions. In some cases, this can lead to the proliferation of rival,
less robust certification standards which can weaken consumer confidence in certification
processes as a whole.
There is another issue relating to the relatively high fixed costs of certification systems and
verification by external parties, which are typically the highest costs associated with the
process. Since these costs are borne by the producer, and large retail buyers and
wholesalers are increasingly requesting evidence of certification in specific sectors, these
costs could present barrier to market entry and trade for many smaller producers.
Certification may also enhance returns to conservation activity, for example by helping to
finance management of Natura 2000 sites or other protected areas. Finance is required for
the establishment of such schemes, as well as for businesses producing or marketing
certified goods and services.
However, evidence from the FSC ecolabel suggests that contrary to widely-held beliefs,
price premiums for certified goods and services can be marginal to non-existent, particularly
when certified products are mainstreamed, and that market access concerns are an
increasing driver of early participation.
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2.4
Sources of finance
Opportunities are emerging for private and public investors to assist producers and
processors (often in developing or middle-income economies) seeking to attain sustainability
certification. These investors recognise both the difficulties in securing funds to meet
certification requirements, and the long-term premiums that such products are able to claim
in international markets, and (potentially) strong returns on investment.
In the EU, financial support for attaining certification may be more difficult to identify. In
general, the costs of implementing certification schemes are borne by private companies,
despite the high upfront costs and often uncertain levels of demand. Given the public good
nature of many of the benefits obtained through certification systems, there may be some
incentive for greater financial support from public sources to private certification schemes, in
much the same way as agri-environmental schemes recognise this as an efficient means of
deriving public benefits through private activities.
There is good support to developing organic agriculture and pro-biodiversity farming
processes through the EAFRD, a number of articles under Pillar 2 of the CAP support the
development of certification systems and similar processes. Support is also available for
development of certification systems such as MSC through the European Maritime and
Fisheries Fund. However, private sector finance for certification systems in other sectors
(e.g. ecotourism) can be more difficult to secure given unproven market demand, and/or a
proliferation of competing standards.
Box 3 Verde Ventures (USA)5
Conservation International’s Verde Ventures Fund provides debt and equity financing to businesses
that benefit healthy ecosystems and human well-being, including agroforestry, ecotourism,
sustainable harvest of wild products and marine initiatives. Verde Ventures is supported by the
International Finance Corporation, the Overseas Private Investment Corporation, l’Agence
Française de Développement, le Fonds Français pour l'Environnement Mondial, Starbucks Coffee
Company, KfW Entwicklungsbank and the Gordon and Betty Moore Foundation.
Around $23m of financing has been provided through a variety of debt instruments of $30,000$500,000, with a repayment rate of 92%. In addition to loans, Conservation International also
matches funds with contributions from governments, foundations and other donations; the fund
benefits from a diverse network of partners encompassing the private sector, development
organisations and international NGOs, as well as national governments.
Recent investment outcomes include protection of leatherback turtle habitat whilst maximising
opportunities for ecotourism, development of sustainable coffee production cooperatives whilst
combating deforestation – including the development of coffee plantations to provide financing
needs for biosphere reserves, buffer zones and other conservation areas. VV investments are
estimated to have generated around $134 million of sales through project partners.
2.5
Questions for Platform members, observers and representatives
We would like to develop the above discussion with further input, examples and comments
from Platform members, observers and representatives.
You are invited to complete the separate Call for Evidence pro-forma provided.
5
Accessible at: www.conservation.org
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3
Biodiversity offsetting and no net loss measures
3.1
Introduction
Compensating for development impacts on biodiversity can accelerate regulatory approval for
development, enhance reputational value and secure additional finance for conservation, as
well as helping to achieve no net loss of biodiversity. Offsetting needs to be considered in the
context of the mitigation hierarchy, and should be undertaken only after efforts have been
made to avoid, minimise and then restore impacts on biodiversity.
Voluntary investments in biodiversity conservation by the private sector are becoming
increasingly widespread, and many Member States are now putting regulatory requirements
or guidance in place to incentivise the growth of biodiversity offsets and habitat banking. The
UK’s Ecosystem Markets Taskforce6 has identified that offsets have high potential to mobilize
private sector funds towards investment in ecological networks and nature protection, and one
of its top five most promising business opportunities related to valuing and/or protecting nature.
Biodiversity offsetting, and related forms of ecological compensation, are a pragmatic
recognition that some degree of ecological impact is an inevitable consequence of economic
development. Offsetting has a range of possible interpretations but is generally understood
to entail compensatory measures to ensure ‘no net loss’7 of biodiversity and/or ecosystems
emerging as a consequence of development actions.
The delivery of long term conservation benefits depends on establishing binding agreements
which ensure the continued delivery and management of the offset. Without a binding
contract or regulatory requirement, there can be no guarantee that the offset will persist in
the long term or will be managed in accordance with its intended objectives.
Three criteria can be identified as common to all legal offset policies and contractual
agreements, which are critical for realising conservation benefits from offset projects
(Rayment, et al. 20148; Bull, et al. 20129; McKenney and Kiesecker, 201010):
■
Offsets provide additional substitution or replacement for unavoidable negative
impacts of human activities on biodiversity;
■
Offsets involve measurable, comparable biodiversity losses and gains; and
■
Offsets achieve demonstrable achievement of no net loss, at a minimum.
In spite of this, offsets are not without controversy, and doubts remain as to the ability of
existing regulatory systems to ensure delivery of long-term conservation benefits from
offsets. Concerns relate to issues such as the accuracy and objectivity of defining initial
biodiversity values, technical weaknesses in ecological restoration, and the need to ensure
financial safeguards to maintain conservation benefits in perpetuity11. The latter in particular
Ecosystem Market Taskforce (2013) Realising nature’s value: final report of the Ecosystem Markets Task Force.
A Report to the Department of Environment, Food and Rural Affairs.
7 See the European Commission’s formal definition of No Net Loss:
http://ec.europa.eu/environment/nature/biodiversity/nnl/index_en.htm
8 Rayment, et al. (2014) Study on Specific Design Elements of Biodiversity Offsets: Biodiversity Metrics and
Mechanisms for Securing Long-term Conservation Benefits. A Report to the European Commission, DG
Environment.
9 Bull, et al. (2013) Biodiversity offsets in theory and practice. Flora and Fauna International, Onyx, Vol. 0, Issue
0, pp. 1-12
10 McKenny, B., Kiesecker, J. (2010) Policy development for biodiversity offsets: a review of offset frameworks.
Environmental Management, Vol. 45, Issue 1, pp. 165 – 176
11 FERN (2014) Critical Review of Biodiversity Offsets, for the purposes of IEEP in their ‘Review of Policy Options
for a Potential EU No Net Loss Initiative’
http://www.fern.org/sites/fern.org/files/Critical%20review%20of%20biodiversity%20offsets.pdf.
6
7
is a relatively unusual concept in the financial sector, since it could entail unlimited financial
liability – anathema to the timescales and business models of most developers and their
financial backers.
Offsetting can take a number of forms, depending on the mechanism for delivery. Whilst the
most common form of offsets at present are those initiated by private conservation banks
and involve the supply of ‘credits’ linked to ecological restoration or enhancement work,
other opportunities may relate to public-private models of conservation banking designed to
offset impacts from large public infrastructure or to achieve other conservation objectives.
One commonly-observed trend in North America is the involvement of conservation NGOs in
the ongoing management of the offset site, usually under contract to the party with
responsibility for delivering the offset. Depending on the efficacy of contract design 8, this
approach can ensure greater durability and legitimacy for offsets.
Offsetting can also be delivered through partnership agreements between custodians of
suitable land, and organisations with significant environmental impact. Whilst this can be
implemented as a means to secure project finance in line with international standards for
major financial institutions, it can also be a useful means of offsetting impacts from activities
on a voluntary basis – US retailer Walmart’s ‘Acres for America’ partnership with the US
National Fish and Wildlife Foundation has funded 59 projects in 33 states since 2005,
providing funds for restoration of habitats and water bodies 12.
Table 3.1
Examples of offset and no net loss projects (IUCN/ICMM, 2013)13
Type of offset
Developer
Private conservation banks
CDC Biodiversité (Bouches-du-Rhône, France); the
Environment Bank (UK),
Thames River Conservation Credits Bank
Government conservation banks
State and municipal land pools/habitat banks (Germany)
Public-private conservation banks
Environment Agency-Associated British Ports (UK); Malua
BioBank (Sabah, Malaysia)
Contracts
Possible with private consultancy firms and NGOs
Partnerships
Rio Tinto QMM and Missouri Botanical Gardens
(Madagascar); Walmart (USA: “Acres
for America”)
DIY offsets by developers
Ambatovy Sherritt and Wildlife Conservation Society
(Madagascar)
In-lieu fees
Unlikely as a medium for voluntary offsets. In place in some
European planning frameworks (eg. Dutch ‘Green Funds’,
UK Section 106 Agreements)
In other cases, developers may choose to implement offsets directly. This approach has
been widely seen in North America in the past, but has largely fallen out of favour as
regulators have increasingly signalled their preference for the use of specialist
habitat/conservation banking institutions, which are generally easier to monitor. Such
institutions are generally more cost-effective to developers than implementing offsets
directly, and (in some countries, if not others) can assume legal liability for the ongoing
management of the offset site.
Nonetheless, there may be growing opportunities for payment-based offsetting in some
specific sectors. No Net Loss of biodiversity is a requirement for all wind energy projects in
12
Accessible from: http://www.nfwf.org/acresforamerica/Pages/home.aspx#.VUiixJNc_vU
IUCN/ICMM (2013) Independent Report on Biodiversity Offsets. Geneva: International Union for the
Conservation of Nature.
13
8
France for example, and GDF Suez Group, which is currently developing an offshore wind
project in a Marine Protected Area off the northern French coast, is exploring the potential of
direct investment in the local marine protected area as part of its offset requirement.14 In the
EU, many existing planning frameworks (such as in the Netherlands and UK) allow payment
to specialist funds to compensate for environmental damages arising from development.
However, practical difficulties often arise with regard to allocation of these funds – with many
of the fund-holders lacking the technical expertise to allocate these funds to suitable projects
– and difficulties of attribution (ensuring a direct link between what is lost and what is gained)
mean that such financial arrangements may not qualify as offsets.
Outside of Europe, other advanced regulatory systems are creating increasing demand for
offsetting in countries such as the USA, Australia and (to a lesser extent) Brazil. Drivers for
offsetting in developing countries relate less to national regulation than to international
financing standards such as the IFC Performance Standard 6 15, which requires no net loss (or
net gain) for projects financed by signatories to the Equator Principles of international lending.
The Business and Biodiversity Offset Programme (BBOP) Standard on Biodiversity Offsets 16
is the most commonly-recognised voluntary standard for biodiversity offsetting in this regard,
and has been applied by a number of companies in the extractive sectors reliant on IFC –
linked financing. The Standard draws on a range of international best practice, often derived
from national regulatory systems, and is underpinned by an adaptive management approach,
balancing ecological rigour with technical and financial feasibility criteria.
3.2
Scale of market opportunities
International experience of offsetting highlights that opportunities rarely emerge in the
absence of strong regulatory drivers. Precise and well-enforced regulation requiring offsets
has been key to the development of buoyant offset markets in the USA, Germany and
Australia.
In the USA, developers and public bodies have many years of experience of delivering
offsets through habitat banking and other mechanisms. The sale of mitigation credits through
these institutions has given rise to an estimated $4bn credit trading market17.
Research carried out for the Ecosystem Markets Task Force identified a potential annual
market value of EUR 112-588m in England alone. The comparable figures for the EU were
estimated at a potential annual market value of EUR 938m - 9.3 bn6. Nonetheless, offsets
are capital-intensive and complex, and require detailed financial and ecological planning to
deliver on their objectives- and there are growing opportunities for organisations with
specialist skills in these areas.
Box 4 The Environment Bank Ltd.
The Environment Bank Ltd. is a UK company which acts as a broker and delivery agent in
emerging markets for environmental assets, in particular biodiversity offsetting. It has developed a
unique and innovative business model in this respect. EBL is currently operational in the UK but is
looking to extend its business operations to other European countries. Research for the Ecosystem
Markets Task Force estimated that biodiversity offsetting could deliver 300,000 ha of ecological
14
http://openchannels.org/news/mpa-news/emerging-concept-marine-biodiversity-offsets-and-their-potentialuses-mpas
15 Accessible from:
http://www.ifc.org/wps/wcm/connect/bff0a28049a790d6b835faa8c6a8312a/PS6_English_2012.pdf?MOD=AJPER
ES.
16 Accessible from: www.bbop.forest-trends.org
17Accessible from:
http://www.europeanlandowners.org/files/Events/TheEBioConf2011/Duke%20Guy.%20The%20Environment%20
Bank%20Ltd.pdf
9
creation/restoration over 20 years in England alone. As the comparable figure for the EU was 1050,000 sq km over 20 years this would represent a very considerable contribution to the EU No Net
Loss Initiative.
The Environment Bank is currently engaged with a major international food processing company
(AB Agri) and a number of local authorities in the UK towards the development of a regional pool of
offsets.
Other markets are starting to emerge in the EU. In Spain, for example, a recent change in
national law is likely to be supportive of the emergence of local and regional offsetting, and
market development potential is thought to be in the region of €150 million per year, despite
the currently limited growth in the domestic construction market. The next step will be
translation of the national requirements into appropriate guidelines at the level of the regions
– some specialist organisations such as Ecoacsa Reserva de Biodiversidad18 (see below)
are working with public and private institutions in Spain to accelerate this process.
Box 5 Ecoacsa Conservation Banking (Spain)
Ecoacsa Reserva de Biodiversidad is a company created to develop environmental markets in
Spain, and currently engaged in a range of projects related to conservation banking, following
recent changes in Spanish national regulation to facilitate and support biodiversity offsetting.
Ecoacsa provides a range of services to support the development and management of offsets,
including consultancy on design and planning, project management, cost-benefit analysis of
compensation options, national and international promotion of offsetting, training and capacitybuilding on offsetting and compensation banking, and public participation and consultation
activities.
Market demand is in almost all cases contingent on the regulatory drivers in place within
national legislative frameworks. However, regulation in itself appears to be insufficient to
support the development of offset markets – in most existing markets (particularly the USA
and Germany) offsetting was not a common practice until the development of supplementary
guidance establishing common standards and processes for implementing offsets. This
reflects the complex, specialist nature of biodiversity offsetting and the need for appropriate
technical support from intermediaries.
Box 6 Brandenburg Land Pool (Germany)42
The concept of land pools (a form of conservation bank, often state-supported) is relatively new in
Germany. Its legal basis is the (2010) Impact Mitigation Regulation, contained in the Federal Nature
Conservation Act, which has been in place since the 1970s. Under the regulation, investors legally
obliged to compensate for impacts on nature and landscapes pay the state land pool for areas held
in reserve and any compensation measures implemented. The agency obtains the required land
from private landowners. Long-term compensation measures are often implemented by farmers
who are paid for doing so. The agency thus acts as initiator, facilitator and supplier of offsets.
The Brandenburg land pool is considered a particularly strong example of an effective conservation
bank, implementing measures such as extensifying agricultural land, structuring landscapes and
restoring bodies of water, on approximately 1,000 hectares of land. As well as developing, planning
and implementing ideas, it is also responsible for long-term land maintenance over a period of 25
18
Accessible from: http://www.ecoacsa.com/about-us.html
10
years. Its services are preferred not only by project developers, who can quickly and affordably
meet their obligations using the agency; the licensing agencies responsible for assigning
compensation measures are increasingly using the company’s services.
3.3
Financing challenges
Access to finance is often a significant challenge for biodiversity offsets. Financing needs
are typically very large, to achieve necessary efficiencies of scale and to adequately offset
the substantial impacts arising from development. Habitat banks require capital investment
for the acquisition of land and undertaking restoration activities, which is recouped over time
through the sale of conservation credits. While credits may be released over time as
conservation work is undertaken and benefits begin to emerge, payback periods may be
lengthy.
There are often significant uncertainties relating to market returns on offsets, particularly in
the EU where the regulatory environment is still emerging. Demonstrating the ability of
offsets to achieve no net loss (in line with EU policy, most national policy and international
best practice) requires the emergence of effective supply – this may require somewhat
speculative investment since demand will be driven by regulation.
Existing evidence from the EU points to capital costs of between €30,000-€100,000/hectare
for offset schemes19, although actual project costs may be higher than this, depending on the
nature of the project and where it occurs. The scale of lifetime costs may depend on the
institutional arrangements in place; in Germany, costs largely pertain to land acquisition and
capital costs to comply with mandated measures, whilst in the USA, costs can vary
significantly depending on the acquisition value of the land. Moreover, monitoring and
evaluation costs may be a significant element of overall project costs. International best
practice indicates that ideally 5-10% of overall project spend should be allocated to
monitoring (Lindenmayer, 201220; Franklin, et al. 199821).
In terms of financial resources, there are three key elements to consider in order to ensure
that conservation benefits are secured over the long term:
■
Ensuring that there is sufficient capital available at the beginning of the offset to deliver
the required conservation activities over time and to satisfactory standards (e.g. through
the use of trust funds);
■
Ensuring that there are appropriate safeguards if there are unforeseen needs or
circumstances unexpectedly change (e.g. contingency funds); and,
■
Ensuring that there are financial guarantees against risk of financial failure (e.g.
bankruptcy).
Another key concern relating to no net loss claims is the extent to which regulators require
an ‘anticipatory approach’ to impacts - that is, requiring offset proponents to secure offset
benefits before provision of credits (as in Natura 2000 compensation). This can entail
substantial up-front costs if there is no ability to raise funds prior to implementation of the
offset. Offset planning, establishment, management and operating costs must be borne for
perhaps years before specified performance standards can be applied as compensation for
impacts (McKenney & Kiesecker, 201010). This approach can threaten both the growth of the
offset market and the viability of mitigation banks in general. As a result, regulators in the
19
Conway, et al. (2013) Exploring potential demand for and supply of habitat banking in the EU and appropriate
design elements for a habitat banking scheme.
20 Lindenmayer, et al. (2012) Value of long-term ecological studies. Austral Ecology, Vol. 37, Issue 7. pp. 745-757
21 Franklin, et al. (1998) Complementary roles of research and monitoring: lessons from LTER Program and
Tierra del Fuego. USDA Forest Proceedings. RMPS-12.
11
USA and Germany usually take a flexible approach to the management of residual impacts
through advance credit release or area multipliers8.
3.4
Sources of finance
Sources of finance for offsetting vary substantially in mature markets. In the USA, specialist
financing institutions have emerged in the form of mitigation banks, which typically provide
offset credits on an upfront basis and allow developers to pay into a long-term financing
mechanism such as an endowment fund. In addition, specialist insurance pools have
emerged to share and distribute some of the risks associated with offset failure. A drawback
of these funding sources is that the scale of required endowment is often linked to both
projected long-term funding needs, and to the scarcity value of the habitat or ecosystem in
question – in some cases, this results in prohibitively high funding requirements for
offsetting8.
In Germany (and a number of Australian states) a majority of habitat banking institutions are
administered and funded by state or municipal governments. Whilst this helps ensure access
to finance, there may be issues with enforcement of the polluter-pays-principle. In Germany,
a review published in 2005 (Böhme et al 2005 22) found that only around a third of
compensation land pool administrators were passing on the costs of permanently
safeguarding offset land to the project developers. Offsets are often viewed as a relatively
cost-effective means of securing multiple public benefits through the planning system, in the
form of ecosystem services.
A common feature to both systems is the ability to access large amounts of ex-ante capital,
which allows offset areas to be secured, conservation works to be undertaken and credits to
be released prior to planning approval. This can be difficult where market demand is
uncertain or capacities to deliver offsets are unproven – so supply can be constrained by
demand, and vice-versa. Whilst this is clearly the case with regard to conservation banking
systems (widely recognised as the most efficient, and often the most effective means of
securing long-term conservation benefits from offsets), the absence of developed
conservation banking markets does not preclude developers and companies undertaking
‘DIY’ offsets with direct investments using their own funds – if the national regulatory
framework allows them to do so. Nonetheless, the high capital costs associated with
offsetting mean that this would tend to be limited to larger organisations and projects 8.
Box 7 CDC Biodiversité offsetting pilot (France)
CDC Biodiversité is a first-tier subsidiary of the Caisse des Dépôts, entirely dedicated to biodiversity
issues. It has been engaged in activities relating to habitat banking for several years and has a
detailed understanding of some of the issues inherent in the delivery of offset projects. In 2008, the
company acquired 357 ha of old fruit groves in the Crau Plain of the South-east of France. The old
fruit grove was rehabilitated into a typical steppe-like habitat. A pilot offset supply scheme provides,
the opportunity to developers to offset their residual negative impacts by acquiring biodiversity
units. CDC Biodiversité will oversee the project over a 30-year period and bring in local specialists.
Although the project reached technical maturity in 2009, management is ongoing and to achieve
profitability the company needs to sell all available offset credits. The price of offsetting credits is
estimated to be approximately €35,000 / ha for a management period of 30 years. Demand for
credits is in turn contingent on policy and regulatory incentives for offsetting, which are still
emerging.
22
Böhme, C., Bruns, E., Bunzel, A., Herberg, A., Köppel, J. (2005) Flächen- und Maßnahmenpools in
Deutschland. Naturschutz und Biologische Vielfalt Vol 6. Bundesamt für Naturschuts, Bonn.
http://www.buchweltshop.de/bv-heft-6-flachenpools.html
12
Biodiversity offsetting is one of the four themes to be supported by the new EU Natural
Capital Financing Facility (NCFF).
Box 8 The EU Natural Capital Financing Facility
The Natural Capital Financing Facility (NCFF), jointly administered by the European Investment Bank
and European Commission, is a new financial instrument with a focus on risk-pooling of Natural
Capital projects in the areas of PES, Green Infrastructure, biodiversity offsetting and pro-biodiversity
business. The initial EUR 120m capitalisation of the fund represents a mix of existing LIFE resources
with EIB capital, and this will be allocated in the form of direct and indirect lending in the region of
EUR 5-12m per investment.
NCFF will provide direct loans and equity finance to projects, pool investment risk through cofinancing and provide technical and business development expertise to project developers. As with
other instruments such as the Risk Sharing Instrument (EIB) and Horizon 2020 (EC), the aim is to
develop the commercial applicability of projects by absorbing short-term investment risks. A key
criterion for inclusion of projects within the NCFF Pipeline is that the project design needs to
demonstrate either a viable revenue stream or cost savings to the beneficiary, which will to support
repayment of the finance provided.
It is envisaged that 9-12 projects will be financed under the NCFF within its initial pilot phase (2015 2017) across the 4 project categories. It is hoped that, by tackling market failures that constrain
current finance for natural capital projects, the facility will demonstrate the viability of applying new
financing models for biodiversity and ecosystems across the EU.
3.5
Questions for Platform members, observers and representatives
We would like to develop the above discussion with further input, examples and comments
from Platform members, observers and representatives.
You are invited to complete the separate Call for Evidence pro-forma provided.
13
4
Green infrastructure
4.1
Introduction
Green Infrastructure (GI) is a strategically planned network of natural and semi-natural areas
with other environmental features designed and managed to deliver a wide range of
ecosystem services. It incorporates green spaces, wetlands and other physical features in
terrestrial (including coastal) and marine areas. On land, GI is present in rural and urban
settings23. The underlying principle of Green Infrastructure is that the same area of land can
frequently offer multiple benefits if its ecosystems are in a healthy state. Green Infrastructure
investments are generally characterised by a high level of return over time, provide job
opportunities, and can be a cost-effective alternative or be complementary to 'grey'
infrastructure and intensive land use change.
The types of physical features that contribute to GI are diverse, specific to each location or
place and scale-dependent. On the local scale, biodiversity-rich parks, gardens, green roofs,
ponds, streams, woods, hedgerows, meadows, restored brownfield sites and coastal sanddunes can all contribute to GI if they deliver multiple ecosystem services. Connecting
elements are green bridges and fish ladders. On the regional or national scale, large
protected natural areas, large lakes, river basins, high-nature value forests, extensive
pasture, low-intensity agricultural areas, extensive dune systems and coastal lagoons are
just a few of many examples. On the EU scale, trans-boundary features such as international
river basins, forests and mountain ranges are examples of the EU’s supranational GI. They
have an important function: to deliver multiple benefits, or connect ecosystems so that they
can deliver their services24.
The European Commission has adopted a Green Infrastructure Strategy, 'to promote the
deployment of green infrastructure in the EU in urban and rural areas'. This is a key step in
implementing the EU 2020 Biodiversity Strategy and specifically Target 2 that requires that
'by 2020, ecosystems and their services are maintained and enhanced by establishing green
infrastructure and restoring at least 15% of degraded ecosystems'.
The EU Green Infrastructure Strategy links to a number of current policy priorities within
Member States. Because the benefits of GI are usually shared between the public and
private sectors, there is a strong case for public-private partnership models of delivery,
where risk and returns are spread over time25.
4.2
Scale of market opportunities
Market opportunities for GI are diverse, given the range of potential applications and needs
which projects can address. The World Economic Forum estimates that USD $5.7 billion of
green infrastructure investment could be needed by 2020 in order to realise environmental
policy objectives in sectors such as agriculture, transport and water 26.
Despite the range of public and private benefits derived from many GI projects, the private
sector has in general been relatively slow to capitalise on the benefits of such investment. A
recent joint-industry white paper, The Case for Green Infrastructure (The Nature
Conservancy, 201327) drew upon lessons from GI implementation by companies such as
Shell, Unilever, Swiss Re and Dow and highlighted the potential of GI to increase the
resilience of industrial business operations across a number of sectors, their potential to
23
COM/2013/0249 final
COM (2013) SWD/00115
25 OCED (2012) Financing Urban Green Infrastructure http://www.oecd.org/gov/regionalpolicy/WP_Financing_Green_Urban_Infrastructure.pdf
26 Accessible from: https://www.db.com/cr/en/concrete-sustainable-large-scale-projects.htm
27 The Nature Conservancy (2013) The Case for Green Infrastructure: Inter-Industry White Paper.
24
14
yield financial advantages and cost savings over traditional ‘grey’ infrastructure, potential to
recapitalise aging assets and contribution to managing reputation and socio-political risks.
The report drew the following general conclusions with regard to integration of GI within
business strategy and asset planning:
■
■
■
■
Organisations should employ a more comprehensive analysis of their economic and
environmental footprints to more accurately assess the relative benefits of green and
grey infrastructure
GI solutions benefit from the engagement of external partners to glean experience,
expertise and innovative approaches that can de-risk investments
Leadership emphasis and change management is necessary to bring successful GI
solutions to scale: many organisations are not staffed with the requisite skills or
organisational culture
Organisations are encouraged to integrate GI into a comprehensive strategy,
incorporating innovation, business development, project economics, engineering and
environmental sustainability
Despite the limited examples of private-sector led GI projects to date, there are a growing
number of examples of successful public-private partnership models of delivery – particularly
between private companies and urban/municipal authorities. Cities are key investors in
infrastructure with green potential, such as buildings, transport, water and waste
management systems, and benefit most from the range of ecosystem services GI provides.
This can include low-cost solutions to common challenges such as stormwater/flood
management and the urban heat island effect. There are growing examples of municipal
governments in North America making use of ‘pay-for-performance’ mechanisms that borrow
from traditional infrastructure financing models to maximise the potential of GI.
Box 9 Green aeration corridors for air quality and temperature
control in Stuttgart (Germany)28
Stuttgart has been susceptible to poor air quality since the 1970s. Low wind speeds in the region
and a demonstrated urban heat island effect contribute to the problem. In the 1990s, the city began
to establish green aeration corridors between urban areas and the surrounding hills to create an air
exchange and promote cool air flow into the city. Preservation and enhancement of open spaces
and vegetation is the key measure, in locations that have a role in air movement and air exchange
across the city.
Adjusting zoning regulations to preserve open space and increase vegetation was critical to the
effort. The corridors are positioned to take advantage of natural wind patterns and vegetation to
reduce problems of overheating and air pollution. The city also achieved an in-house climatic
research capability to provide knowledge of local conditions and tactics to adjustment zoning
regulation. The main mechanism is the German Building Code, the legislative basis for the initiative.
Regulations are divided according to different types of green infrastructure and climate-amelioration
mechanisms:
–
–
The acquisition, preservation and enhancement of Green Space: based on a landscape
scale and open-space control plan; establishing benchmarks for “green” uses; avoidance of
soil capping; green roofs and facades.
Securing the Local Air Exchange: establishing contiguous corridors which supply cold and
fresh air from the hills, wildlife habitat and encourage advantageous forms of development.
These measures have resulted in a range of benefits to public health, but have also contributed to
substantial reductions in energy demand relating to air conditioning in offices and buildings. Key
28
Kazmierczak, A. (2010). Adaptation to Climate Change Using Green and Blue Infrastructure. Manchester:
University of Manchester.
15
challenges relating to the project included the need to coordinate multiple projects into a common
strategy, uncertainties relating to future climate change impacts, availability of public authority staff
with climatic expertise and access to sufficient finance.
The case demonstrates the advantage of making constructive use of existing regulations and above
all, ensuring close collaboration between the Office of Environmental Protection, the City Planning
and Renewal Team, stakeholders in the private office and building management sector and the
wider public.
Generally, project development needs can be broken down into three different components,
including the political component (building awareness, campaigning for promoting a
specific topic, etc.), social component (stakeholder involvement) and nature/physical
component (technical implementation of project). In general, the most important funding
needs for green infrastructure projects relate to land purchases, research (to better
understand the targeted ecosystem), preparation and planning, restoration work, monitoring
and innovation actions29.
Green Infrastructure provides possibilities to be used as assurance for economic
development against climate change effects, in particular as excellent tool for green
economy and building upon economic advantages of restoration (such as the increase inland
values of a restored area and its surroundings compared with intensively exploited or
degraded agricultural, urban or industrial areas).
4.3
Financing challenges
GI projects, whilst providing a range of ecosystem service benefits, often entail a substantial
range of costs. Financing challenges include substantial upfront capital costs (in advance of
any ecosystem service benefits), uncertainties as to the scale and nature of benefits and
their ability to contribute to cost savings and revenue generation (largely due to data gaps
and difficulties of estimation), and issues of coordination because of the range of (public and
private) beneficiaries. Difficulties in obtaining full compensation for ecosystem services can
be encountered, with the risk that ‘free rider’ issues are a barrier financing projects whose
benefits are shared between public and private actors.
Costs for GI projects can be considerable and include one-off administrative costs (surveys,
research, consultation and management planning), capital costs of provision (land purchase,
compensation payments, creation and restoration costs) as well as ongoing costs relating to
management, monitoring and maintenance.
The scale of these costs differs depending on the location, focus and objectives of the GI in
question, and can thus vary substantially. One recent analysis of 90 GI projects across the
EU (Naumann, et al, 201129) highlighted average budgets of between €500,000 and €5
million per project – although a handful or projects had budgets exceeding €25 million.
Similarly, unit capital costs ranged from €250 per hectare to almost €1 million per hectare,
highlighting the varying degrees of complexity associated with GI projects. Unit costs tend to
be lowest for restoration of very extensive rural habitats, in line with most conservation
projects, whilst targeted species protection measures and restoration work in urban parks
and green spaces tends to have the highest unit costs, particularly where GI projects involve
wider activities in addition to land management, such as stakeholder engagement or
awareness-raising.
29
Naumann, Sandra, McKenna Davis, Timo Kaphengst, Mav Pieterse and Matt Rayment (2011): Design,
implementation and cost elements of Green Infrastructure projects. Final report to the European Commission, DG
Environment, Contract no. 070307/2010/577182/ETU/F.1, Ecologic institute and GHK Consulting.
16
4.4
Sources of finance
Due to the high diversity of aims, focus and actors involved, a wide range of possible
financing sources at different levels may be used alone or in combination with one another
for supporting green infrastructure projects. GI projects have hitherto benefited largely from
public funding sources, but the diverse benefits they provide may point to public-private
partnership models of financing (increasingly applied in the renewable energy sector) which
could include the use of innovative financing mechanisms such as project bonds.
Green Infrastructure can also provide financing opportunities linked to innovation, such as
through innovative planning approaches, the design of urban elements enhancing
biodiversity, combinations of technologies enhancing ecosystem services, or the
development of organisational methods, products, services and system innovations to better
protect ecosystems.30 Sources of finance in this regard can include national and EU
research and development funds (Structural Funds, Horizon 2020) as well as private R&D
capital investment (for example undertaken by the development, construction and
engineering sectors).
Elsewhere, the amenity benefits provided by GI may point to opportunities for levy-based
financing approaches, where the upfront costs are usually underwritten by public sources but
are managed over time through contributions from users of the GI, such as local
communities and businesses.
4.4.1
European funding
A range of EU funds may support green infrastructure investments. The LIFE facility plays a
central role given the typically large scale of financing needs and the links between GI and
conservation needs such as habitat connectivity. All strands of the LIFE programme are
applicable to GI projects, including technical assistance projects, preparatory (capacitybuilding/pilot projects) and integrated projects (large-scale, regional or transboundary
projects).
Other relevant funding programmes include the European Regional Development Fund
(ERDF) and European Agricultural Fund for Rural Development. There is potential to
integrate GI into Cohesion Policy through its contribution to regional development objectives
(projects funded under the ERDF typically contribute to parallel objectives such as public
health and wellbeing), whilst EAFRD offers opportunities to link GI projects to agrienvironmental measures and agro-forestry measures.
Another important EU fund is the Natural Capital Financing Facility, a fund jointly
administered by the European Commission and European Investment Bank, which includes
specific support to GI projects. The fund will provide funding support in the region of €5€15m per project, and will also provide funds to support equity investment in GI projects
through the EIB’s network of financial intermediaries.
4.4.2
Public sector funding
Many public sector funds linked to GI projects are delivered through co-funding of EU level
investments and implementation of EU policies (for example, Natura 2000 payments, water
policy and improvement of the continuity of watercourses, agri-environmental schemes,
investments in natural heritage inside the rural development programmes and strategic
framework for structural funds).
However, there are also examples of dedicated state funding in place for the implementation
of GI. In France, for example, the national government provides staff, skills and training to
support the development of GI at a regional and departmental level, as well as resources to
support the development of regional planning, which could have some application to GI. In
addition, Départements are applying revenues from a special tax in sensitive natural areas to
preserve biodiversity and ecological networks.
17
In Germany, the federal government is currently drafting a ‘federal re-networking
programme’, to complement and integrate similar programmes at the state level. This will
form the basis for constructing crossing aids in the most important habitat corridors in the
national transport network. Funding is not finalised but is likely to involve some level of
federal funding support: in the past, green bridges and similar measures designed to mitigate
fragmentation effects of ‘grey’ infrastructure have been financed through the federal
government.
In addition to these public funding sources, some EU Member States have ‘quasi-public’
sources of funding that can be well suited to financing GI, including funding from national
and local lottery sources, as well as tax rebates administered by regulated third parties.
Examples in the Netherlands and the UK include the National Lottery. Another example from
the UK is the Landfill Tax Communities Fund30.
Local and municipal authorities, which often need to balance the needs of multiple
stakeholders in investment decisions, can be key partners in GI projects. Prominent
examples of where this level of government might invest include urban green spaces, urban
GI (such as green roofs), drainage schemes and air quality enhancements. In many Member
States, local and regional authorities have the ability to borrow against long-term investment
projects, where clear revenue streams have been identified.
4.4.3
Private sector funding
Whilst the majority of GI projects rely on some combination of public funds, there are also a
growing number of examples of private sector involvement. In many cases, these take the
form of public-private partnership models of funding, with investment GI projects supported
through targeted tax incentives, de-risking of bonds linked to GI investment, and incentives
built into concession and contract design for regulated markets.
As with PES schemes, there are particular opportunities for the water sector, where GI can
meet wider environmental objectives that are either in line with public policy aims, or built
into the design of contractual agreements (as in the UK and French water sectors).
Urban green infrastructure could also be financed by local businesses, for example via
business improvement districts (BIDs). Originally invented in Ontario, Canada, BIDs have
been widely used in the US and Europe since the 1960s. This mechanism facilitates
financing and managing improvements to commercial and industrial environments
based on the agreement by a majority of businesses (either land owners or tenants)
who accept an additional levy. Once a district is established, revenue is available through
long-term debt for capital investment. Initially, BID resources often support additional
safety and sanitation services, but they can develop into much more sophisticated
investments and initiatives such as joint promotional initiatives56. There are emerging
examples of these BID models being explored as a source of finance for GI and urban green
space (see below).
Box 10 Green Business Improvement Districts (UK)31
A good example of businesses, local government and government agencies working together to
deliver local business-led aspirations is the Greening for Growth project in London’s Victoria
Business Improvement District (BID). Victoria BID went live in April 2010 and set itself an ambitious
programme to help boost the local economy, improve visitor experiences of the area and enrich the
sense of place.
COM (2013) WG on a Green Infrastructure Strategy for the EU: Task 4 – Financing.
Landscape Institute (2010) Green Infrastructure: An Integrated Approach to Land Use.
http://www.landscapeinstitute.co.uk/PDF/Contribute/2013GreenInfrastructureLIPositionStatement.pdf
30
31
18
A GI audit for the BID area undertaken by Land Use Consultants identified a potential 1.25ha of
new terrestrial GI, 1.7ha of enhancements to existing GI and suitable space for 25ha of green roofs.
A significant environmental issue in the BID area is surface-water flooding, which has led to the
temporary closures of Victoria Station and the underground in the past. But fitting 25ha of green
roofs alone could deal with 80,000m3 of rainwater each year. As a BID is valid for five years and all
BID members make an annual contribution to the running of the programme, this model could
provide a sustainable option for delivering urban GI in the longer term. Existing partners include
major London hotel groups (Red Carnation Hotels) and retailers (John Lewis).
Larger access to loans and bonds could help to mobilise finance for green urban
investment. Bonds provide institutional investors, such as pension funds, stable yields
and limited risks. Urban green infrastructure investments in North America use both to a
limited extent, but they could be leveraged more often for infrastructure investments.
There is a relationship between access to borrowing and cities’ own revenue sources: the
more revenue sources a city has, the higher its perceived repayment capacity, and thus the
greater its access to debt markets, including loans. Local and municipal governments in
some Member States (for example, Denmark, the UK, Italy and the Netherlands) may be
able to access private loans independently of central or regional government, provided they
can demonstrate sufficient resources to service any loans.
Green bonds are promising means for cities and local/regional government to attract private
finance. Green bonds provide a channel for directing institutional investor capital towards
green projects. Institutional investors, such as pension funds, regularly invest in ‘grey’
infrastructure in many countries as a means to take advantage of long-term investments with
steady yields and limited risks. Bonds thus account for half of total assets under
management in OECD pension funds. The share of green bond investment is very small,
and even smaller for green infrastructure investment, but two promising models exist25:
■
■
Multinational development banks have started to fund green bonds – urban green
investment projects are estimated to make up 25% of the World Bank’s green bond
portfolio. Elsewhere, the EIB has been financing a range of green urban investment
projects through green bonds (for example, district heating in Paris); and
National development banks are a major source of financing for high-risk and
innovative projects in the EU, and specialist lenders such as the Dutch Greentech Fund,
Nordic Environment Fund and UK Green Investment Bank are actively exploring
investment opportunities in green infrastructure.
Forest bonds are being actively promoted by a number of governments, with Ireland recently
becoming the first country to provide tax incentives for forest bonds 32. Development of markets
for combined carbon sequestration and conservation services also looks set to grow with the
emergence of instruments such as the UN REDD+ programme33. Asset management and
advisory firm Climate Change Capital34 is also undertaking a programme on Green Bond
finance for forestry conservation which will try to link private sector capital investment with
donor nation payments for realisation of conservation benefits.
Box 11 Green Bonds (France)35
The Ile-de-France regional council held its first environmentally and socially responsible bond
issuance in March 2012. It was an immediate success. The bond's subscription rate reached 175%
32
http://www.irish-forestry.ie/
http://www.un-redd.org/aboutredd/tabid/102614/default.aspx
34 http://www.climatechangecapital.com/
35 Accessible from: http://www.managenergy.net/article/109#.VUn5LZNc_vU
33
19
in just half-an-hour. This meant that the Region, which was expecting a €200 million loan, saw its
order book swell to around €620 million. Ultimately, €350 million was raised.
Half of the funds raised will be invested in environmental projects, mostly supporting clean energy
projects such as installing renewable energy in school buildings, but with some directed towards
biodiversity protection schemes. The other half will be spent on social projects, mostly in housing.
This offering met investors’ requirements in terms of risk (long maturity, high issuer rating, etc.),
partly explaining the transaction’s success. Moreover, the transparency of the initiatives financed
along with the social and environmental nature of this bond issue appear to justify one third of the
offers made by investors, according to Crédit Agricole CIB, which set up the transaction, alongside
BNP Paribas CIB.
This strong demand from investors enabled the Ile-de-France Regional Council to borrow at
3.625%, which amounts to the lowest euro yield paid by a French local authority since the
beginning of the 2012.
Recently Ile-de-France followed on this early success with a Green Sustainability Bond (issued
April 2014, EUR 600 million) dedicated to ecological transition and to enhancing social cohesion in
its territory. The projects will focus on constructing and renovating buildings, developing public
transportation and promoting sustainable mobility, extending the use of renewable energy and
protecting biodiversity, launching action programs to support vulnerable populations, promoting
social housing, as well as supporting SMEs and innovation.
Certain circumstances lend themselves to private sector involvement in GI, such as restoring
environmental damage (through PPPs, offsets, environmental liability) and paying for
services with private market value (e.g. water companies finance green infrastructure
restoration and management) as well as possible contributions through tourism levies and
donations/sponsorship motivated by CSR or altruism. Nevertheless, there are limits to the
potential of these areas, largely depending on what types of ecosystem services are
delivered, who are the beneficiaries and how they perceive the delivery of ecosystem
services. Many of these services have public good aspects and will be under-provided
unless these services receive public financing, putting a limit on private sector potential 29.
4.5
Questions for Platform members, observers and representatives
We would like to develop the above discussion with further input, examples and comments
from Platform members, observers and representatives.
You are invited to complete the separate Call for Evidence pro-forma provided.
20
5
Payments for ecosystem services and bio-carbon markets
5.1
Introduction
Payments for ecosystem services (PES) are schemes where the beneficiaries of ecosystem
services provide payment to the land managers who provide those services. In practice, PES
often involves a series of payments to land or other natural resource managers in return for a
guaranteed flow of ecosystem services above and beyond what would otherwise be
provided. Payments can be made by the beneficiaries of the services in question, for
example individuals, communities, business or government acting on behalf of various
parties.36 There is growing recognition in a number of areas that PES can be a cost-effective
mechanism for delivering multiple public policy objectives.
Biodiversity supports a range of ecosystem services, but provision of individual ecosystem
services may not always align with biodiversity interests. A common challenge for
governments, civil society and business is to communicate the additional value of investing
in biodiversity-friendly sources of ecosystem services; for example, whilst a plantation forest
may yield carbon credits at lower cost, this could conceivably have mixed or even
detrimental impacts on biodiversity and may generate a narrower range of services (missing
opportunities for water quality enhancement or flood alleviation, for example).
A distinction can be made between output-based and input-based payment systems: in the
case of the former, payment is linked directly to the desired state of the ecosystem service
(e.g. nutrient levels in groundwater). In the case of the latter, payment is made for a specific
action that is assumed to lead to the provision of an ecosystem service. In practice, most
PES schemes rely on some combination of these approaches, owing to the complexity of
ecological systems. It is often helpful in considering whether a payment is more input or
output-oriented in its design in order to consider whether the service provider has alternative
courses of action to choose between at a local level42.
Bio-carbon markets are an emerging specialist category of PES, that involve compensation
for storage or carbon in natural systems (typically forests, but also including peatland,
wetlands and marine habitats). This recognises the key role that specific habitats play in
sequestering carbon and combating climate change. Investment in the restoration or
enhancement of these ecosystems may provide a more cost-effective route to decarbonising
activities, or provide reputational co-benefits.
5.2
Scale of market opportunities
Market opportunities for PES are as diverse as the ecosystem services that can be provided.
The global market for Payments for Ecosystem Services (PES) schemes is expected to
reach USD $7bn by 202037. Nonetheless, there are a number of areas where market
potential seems strongest at present, owing to existing regulatory or market incentives. The
global value of government-mediated biodiversity PES for example (typically those linked to
agri-environmental measures and other public policies) is approximately USD $3 billion,
representing a growth rate of 3.5% per annum 37.
The water sector is emerging as a dominant area of opportunity for PES, owing in part to
better understanding of the relationship between terrestrial environmental management
actions and associated impacts on water bodies. Linked to this, there is a growing
awareness of the potential cost-effectiveness of addressing water quality issues on an
upstream (rather than downstream) level. The Upstream Thinking programme initiated by
36
Smith, et al. (2013) Payments for Ecosystem Services: Best Practice Guide. A Report to the Department of
Environment, Food and Rural Affairs.
37 Forest Trends (2008) Payments for Ecosystem Services: market profiles
http://ecosystemmarketplace.com/documents/acrobat/PES_Matrix_Profiles_PROFOR.pdf
21
Southwest Water (UK) provides an interesting example of the integration and use of PES on
a strategic level – helping meet regulatory requirements and ensure source protection.
Commercial interests, in addition to legal requirements, thus play a role.
The UK and France (along with Chile) are the three countries worldwide with the highest
share of private sector water provision. Environmental commitments for water companies in
these countries are thus built into contractual designs, and there are increasing opportunities
to attain benefits (or co-benefits) to biodiversity from investment decisions by these
companies.
Box 12 Upstream Thinking (UK)45
South West Water (SWW) provides drinking water and waste-water services throughout Cornwall
and Devon along with small areas of Dorset and Somerset in southern UK – an operating area of
more than 11,000 km2 with 1.6 million residents. Around 90 percent of the drinking water comes
from reservoirs and rivers. The remainder is obtained from boreholes and aquifers. Since 1989,
SSW has made substantial investments in environmental improvements to bring the region’s
drinking water, sewerage systems and bathing waters into line with UK and European Union
standards
Those investments include the Upstream Thinking initiative with a total budget of £ 9.1 million over
five years to manage water quantity and improve water quality at its source long before it reaches
the water treatment plants. SWW started the initiative in 2008 with a pilot project to restore mires on
326 hectares of protected land. Today, Upstream Thinking is delivered in partnership with a range
of organisations, including trusts, governmental institutions and universities. One of these has been
initiated by the environmental organisation Westcountry Rivers Trust.
Some £ 4 million is currently available for the WRT’s Upstream Thinking project. The money is used
to encourage farmers in these areas to improve their land management through capital investment
in the kind of infrastructure that will reduce the likelihood of pollutants from the soil and animals
reaching watercourses. The payments are based on activities and developments carried out on a
specific farm. Examples of farm infrastructure improvements include fencing to create buffer strips
and keep the cattle away from the catchment, building a slurry pit or a roof over their manure store.
Farmers could also reduce the livestock or improve their pesticide management techniques.
Farmers are required to cofund the investments, usually by 50 percent. There is no direct contact
between the beneficiary and the service providers, the WRT acts as an intermediary. Accordingly,
the development of trust between the single buyer, SWW, the intermediary and the numerous
sellers was crucial to the success of the scheme.
Southwest Water is currently working to develop a reverse-auction process where farmers bid for
funding in a River Improvement Auction. The scheme was piloted in 2012. SWW provided £360,000
for the reverse-auction, and around 50% of farmers participated, making bids that were double of
what the regular scheme made available – suggesting that there is significant potential for
improvements of land management.
22
As a result of regulatory concerns (specifically, the ability to address multiple policy priorities)
as well as public relations opportunities 38, there is growing interest in the private sector in the
possibility of integrating biodiversity within more mature PES systems, such as carbon
markets. The World Bank’s BioCarbon Fund, for example, recently announced a dedicated
$280m Initiative for Sustainable Forest Landscapes, building on its broad portfolio of
investments in forest and agro-ecological carbon stocks, and support from corporate partners
such as Unilever, Mondelez and Bunge39.
Voluntary carbon markets are based on private funding, primarily for climate mitigation
benefits, but generally with a greater emphasis on co-benefits than the compliance market.
Regional voluntary carbon markets may be national or refer to one region within a country in
scope, and typically target national or regional investors to contribute towards local
restoration schemes (Kossoy and Guigon, 2012) 40. Although they develop their own regional
standards, they may draw on and adapt existing standards from the international carbon
market. The global voluntary carbon market was valued at $569 million in 2011, which is
significantly smaller in value compared to the compliance market with a value of $149 billion
in 201140.
The dominant Verified Carbon Standard41 provides general standards for land-based climate
change mitigation projects, and can now be used also to verify changes in GHG fluxes
resulting from wetland, peatlands (including REDD+ activities on peatlands) and coastal
marine restoration projects. Verification and accreditation via the VCS, however, can be
costly and financially only feasible for large-scale projects or big investors42.
38
Bekessey, S. Wintle, B. (2008) Using carbon investment to grow the biodiversity bank, Conservation Biology,
Vol. 22, Issue 3. P.510-513.
39 Accessible from: www.worldbank.org/en/news/feature/2013/11/20/biocarbon-fund-initiative-promotesustainable-forest-landscapes
40 A. Kossoy, P. Guigon (2012) State and Trends of the Carbon Market World Bank Environment Department,
Washington D.C (2012)
41 Accessible from: http://www.v-c-s.org/
42 Bonn, et al. (2014) Investing in nature: Developing ecosystem service markets for peatland restoration.
Ecosystem Services,
23
Finally, agri-environment schemes across Europe provide a major avenue to channel public
funding into habitat restoration and creation (Reed et al., 2014)43. These schemes are
justified on the basis of paying for the fullest possible range of ecosystem service benefits
(although these are often quite poorly quantified).
Peatland is emerging as a key area of opportunity for biocarbon markets: peatlands provide
the most efficient global store of terrestrial carbon. Degraded peatlands, however, contribute
disproportionately to greenhouse gas emissions, with approximately 25% of CO 2 emissions
linked to the land-use sector, and restoration can be cost-effective. Two key emerging
markets for peatland restoration are the UK (where peat covers 11% of land area and is 80%
degraded) and Germany (where peat covers 5% of total land area and is in a 95% degraded
state).
Box 13 MoorFutures – a regional carbon market in Germany4244
The MoorFutures voluntary carbon market was launced in 2011 to support peatland restoration in a
particular region of Northeast Germany, the federal state of Mecklenburg-Vorpommern. It is now
implemented in two other federal states, with more states considering to follow. The standard has
been developed based on Verified Carbon Standard (VCS) Wetland Restoration and Conservation
guidance: applying the VCS methodology in Mecklenburg-Vorpommem would be too expensive, as
sites are relatively small in size, so the MoorFutures standard has been developed to suit regional
conditions and to ensure cost-effective implementation.
Restoration projects are financed through the revenue generated through MoorFutures credits.
These credits are retired and recorded in a federal state registry with a specific species number
against the land registry. This allows investors to establish how many emissions reductions have
been made. It also provides useful figures for inclusion within business communications.
Around 10,000 credits had been sold by mid-2014. Recently a MoorFutures 2.0 standard has been
developed that incorporates other ecosystem services, such as nutrient cycling and habitat
provision for biodiversity.
Box 14 Woodland Carbon Code (UK)45
The Woodland Carbon Code is the British standard for voluntary carbon credits generated through
afforestation projects. Businesses and private individuals can acquire credits to mitigate their
emissions. The afforestation projects are financed through the sale of credits. In addition, they may
apply for governmental grants. Specialized carbon companies like Forest Carbon Ltd act as
intermediaries.
43
M. Reed, A. Moxey, K. Prager, N. Hanley, J. Skates, A. Bonn, C.D. Evans, K. Glenk, K. Thomson (2014)
Improving the link between payments and the provision of ecosystem services in agri-environment schemes in UK
peatlands Ecosyst. Serv., 9 (2014), pp. 44–53 http://dx.doi.org/10.1016/j.ecoser.2014.06.008
44 Joosten, H., Brust, K., Couwenberg, J., Gerner, A., Holsten, B., Permien, T., Schäfer, A., Tanneberger, F.,
Trepel, M., Wahren, A., 2013a. MoorFutures ® Integration von weiteren Ökosystemdienstleistungen einschließlich
Biodiversität in Kohlenstoffzertifikate – Standard, Methodologie und Übertragbarkeit in andere Regionen. BfNSkripten. Federal Agency of Conservation, Bonn.
45 Matzdorf, et al. (2015) Paying for Green? Payments for Ecosystem Services in Practice: Successful Examples
from the UK, Germany and USA. German Federal Ministry of Education and Research.
24
Box 15 Peatland Code (UK)46
The pilot Peatland Code is a voluntary standard for sponsoring peatland restoration projects in the
UK on the basis of their climate and other benefits (Reed et al., 2013). It is designed to ensure the
highest environmental standards and assurances on the carbon and other benefits of the peatland
restoration work. It gives guidance to those undertaking restoration, and gives sponsors confidence
that their contribution is making a measurable, verifiable and lasting difference to UK peatlands. By
sponsoring peatland restoration, businesses can enhance their brand integrity and value, deliver
corporate sustainability objectives and contribute strategically to the long-term protection and
enhancement of landscapes.
The Code is owned by the International Union for the Conservation of Nature (IUCN)‫׳‬s UK National
Committee and is directed by a Steering Group with inputs from a technical sub-group. It defines
eligibility criteria for projects in terms of the types of site and activities permitted and a number of
additionality criteria that projects must meet. The Peatland Code sets out principles, requirements
and guidance for the eligibility of projects, how projects are governed and documented, and how
the climate and other benefits of restoration should be monitored.
At this stage the Pilot Phase Code is designed to facilitate business sponsorship motivated by
corporate social responsibility; it is not yet intended for use in formal offset schemes, corporate
carbon reporting or to be traded on international carbon markets. The Code does provide guidance
on quantifying climate and other benefits, to reinforce the value of the sponsoring restoration, and it
may be possible to count these benefits in corporate carbon accounts in future if Government
guidelines allow. However, initially the Pilot Phase will focus on validating and certifying peatland
restoration projects in selected pilot areas to help demonstrate peatland benefits and build an
increasingly robust evidence base and methodology for future phases of Code development.
5.3
Financing challenges
Financing challenges for PES schemes can be considerable. As suggested above, there are
a multitude of ecosystem service delivery models available and this raises transaction costs
whilst reducing the potential to use standardised accounting and payment mechanisms. In
addition, the fact that each PES scheme is largely designed from scratch means there are a
range of inherent uncertainties in outcomes and returns on investment that can deter private
sources of finance. Many ecosystem services can be difficult to measure, which can further
complicate attribution of outcomes to expenditure.
Other challenges include the range of activities that need to be financed (e.g. significant
upfront research, market analysis, partnership building, testing and piloting) and problems of
coordinating buyers and sellers within payment structures. There may be high capital costs
associated with ecological restoration, particularly in rural environments. There is also the
risk of public PES schemes ‘crowding out’ activities that could be undertaken through private
enterprise or on a voluntary basis.
Above all, a key limitation is the uncertain level of end demand for ecosystem services,
including possible regulatory systems or markets relating to carbon or water quality trading.
In most cases these systems are limited to pilot or localised schemes, limiting wider access
to finance.
5.4
Sources of finance
Public sector funding remains the dominant source of support for PES schemes, particularly
where these relate to agri-environmental goals, and PES are recognised as a useful tool to
46
Reed, M.S., Bonn, A., Evans, C.D., Joosten, H., Bain, C., Farmer, J., Emmer, I., Couwenberg, J., Moxey, A.,
Artz, R.R.E., Tanneberger, F., Von Unger, M., Smyth, M., Birnie, R., Inman, I., Smith, S., Quick, T., Cowap, C.,
Prior, S., (2013). Peatland Code research project. Final Report. Defra, London.
25
supplement regulation and drive environmental improvements through competition
mechanisms in some cases. A key issue with regard to public funding is the generally
constrained spending environment for many central and local governments. Since many
PES schemes deliver a range of public goods, there may be strong incentives to ‘do more
with less’ and build multiple ecosystems service benefits into management planning whilst
exploring wider use of competitive tendering mechanisms.
Private sector funding can be more attainable where PES outputs are clearly measurable –
as in the case of water and carbon sequestration services. In the case of the former,
incentives are both regulatory and commercial in nature – water companies and users can
often secure their operations on a more cost-effective basis through the use of PES.
Regulatory drivers include the EU Water Framework Directive, which provides a strong
regulatory incentive to meet quality and quantity targets. Notably, many Member States
have competitive funds in place to meet WFD targets. The incentives for investment in
biocarbon at present largely relate to reputational drivers and decarbonisation targets under
CSR reporting. Whilst ecological restoration works are rarely more cost-effective than other
forms of decarbonising operations, these approaches also yield a range of reputational cobenefits that can be strong drivers for private sector investment.
5.5
Questions for Platform members, observers and representatives
We would like to develop the above discussion with further input, examples and comments
from Platform members, observers and representatives.
You are invited to complete the separate Call for Evidence pro-forma provided.
26
6
Other pro-biodiversity goods and services
6.1
Introduction
In addition to the business models discussed above, protection and enhancement of
biodiversity offers the potential to create business opportunities in the supply of a range of
goods and services. While some of the opportunities discussed above involve the
development of new markets and business models (e.g. PES schemes, biodiversity offsets),
there are also opportunities in the provision of more conventional goods and services which
contribute to or benefit from biodiversity conservation. Examples include environmental
technologies, consultancy, eco-tourism, media services, financial services, and processing of
products from conservation management e.g. conservation biomass.
Key opportunities relate to:
■
■
■
Primary production such as through the application of new techniques in agriculture,
forestry, fisheries and minerals;
Secondary sector – including processing of biodiversity friendly outputs from primary
production, and the development of environmental technologies and biodiversity friendly
products;
Tertiary sector, such as eco-tourism firms, enterprises that offer ecological
management or advisory services, banking and insurance, and enterprises involved in
environmental research, education, film and media.
It should also be noted that many pro-biodiversity businesses operate between sectors as a
means of diversifying their revenue streams: for example, fishery and agricultural activities
are often combined with recreation and tourism services47.
6.2
Scale of market opportunities
The agricultural sector is perhaps the natural-resource based sector that can provide the
greatest biodiversity benefits through modification of management methods and adoption of
alternative technologies and practices. According to Bishop, et al. (2008)48 the promotion of
biodiversity-friendly farming tends to involve:
■
■
■
■
■
■
Creating biodiversity reserves or sanctuaries on farms;
Developing habitat networks and corridors within and between farms;
Reducing conversion of wild habitat to agriculture by increasing farm productivity and
protecting priority areas such as wetlands, woodland, rivers and watersheds;
Taking marginal land out of production
Low-input or less environmentally-damaging agricultural practices, focusing on reducing
waste and chemical run-off and soil erosion
Sustainable livestock practices.
These measures and practices can be adopted with varying degrees of difficulty in many
areas of agricultural land. Opportunities thus arise for both (i) specialist environmental and
ecological consultancies providing technical support in the adoption of these measures and
(ii) farmers and other landowners looking to diversify their management practices and take
advantage of subsidies and niche markets relating to pro-biodiversity agriculture. Whilst the
role of national subsidies has been a key driver towards the adoption of such practices, other
economic incentives are emerging through the provision of better information and
47
RSPB (2009) Handbook for Developing and Implementing Pro-Biodiversity Projects- an output from the EC
Biodiversity Technical Assistance Unit project, Sandy, UK
48 Bishop, J., Kapila, S., Hicks, F., Mitchell, P. and Vorhies, F. (2008). Building Biodiversity Business. Shell
International Limited and the International Union for Conservation of Nature: London, UK, and Gland, Switzerland
27
knowledge. According to the Sustainable Agriculture Initiative, these include (SAI Platform,
201049):
■
■
■
■
■
Cost savings (from forms of zero or conservation tillage);
Increased yields (e.g. from enhanced soil fertility);
Market mechanisms that favour the production of high-quality raw materials (eg. organic
produce);
Availability of farming infrastructure, resources and renewable inputs;
Access to new and emerging markets.
Opportunities in the secondary sector are diverse, and include the value of biodiversity and
genetic resources to the development of pharmaceutical and cosmetic products,
opportunities for biodiversity enhancement in the built environment and construction sector,
and opportunities for wholesale and retail traders to drive improved standards through
improved procurement and purchasing standards in relation to biodiversity47.
There are manifold opportunities for pro-biodiversity business in the tertiary sector – many of
which are linked to the growth of information communication technologies and the growth of
the knowledge economy through collaboration between research institutions and
businesses. Key opportunities relate to47:
■
■
■
Ecotourism, in particular the development of high-value tourism offerings which seek to
balance increased revenue streams with reduced impacts on the environment;
Biodiversity management services – the provision of skilled technical and management
expertise in areas relating to environmental, species in habitat management for public
sector, private and voluntary sector clients;
Specialist banking, insurance and investment products, delivering enhanced outcomes
for the natural environment;
As Box 16 demonstrates, there may also be examples of companies that match several of
these descriptions.28
Box 16 FIELDFARE International Ecological Development (FIELD) (UK)
FIED was established as a private company in 1996 and became a public limited company,
registered in England, in September 1999. The overall aim of FIED is to bring private investment to
support ecologically sustainable development, but not only to become a biodiversity-oriented
company whose shares are freely traded, but a beacon to others. At present, the enterprise has 16
shareholders including the World Wide Fund for Nature. It harnesses the resources of the ethical
investment movement in Western Europe for promoting ecologically sustainable development and
the wise use of natural resources, especially in Eastern Europe. It has two employees in the UK but
also operates in Ukraine through a 94%-owned subsidiary, Salix Ltd (which concentrates mainly on
ecotourism). Salix is registered in the Odessa oblast and has five full-time employees and up to six
seasonal workers.
As a small enterprise that helps to create further biodiversity-orientated enterprises through the
provision of private investment, FIED represents a creative solution to the discordance between
access to capital and knowledge relating to environmental investment (often concentrated in Western
Europe) and the geographical situation of Europe’s biodiverse areas in Eastern and Southeastern
Europe. The business model for FIED focuses on four main areas of investment activity:
–
–
–
–
49
Management of land retired from agricultural use for biodiversity, combined with the
sustainable use of resources (eg. grazing, reed harvesting, angling);
Encouraging organic farming and low-input crops;
Establishing centers and hubs for sale of ecologically-friendly products;
Fostering local businesses that use natural resources on a sustainable basis
Accessed from: http://www.saiplatform.org/sustainable-agriculture/economy
28
The rapid expansion of conservation and nature-based ecotourism in recent years has also
signalled the potential of this niche sector50.
Box 17 Wnukowo ecotourism in the Pisz Forest Natura 2000 site
(Poland)51
Wnukowo is a micro-enterprise that offers a range of products in the tourism sector which
all seek to minimise the impact of tourism on the Mazurian Landscape Park in the
Puszcza Piska Natura 2000 site. The enterprise offers lakeside bed and breakfast
accommodation, sells local agricultural products and foodstuffs, and charters out kayaks,
canoes and motorized yachts. Camping facilities are also provided at the shore of the
Mazurian lake Beldan.
Wnukowo creates biodiversity benefits in its “best practice” campsite by ensuring tourists
are educated to high standards of nature conservation through the products and activities
that it sells. For example, the piped water, showers, WC and sewage adhere to the strict
standards and requirements of the Mazurian Landscape Park. The enterprise indirectly
benefits biodiversity by attracting backpackers and drawing illegal camping away from
neighbouring nature reserves.The company belongs to a former farming family who aim
to sustain natural resources and reduce their environmental impact as much as possible
and preferably to a neutral state. The operations and services provided by this and many
such firms in the region are extremely important for the protection of water biodiversity at
the lakeshore and wider ecosystem. Providing “best practice” demonstration sites
certified by the Mazurian Landscape Park help to reduce the impact of the services on the
lake ecosystem.
6.3
Financing challenges
According to a recent McKinsey study, the current financial need to support global
conservation efforts is approximately $300 billion per year. However, only about $51 billion is
devoted to these activities annually, primarily from public and philanthropic sources52.
Stepping up investment in pro-biodiversity business thus implies an expanded role for private
finance loans and other debt vehicles, which is often difficult owing to the technical nature of
the investments and lack of investor familiarity with the asset class. Many of the examples
outlined above are niche in nature, small-scale or localised, and not necessarily well-proven
or understood by project proponents.
Financing challenges for pro-biodiversity businesses largely relate to the unproven nature of
business models and associated difficulties in developing revenue streams. As such, the
challenges faced by firms and investors are common to many innovative business ventures
and start-ups.
For existing companies looking to diversify their revenue streams through pro-biodiversity
business activities, funding requirements may be more modest but there remains a need for
feasibility and market demand studies to evidence the case for investing in such activities –
opportunity costs are a key issue.
50
Moles (2003) Venture Capital as a Financing Tool for Conservation Finance: Lessons Learned
http://conservationfinance.org/guide/WPC/WPC_documents/Apps_07_Moles_v2.pdf
51 Tederko, (2007) “Wnukowo” ecotourism in the Puszcza Piska Natura 2000 site, BTAU, Poland
52 McKinsey and Company (2014) Conservation Finance: Moving Beyond Donor Financing towards an Investordriven Approach https://www.credit-suisse.com/responsibility/doc/conservation_finance_en.pdf
29
6.4
Sources of finance
The complex, multi-stakeholder nature of many pro-biodiversity business ventures can
present opportunities for engaging a wider range of possible funding sources. Often,
securing necessary finance requires some degree of coordination between different
stakeholders – as evidenced by the establishment of specialist funds such as the
EcoEnterprises II Fund, which draw upon a range of private and governmental sources of
support. A venture capital fund with support from a range of international institutions
(including the Multilateral Investment Facility, European Investment Bank and JP Morgan
Chase), the fund provides expansion capital to activities that would otherwise be ineligible for
finance, including organic agriculture, apiculture, aquaculture, community-based energy,
ecotourism and forest products. Investments range from $500,000 to $3m. The fund builds
on an earlier partnership with The Nature Conservancy in Latin America, which benefited
over 293 communities and conservation groups in Latin America whilst conserving 860,773
hectares of land.
In Europe, specialist funds such as the Dutch Greentech Fund 53 provide support to
innovative green and pro-biodiversity business ventures that could otherwise be ineligible for
conventional financing. The fund benefits from support from the Dutch Government and
partners in the international conservation community (WWF) financial sector (Rabobank) and
research community (TU Delft, Wageningen University) and typically invests in bioeconomy
and innovative commercial opportunities.
Similarly, impact investment organisations such as SHIFT Invest are emerging with a focus
on businesses that generate positive environmental and health outcomes relating to the food
and agriculture chain, nutrition and clean technologies. In the case of SHIFT, investments
are typically in the range of €2-3m per company as lead investor or co-investor. Seed capital
is also provided to promising start-ups with up to €250,000 available in start-up loans54.
At the EU level, the SME Instrument under Horizon 2020 can support the demonstration,
market replication and commercialisation of ‘disruptive’ SME business models. The €2.3bn
COSME facility provides support to a number of relevant activities, including sustainable
tourism, whilst the LIFE facility can provide targeted support for pro-biodiversity business
through its capacity building theme55. Notably, pro-biodiversity business is one of the four
core project categories financed by the Natural Capital Financing Facility, which is intended
to advance the LIFE objectives.
Box 18 Green Finance Lab (Netherlands)56
The Green Finance Lab is an initiative of the City of Amsterdam and the Dutch bank ABN AMRO,
as part of the Amsterdam Sustainability Programme and a Green Deal between the City of
Amsterdam and the Dutch national government. The Green Finance Lab aims to find new
financing mechanisms for realising the transition towards a sustainable metropole (including
ecosystem services, energy, water, raw materials and transportation). The Lab serves as a forum
for stakeholders from different sectors (public, private, NGO and research) to develop new financial
solutions for sustainability challenges. In 2011, the first Lab focused on the financing of green
areasaround Amsterdam, followed in 2012 by the organisation of “chambers” for
sponsorship, donations, private investment zones and value capture finance. Each chamber
brings together entrepreneurs (from the private, social or public sector) and investors. These
entrepreneurs frame their proposals in parameters that give maximum information to investors (e.g.
53
Accessible from: http://www.dutchgreentechfund.nl/
Accessible from: http://www.shiftinvest.com
55 Accessible from: http://ec.europa.eu/easme/en
56 Merk, O.,Saussier, S.,Staropoli, C., Slack, E., Kim, J-H(2012), ―Financing Green Urban Infrastructure,
OECD Regional Development Working Papers 2012/10, OECD Publishing
54
30
cash flow, risk management), while investors comment, coach and help search for innovative
solutions where conventional mechanisms fall short.
6.5
Questions for Platform members, observers and representatives
We would like to develop the above discussion with further input, examples and comments
from Platform members, observers and representatives.
You are invited to complete the separate Call for Evidence pro-forma provided.
31