McKinsey: Environmental projects are underfunded. Improving their risk-return profile is essential to attract capital. November 2016

Environmental-conservation projects face a dramatic shortage of funds!

Estimates indicate that $300 billion to $400 billion is needed each year to preserve and restore ecosystems but that conservation projects receive just $52 billion, mostly from public and philanthropic sources.

Some asset managers and conservation experts have suggested that private investors could close more than half the gap by profitably funding enterprises or projects in areas such as sustainable food and fiber production, habitat protection, and water quality and conservation.

The objective of the 2016 report from McKinsey, WWF and Credit Suisse is to identify financial product structures that have the potential to establish conservation finance in mainstream investment markets.

As in the prior report from Credit Suisse, WWF, and McKinsey, 2014) conservation finance is understood as a mechanism through which an indirect or a direct financial investment is made to conserve the values of an ecosystem for the long term. In this report, focus is on investment mechanisms that activate one or more cash flows generated by the sustainable management of an ecosystem, which in part remain within the ecosystem to enable its conservation, and in part are returned to investors.

The report emphasizes the need to match existing conservation finance project strategies with appropriate financial vehicles and available investable funds with the long-term intent of creating a conservation finance asset class. While important for conservation, this report does not focus on related topics such as the improvement of industry supply chains (unless directly related to conservation, such as agriculture and fishing), commodity finance, or carbon/climate finance.

The report should help conservation project developers better understand the possible funding options provided to them by the private investment sector. It is targeted at those who are willing to take the plunge into the “financialization” of conservation finance projects in order to try to tap into those deeper capital pools.

Download the report here.

Sources: All texts, content, quotes and graphics by McKinsey. All credits and rights to McKinsey.

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