Financing conservation projects with capital from institutional investors will gain importance in the coming years. The market for so called ethical — especially ecologically sustainable — investments has grown consistently over the last years. Through financial engagement of sustainability-orientated investors it would be possible to raise additional money for the financing of conservation. This is the key message of Sustainable Investments for Conservation — The Business Case for Biodiversity, a study conducted by the professional services firm PricewaterhouseCoopers (PwC) on behalf of WWF Germany and internationally launched in Brussels earlier this year under the patronage of the EU Commissioner for the Environment, Stavros Dimas (1).

Throughout, the study aimed at answering the following questions:

• What is the market situation and competitive environment for sustainable investments? • How can projects that promote nature conservation be designed to be profitable and what are the main factors that must be fulfilled in order to achieve this? • What are the political, legal and macro-economic opportunities and risks that need to be observed in connection with such foreign investments and what measures are needed to take account of them? • How can a company which is supposed to preserve biological diversity be structured under company and tax law considerations?

These topics have gained even more momentum since the G8 environment ministers declared, with the March 2007 Potsdam Initiative on Biodiversity, that they would approach the financial sector in order to explore the need and the options of additional innovative mechanisms to finance the protection and sustainable use of biological diversity. More recently, the concept gained a lot of attention on the occasion of an international conference on “Financial instruments for conservation” organized by the German Federal Agency for Nature Conservation in cooperation with GTZ, DED and the KfW at the international academy for Nature Conservation at the Isle of Vilm from 29 July to 3 August, 2007 (2).

The dilemma of investment funds
The market volume of sustainable investment funds with an ecological, social or other ethical focus has risen more than seven-fold in the German speaking area since 2002 and currently amounts to around EUR 18bn (3). A survey in 2005 showed that 90 percent of the interviewed fund managers planned to intensify their efforts in sustainable investments.

However, despite this obvious demand for ‘ethical’ investments, many new environmental business opportunities (e.g. ecotourism or sustainable forest management) that contribute to biodiversity conservation still lack financing. Only very few investment funds make biodiversity or conservation issues a critical part of their operational mission. As a mass product, investment funds have to acquire sufficient volume. Many of the existing biodiversity projects are simply too small to be considered by investment funds. And as long as there are no clear and generally accepted minimum standards for sustainability funds, it remains difficult to assess the quality of such an investment.

The Sustainability Investment Holding as a solution
The study offers a solution to this dilemma: the concept of a Sustainability Investment Holding whereby environmental organisations would act as initiators of a holding that bundles economically profitable conservation projects and collects the necessary capital for their implementation. The holding itself does not execute the projects but leaves this to operational affiliates. The environmental organisation controls the holding’s and its affiliates’ compliance with ecological principles. Investors profit from the fact that an environmental organisation guarantees for the ecological sustainability of the company’s operations.

Conservation, ecological sustainability and a positive return on investment need not be mutually exclusive, as demonstrated by the three conservation projects in Brazil, Namibia and Costa Rica which were examined in depth in the report. It was found that, in the long run, the three eco-tourism and sustainable forest management projects were financially self-sufficient and could offer a positive return on investment.

Ultimately, the aim of the study is to inform potential investors and opinion makers about the opportunity of investing in nature conservation. We look forward to discussing potential next steps with the environmental community and the interested investors.

Kristina Jahn ([email protected]) is Senior Consultant, PricewaterhouseCoopers.

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(1) The conference documentation as well as the study can be downloaded from PWC website English, or German.
(2) http://www.bfn.de
(3) Sustainable Business Institute, 2007