THE BLOG
01/22/2015 05:10 pm ET Updated Dec 06, 2017

'Nature Conservation Notes' Bring Individual Investors into Climate Fund

2015-01-21-trop_forest.jpg

Investing in conservation has long been the province of development-finance institutions and philanthropic foundations. Now, wealthy individuals are starting to invest as well, opening a potentially huge new source of private capital for ecosystem preservation.

Dozens of individual investors committed a total of 15 million euros, or about $17.5 million, to purchase "Nature Conservation Notes" through Credit Suisse, which appears to be the first major bank to offer non-institutional clients a conservation investment product that targets market-rate returns.

The projects financed by the notes have been selected by the Althelia Climate Fund, based in Luxembourg, which calls itself a "sustainable land-use impact fund." Althelia finances projects that create carbon offset credits through the protection of forests, and also generate revenues from sustainably certified products such as cocoa, coffee and wood.

Althelia announced the sale of the notes as part of the close of its overall fundraising of 105 million euros, or about $122 million, mostly from quasi-public institutions such as the European Investment Bank, the Dutch development bank FMO, FinnFund in Finland and the Church of Sweden, as well as the David and Lucile Packard Foundation, which committed $5 million last fall.

The demand for the notes should send a signal to other banks that individual investors, in addition to institutions, have an appetite for competitive, market-rate instruments that also have demonstrable and measurable environmental and social benefits. Non-governmental organizations have developed some below-market investment products, such as The Nature Conservancy's Conservation Note, which pays up to 2 percent a year for a five-year term. Most offerings in the fast-growing market for green bonds are limited to institutional investors. The Climate Bonds Initiative tallied $36.6 billion in green bond issues in 2014. 

High net-worth individuals -- defined as those with more than $1 million in investable wealth -- represented $56.6 trillion in investable wealth in 2014, according to the consultancy Capgemini"s World Wealth Report.

A report last year, "Conservation Finance: Moving Beyond Donor Funding Toward an Investor-Driven Approach," from Credit Suisse, McKinsey and the World Wildlife Fund suggested private capital could fill much of $400 billion annual gap in funding needed to protect vital ecosystems around the world. (A 2012 estimate from the Global Canopy Program found total spending of $52 billion, with only $10 billion coming from market-based activities.)

The Credit Suisse report found that just 1 percent of the new and reinvested capital of institutional investors, high- and ultra-high net worth individuals, and retail investors dedicated to conservation investment could provide as much as $200 billion to $300 billion toward closing the annual conservation investment gap.

Althelia is one of the first funds to offer long-term financing, including commodity-based lending adapted for rural enterprises, to reduce emissions from the full gamut of agriculture, forest and other land uses, or AFOLU, as it is known in the field. The voluntary carbon credit market has been volatile, but a recent report issued by Imperial College London University found corporate buyers are willing to pay 33 percent more per ton for carbon credits with verified social, economic and environment "co-benefits."

Althelia's first two investments aim to improve livelihoods for local residents and generate cash flows from premium cacao in Peru and sustainable charcoal in Kenya to augment sales of carbon credits. A guarantee from USAID limits investors' loss exposure to 50 percent of their capital.

The Nature Conservation Notes were available only to Credit Suisse's clients in some European and Asian countries, and only to wealthy "qualified" investors (known as "accredited" investors in the U.S.). The investors' capital will be invested in a portfolio of green bonds until it is drawn by Althelia. 

Sylvain Goupille, Althelia's managing partner, said in a statement that the success of the notes indicated "significant demand for innovative financial products that deliver at the same time measurable social, environmental and conservation impacts as well as returns for investors" and "pave the way for more impact investing products to be designed."

Indeed, other banks already are readying their own conservation-oriented financial products for their wealth-management clients. Credit Suisse is hosting a gathering in New York of conservation finance practitioners and investors this month.

Disclosure: Credit Suisse and the Packard Foundation are sponsors of ImpactAlpha.