A need for new, domestic credit enhancements

Peter Weisberg, The Climate Trust
Weekly Policy and Finance Update – April 24, 2017

Framework for conservation market development highlights need for new, domestic credit enhancements: Simple and scaled private conservation investment opportunities must be nurtured.

A framework from The Conservation Finance Network provides new language to detail how conservation finance opportunities develop.

Concepts start with the need to develop a method to measure environmental services and understand how to turn them into cash flows. Only after reliable scientific and regulatory infrastructure develops, dependable revenues are consistently demonstrated, and intermediaries and standard contract structures emerge can private capital be leveraged at scale. The report establishes stages conservation markets and investment opportunities develop through, from Market Formation & Definition to Pilot to Early Market to Mature.

The framework provides new insight into the irreplaceable role for public support from governments and philanthropic funders in market development, in particular in the Pilot and Early Market phases. At these intermediary stages, risks are not commonly understood and therefore are perceived to be significant. Private finance sits on the sidelines, because the potential returns do not justify these risks. Here credit enhancements—like loan guarantees, first-loss investments, or buyer-of-last resort mechanisms—backed by public capital are the key to leverage private finance. Conservation Finance Network’s framework can allow government and philanthropic funds, as well as mission-first investors, to specifically target those Pilot and Early Market phases with new credit enhancements to bring opportunities to scale.