Towards a reboot…
Despite recent advancements, investment in sustainable land use and natural capital is developing far too slowly. Contrasted with the urgency of the climate challenge, it is still too far from becoming mainstream and broadly impactful at the scale required.
According to recent research, around $50 billion/year flows to conservation projects, mostly from public and philanthropic sources, most of this in developed countries. Most insiders agree that this amount must increase 6-10x annually to preserve healthy ecosystems and the earth’s natural capital stock of clean air, fresh water and species diversity. Success in increasing financial flows to natural capital is mission-critical for efforts to keep our climate within the 1.5-2.0 C scenario range. Let us be clear, without a comprehensive ‘reboot’ of our relationship with the natural world, our efforts to keep the climate in a range that is hospitable to society as we know it will fail.
To fund the reboot, or more prosaically, natural climate solutions at scale, private investment capital must be the main source of additional capital in coming years. Attracting such a level of private capital will require attractive risk-adjusted rates of return that are sufficiently clear to those asked to make such investments, with equally clear and measurable conservation and climate impacts. Importantly, a track record for investments in alternative, sustainable approaches to agriculture and land use must be developed at speed. We need to build on the successes of innovations like the Althelia Climate Fund and Althelia Sustainable Ocean Fund, and in the process establish a format that is open-source and fosters the drive to replication and scale.
Happily, new initiatives are already being launched by others in the space. Mostly these are aimed at increasing the availability of ‘investible projects’ that can deliver sustainable land use outcomes. Examples include Nature+ Accelerator Fund, Restoration Seed Capital Fund, P4F, and DFCD Origination Facility. Public and private support for incubators and project accelerators is important and necessary. However, based on our collective experience, project-level barriers are just part of the story to be addressed. In fact, there are a series of reinforcing barriers that need to be addressed to achieve the scale of available capital that can flow to these investments.
One of these critical barriers is insufficient access to de-risking capital. Part of Colibri’s working hypothesis is that the biggest bottleneck for intermediary vehicles (and new businesses aimed at delivering natural capital improvements) is access to junior and patient capital, targeted instruments that could leverage additional new capital to allow a drive to scale.
Colibri aims to address the following aspects of the status quo:
- Public funding struggles to invest directly in privately managed investment funds…Public funds follow very strict rules for interacting with private partners, and most governments have limited ability to directly invest in private impact funds.
- Divergent timelines and approval process. Use of public sources (very understandably) goes through a strict allocation process, involving public consultations and sometimes public tender — such process can take 12 to 24 months. This time frame can significantly alter fundraising time frames for new managers and businesses and is a material impediment to scale and achieving transformation at the pace we need. We believe this can be addressed through the creation and replication of dedicated platforms aimed at de-risking.
- There is a broad range of perceptions of risk and return amongst public and private investors. Public funding directed at sustainable land use and natural capital management is underachieving compared to how it is used in other sectors (e.g. infrastructure) to incentivize private capital to flow. This gap must be addressed quickly.
Colibri is a catalytic capital facility that has been designed to complement and enhance the suite of existing (and emerging) public and private initiatives aimed at increasing capital availability and throughput in the natural capital / conservation finance space, with a particular focus on outcomes related to sustainable land use in the context of climate mitigation. Our hypothesis is that until we succeed in unlocking sufficient blended finance that adequately de-risks an investment class that is still new and opaque for private investors, the road to the scale required shall remain blocked.
Over the past year, we have reached out to a number of stakeholders, including:
- Prospective funders, including donor governments, development banks and multilaterals
- Fund managers and other intermediaries– those with existing natural capital strategies, as well as those developing or interested in doing so, who will form Colibri’s ‘client base’
- Investors who have or are seeking to increase exposure to nature-based assets, as well as those already exposed to risks embedded in portfolios containing strategies detrimental to sustainable land-use or damaging extractive resource models
- Proponents ‘on the ground’ seeking to raise capital for sustainable land-use and natural climate solutions
- Informal stakeholders, policymakers and NGOs
We have learned that there is a real need for 4 types of capital to help crowd in both public and private capital and ultimately attract institutional and commercial capital at scale to natural climate solutions. These 4 types of capital include:
- Seed capital (for proof-of-concept)
- Anchor investments (a strong or first investment in a fund)
- First-loss capital (debt + equity)
- Patient capital (15+ year timelines)