On the 6th of June 2016, Clarmondial hosted a session on “Connecting financial tools and landscapes: Aggregators and strategic interventions” at the Global Landscapes Forum (GLF): The Investment Case event in London.
Tanja Havemann, Director at Clarmondial, facilitated the well-attended session which focused on debt financing. The aim of the session was to consider the following questions:
- How can debt be used to finance sustainable landscapes?
- How can debt market trends and opportunities be harnessed to promote sustainable landscapes?
- How can we reduce the cost of capital for investments in sustainable landscapes?
The panellists represented different parts of the financing ecosystem:
- Fabian Huwyler, representing a large international bank (Credit Suisse)
- Vince Knowles, representing a single family office interested in emerging market impact investments (Ceniarth)
- Karla Canavan, representing the financing arm of a large, international agricultural corporation (Bunge Financial Services)
- Melissa Weigel, representing an international conservation organisation involved in structuring innovative products to finance landscapes (The Nature Conservancy – TNC)
- Mark Ellis-Jones, representing a developer of tools to better assess the link between climate risk and creditworthiness (F3 Life)
Each panellist was asked to provide an overview of where their organization “fits” within the financing value chain, what type of deals they get involved in, and some of the current issues that they see as limiting investments in sustainable landscapes.
In addition to giving an overview of Credit Suisse and presenting the Nature Conservation Note the bank issued last year, Fabian raised the point that “debt has become sexy again” but noted that “it isn’t a panacea”. He further stressed the importance of analyzing cash flows when evaluating transactions.
Vince noted Ceniarth’s interest in financing sustainable supply chains, including processing and storage, and called for more product innovation to meet the needs of investors interested in returns plus impact.
Karla described where Bunge is situated in the supply chain, i.e. that it connects farmers to buyers and thereby facilitates the trading of agricultural goods. Groups like Bunge play a key role in connecting different players within a landscape.
Melissa introduced The Nature Conservancy, as well as NatureVest, the Conservancy’s impact investing arm. She mentioned a number of their recent transactions, including a “debt for nature” deal in the Seychelles, and spoke about their criteria for investment. These included: alignment with TNC goals & priorities, the scale of expected conservation impacts, cash flow generation (vs. avoided cash flows), scalability, replicability, and the readiness to deploy capital—which entails the existence of good governance and/or the necessary policies and security to move forward with a project. The Nature Conservancy works with its chapters around the world and on-the-ground partners to both implement the conservation activities as well as to reach and educate a wider investor audience.
Finally, Mark introduced F3 Life. He described some of F3 Life’s experiences in testing different approaches to climate smart credit in Kenya. Some of the lessons learnt were: the importance of carefully managing relationships, the need to consider the potential to scale at the start of the project, frequent communication between different stakeholders to ensure clarity about the nature of their engagement, monitoring and accountability. He described that F3 Life has developed a tool that can change the credit risk framework, which may facilitate lower interest rates over time.
These short overviews by the panellists were complemented by a Q&A session. The first question was posed by a representative from Cambridge University, who asked “what’s law got to do with it?”, i.e. how does local and international law facilitate / hinder investments into landscapes? The panellists responded by describing the importance of proper local governance (e.g. to enforce contracts), but also to create incentives (e.g. TNC described the a Washington D.C. stormwater credit trading program). Laws also change the cost-risk equation of different types of investments, thus influencing a specific project.
This also stimulated a discussion about the need for the public sector to play a role, e.g. in funding innovation and providing catalytic capital. However, a point was raised that such monies and incentives should be carefully designed such that they facilitate investments in sustainable landscapes while avoiding long-term dependencies on public funding. A point was also raised that Governments should fund innovation, and that this requires resources to fund pilot projects and experiments.
Further, there was a discussion about the media and the role they play “to assess risks, attitudes and bridge the confidence gap of equity and debt providers.” All panellists acknowledged the importance of the media in educating both smallholder farmers (although a point was raised about who pays for this), and investors in developed markets as well as locally.
Other questions raised inquired about the actual demand for landscape investments vis-à-vis the global financial markets, as well as how to focus actions on landscapes rather than discrete projects.
The final “wishes” made by the panellists included the establishment of a climate smart lending platform to enable credit, better coordination between philanthropy and private capital, as well as with the public sector / government to facilitate more investment, and to focus on how to engage more investors into sustainable landscapes (e.g. through innovative products and better messaging).
Acknowledgements: many thanks to the panellists, and in particular to Jeffrey Caston, who helped us organise and manage the session.