Original Post by Danette Bordenkircher:

The article I decided to discuss is “Impact Fund of the Year: The Nature Conservancy’s Sustainable Forestry Fund” which examines impact investment for sustainable projects.

Earlier this year, The Nature Conservancy (TNC) used large scale impact investment to purchase 253,000 acres of forestland in the Appalachian Mountains. The purchased forestland is called the Cumberland Forest Project and is located in the central region of the Appalachians which is a globally significant biodiversity hotspot. Rare populations of species such as salamanders and elk reside in the region and the land also serves as a corridor for species to move from south to north as the climate warms and habitats shift. However, this purchase will not only restore the forest and protect species, it will also implement sustainable logging and forestry to generate income. Additionally, the properties are enrolled in California’s carbon offset market which allows the project to generate revenue by recognizing the carbon that is stored in the uncut trees. (Elliston 2019)(Hodgman 2020)

TNC is a nonprofit focused on sustainability and conservation that typically relies on funding from philanthropy and grants. In order to come up with $130 million to purchase the land, TNC had to think outside their traditional funding methods. They turned to impact investing, which leverages private investment capital to support conservation projects that have the potential to earn a profit. The impact fund was structured similar to a private equity style fund where TNC is the fund manager and owns the general partner. The majority of the funding came from 27 investors, showing that more investors are looking to invest in climate mitigation. (Elliston 2019) (Hodgman 2020)

TNC has used impact investing since 2014 through its NatureVest team with the goal to achieve conservation and a financial return. In addition to sustainable forestry, TNC also plans on creating revenue by repurposing abandoned coal mines by installing solar power. The purchase of land for the Cumberland Forest Project was the largest impact investment purchase that TNC has ever made. TNC will manage the land for the next 10 years improving biodiversity and sustainability but will also place easements and covenants on the land so that it will be protected by future owners. Impact investment on this scale has the potential to protect and preserve important ecosystems while also supporting long term economic and environmental sustainability. Hopefully, the type of investment will continue to gain momentum, creating an environmentally-friendly way to invest and receive a return. (Elliston 2019) (Hodgman 2020)

References

Elliston, Jon. “Cumberland Forest Project,” October 31, 2019. https://www.nature.org/en-us/magazine/magazine-articles/cumberland-forest-project/ (Links to an external site.).

Hodgman, Tom. “Impact Fund of the Year: The Nature Conservancy’s Sustainable Forestry Fund.” Environmental Finance, June 30, 2020. https://www.environmental-finance.com/content/awards/sustainable-investment-awards-2020/winners/impact-fund-of-the-year-the-nature-conservancys-sustainable-forestry-fund.html

Comment by Ed Piersa:

That sounds like a rather impressive investment by The Nature Conservancy. It reminds me of some of the projects that the non-governmental organization, Sierra Club, has done. Sierra Club is an environmental organization with approximately 3.8 million members and supporters (Sierra Club, n.d.). Their track record ranges from “securing protection for 439 parks and monuments, to winning passage of the Clean Air and Endangered Species Acts, to putting over 281 coal plants on the path to replacement with clean energy, to securing the right of every kid in America to visit a national park” (Sierra Club, n.d.).

As far as environmental finance is concerned, the Sierra Club actively “supports legislation that would establish an environmental trust fund, an environmental bank, and an environmental savings and bond program, with the qualification that such a program would be strictly supplemental to full funding under the various federal environmental programs and would not be used as a substitute for adequate appropriations” (Sierra Club, n.d.). This policy was adopted by their board of directors in 1970.

Sierra Club has actively engaged in a number of different environmental projects. Not surprisingly, they have also had numerous issues with the Trump administration over its environmental policies. For example, they filed a lawsuit against the Trump administration’s “ACE” rule in 2019. Sierra Club charged that this “rule is blatantly unlawful and twists the Clean Air Act beyond recognition, ignoring the devastating effects of the climate crisis and putting lives in danger” (Sierra Club 2019).

References

Sierra Club. n.d. “About the Sierra Club.” Accessed July 22, 2020. https://www.sierraclub.org/about-sierra-club.

Sierra Club. n.d. “Environmental Financing.” Accessed July 22, 2020. https://www.sierraclub.org/policy/environmental-financing.

Sierra Club. 2019. “Sierra Club and Allies Launch Lawsuit Against Trump’s Dirty Power Plan.” Last modified August 14, 2019. https://www.sierraclub.org/press-releases/2019/08/sierra-club-and-allies-launch-lawsuit-against-trump-s-dirty-power-plan.

My Comment:

I am impressed by the degree to which The Nature Conservancy and Sierra Club positively contributed to the environment through impact investment.

The Nature Conservancy (TNC) is a wonderful organization. I am curious about projects which involve buying land to protect it. I am amazed TNC can also place easements and covenants on the land so it will be protected by future owners. Is it a sustainable conversation strategy considering it is reliant on initially generating massive amounts of funds? Further, generating funds to protect a single piece of land is not transferrable to other locations in the same way passing a law might be. However, buying land to protect it guarantees the conservation can not be revoked as opposed to a law being amended or completely cancelled. Specifically in regards to the Cumberland Forest Project, since it is a biodiversity hotspot, why is it not protected by the Endangered Species Act?

At the same time, are there certain characteristics organizations such as TNC should focus on as they are devoting funds to buying a forest area? For example, the particular section of the Appalachian Mountains bought by TNC includes a gateway animals use to migrate from south to north as the seasons change.

Also, I appreciate the purchasers understand the value of generating income for the existing inhabitants through sustainable logging practices and engagement in California’s carbon offset market. The example shows a key to impact investment is financial return. I question, how can TNC and other philanthropic entities study evolving investor values to cultivate more funding? Are there any initiatives TNC can create that leverage the current political climate or any other conditions?

It is interesting to see how the Sierra Club combines fundraising with legislative gains. The Sierra Club truly understands budget constraints as a main inhibitor of supporting the environment and has made massive strides to combat the issue. I am amazed the Sierra Club itself filed a lawsuit instead of only advocating for a cause or allocating funds towards a political movement. The Sierra Club is a phenomenal example of a non-governmental organization who was able to expand its type of impact investment overtime as it grew its member base.

I found a report (Links to an external site.) produced for the European Commission from issue 16 of the Science for Environmental Policy publication. It starts by reviewing the current state of the impact investment market and conveys measuring impact is a key challenge to market growth (Science for Environmental Policy 2016). Particularly, there are two case studies involving a sustainable teak plantation in Panama and green building in the UK. It goes on to explain how investment actors can collaborate to maximize results.

I am especially interested in the European Commission’s Capital Markets Union Action Plan as it emphasizes the role of well-informed investment decisions in contributing towards the European Union’s 2030 climate and energy policy objectives and its commitments to the United Nation’s sustainable development goals (Science for Environmental Policy 2016). They are also conducting research to explore barriers to green finance in order to mobilize private investment. Moving on, the report also highlighted key objectives of measurement in their analysis of impact investors’ practices which helps guide decision-making at various stages of the process. The authors discussed greenwashing, lacking transparency and insufficient standardization as ways to improve impact measurement. They recommend involving third party rating agencies without business interests in the assessment. The report emphasizes the purpose of improving measurement methods is to increase trust in the impact investment sector so more funds can be generated to protect the wild.

Source:

Science for Environmental Policy. 2016. “Future Brief: Environmental Impact Investment”. The European Commission. Accessed July 23 2020.