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Climate Finance: Just Do It!

Published: June 14, 2024 by Editorial Team

The panel was made up of Camilla Seth of JP Morgan, Marc Diaz of NatureVest, and Monica Pressley of the San Francisco Foundation. The invitation-only event was quietly titled, “Investing in conservation,” and was hosted by The Nature Conservancy (TNC) and JP Morgan Chase & Co. Eric Hallstein, director for conservation investments at TNC kicked things off delivering a wonderful framing for the opportunity. I had never quite heard it teed up so eloquently. Eric said that, “nature problems had become people problems.” He elaborated saying that people problems tend to get solved with a degree of urgency, and that solving people problems that resulted from nature problems offers cash flows and returns. Conservation finance thus has a tremendous opportunity to solve climate-induced people problems while providing returns to the market.

One by one, the panelists shared their views on the landscape of climate-oriented finance with one overwhelming message to the audience in the room; just get out there and do it! The world needed pilots, proof of concepts, case studies, and success stories. The minute these examples of action and success are shared, they manage to massively mitigate the entire perception of risk around that initiative, concept, or approach. And, the world then follows.

For my colleague Peter and I, this made a whole lot of sense. We, at The Climate Trust, are out to prove that environmental performance in carbon reduction projects can indeed be relied upon to provide market rate returns to our investors.

The conversation at this Bay Area event reminded me of a parallel refrain in the green bond arena. Green bonds were created to enable investments into projects that offer environmental benefits and financial returns. The market has exploded growing from $11 billion issued in 2013 to a projected $70-$100 billion this year. Demand from institutional investors, pension plans, and the reinsurance industry is brisk with bond offerings often oversubscribed in mere hours.

Whenever I hear Sean Kidney, CEO of the Climate Bond Initiative, excitedly deliver his presentation on the green bond universe, he always mentions that bond buyers are hunting for investable product and there is not enough out there. Issuers of green bonds are just doing it! We’ve seen green century bonds financing water infrastructure upgrades, green bonds supporting high performance buildings, solar, wind, biomass and hydropower projects, and the largest green municipal bond to date issued by Central Puget Sound Regional Transit for a staggering $924 million to support low-carbon transportation.

New York State Energy Research and Development Authority (NYSERDA) and Environmental Facilities Corporation (EFC) provided a prime example in 2013; they not only did it, but also created a roadmap for other states to follow. NYSERDA issued a $23.4 million bond to finance residential energy efficiency upgrades using a State Revolving Fund (SRF) guarantee available under the Clean Water Act. Yes, indeed! Title VI of the Act (check out paragraph 3) authorizes state agencies managing the Clean Water State Revolving Fund to “guarantee, or purchase insurance for, local obligations where such action would improve credit market access or reduce interest rates.” Since 1987, over $100 billion in financial assistance has been provided under the SRF banner in 33,000 transactions. NYSERDA’s landmark transaction was the very first to use the guarantee authority to back a product issued to the markets. Other states can follow their lead and unlock patient low cost capital to build our vital low carbon economy.

A signature 2014 report authored by NatureVest and EKO Asset Partners (now Encourage Capital – love that name!) revealed a market size for conservation finance of $23 billion over the previous five years, and projected a tripling in size over the 2014-2018 period. It pointed to the insufficient flows of private capital and called for an “increase in the number of risk-adjusted investment opportunities.” I’ll translate: They were telling us market practitioners to get out there and do it! We need to demonstrate that success can be had, risks can be managed, and returns can be made.

Credit Suisse’s conservation finance report calls for significant scaling of conservation funding to a level of $200-300 billion a year. We need to get out there and do it, if we want to solve our pressing people problems that are being dealt hammer blows by our changing climate. The Climate Trust’s ‘invest with purpose’ carbon fund initiative is one contributing mechanism to support such scaling.