Start with the Four Essentials
How to Scale Investments in Nature
This is one of the fundamental questions right now: How do we scale investments in nature?
And after 24 years as an investment banker at Goldman Sachs and a decade-plus running The Nature Conservancy, I keep coming back to the same answer: Start by keeping it simple.
Eric Wilburn recently wrote a great post that got me thinking about this question again over the past week. Eric is smart on topics like this, and I encourage you to subscribe to his newsletter.
A few fundamentals need to be in place for investments in nature to work:
Cash flow. The moment anyone wants to raise investor capital for a project, they need to show how the project will generate the cash flow to cover the annual cost of such capital and eventually repay the principal. Enthusiastic environmentalists sometimes skip right past this starting point in their eagerness to get an otherwise good project moving.
Someone who will actually pay for the benefits nature delivers. Nature provides enormously valuable essential services—clean water, healthy soil, carbon storage, protection from extreme weather, habitat for biodiversity, recreation opportunities, and much more. But per point # 1 above, generating the cash flow to meet capital costs requires creditworthy entities willing to pay for those services. Organizing private-sector buyers for them is genuinely hard. Eric’s post handles this well. This isn’t unique to nature-based projects, either: the same is true of traditional man-made infrastructure like bridges, seawalls, and water treatment plants, which is exactly why governments, not private capital, usually foot the bill.
Realistic, credible projections. Traditional infrastructure financing offers a useful model here. When sponsors ask organizations to commit capital for a project and/or purchase the services it will deliver, they back up the ask with detailed projections of what exactly the infrastructure will deliver and when, and they’re upfront about the risks. Those projections then get scrutinized by everyone with a stake in the outcome. Environmental projects tend to be thin on this kind of rigor, since the timing and quality of the services nature is supposed to deliver are often tricky to pin down.
Evidence. Too often, prospective capital providers for nature deals are asked to make a huge leap of faith on something that’s never really been done before. Speculative bets like that can work (see the SpaceX IPO), but they come with significant upside for investors that most green investments simply can’t provide. To find a path around this obstacle, try starting small. Fund a pilot project with philanthropic capital, work it hard to learn what does and doesn’t work, and use that evidence to strengthen the projections behind the subsequent bigger version.
There’s more required, of course. But without these four things in place, it’s hard to scale investments in nature on any basis other than philanthropy. If you’re structuring a nature-based deal, run it through these four filters before you send out your pitch.
I wrote a book about these matters a few years ago, and I think it still holds up well: Nature’s Fortune: How Business and Society Thrive by Investing in Nature. If you work on projects along these lines, I’d love for you to check it out and let me know what you think.
Onward,
Thanks for the nod Mark! Here’s to continuing to tinker to figure out who has the most incentive to pay and unlocking those streams. I think the intersection of public and private where governments can enable collective payments for collective dependence from private actors is one of the highest yield areas to explore today.
Mark, this resonates deeply. With Project Weaselskin, we are quite literally putting our money where our mouth is. Having completed Phase 1—safeguarding 180 conserved acres and planting thousands of trees—we are moving into Phase 2 with a strict focus on scaling direct investments into nature.
Our goal is to show that conservation isn’t just about protection, but about creation. By acquiring an additional 110 acres for agroecology, organic food production, and agrivoltaics, we are designing a blueprint for how ecological restoration can simultaneously build vibrant, self-sustaining new economies for our local community. Looking forward to sharing more as we scale this model!
If you are ever in our corner of Colorado, you are more than welcome to come visit and stay at our nature-based retreat and education center to see the model firsthand!