Peter Weisberg, The Climate Trust
As published by TriplePundit – March 2, 2015
To measure environmental impact, carbon markets attempt to predict the future. In order to generate a greenhouse gas (GHG) offset, projects must demonstrate that they would not have occurred without the payment associated with that offset—i.e. that they are “in addition” to what normally occurs in the absence of the carbon market. This is called “additionality.” With additionality defined, carbon projects are able to demonstrate that they represent new greenhouse gas reductions.
Additionality has a role when attempting to measure any sort of impact. Patrick Maloney, an advisor to investors interested in social and environmental results, has a great series of blog posts about why true “impact investments” must be in addition to investments the rest of the market is currently willing to make. The trouble is the rest of the market stays away from these new investments because the risks (real or perceived) are higher than other investments with similar returns. True impact opportunities are often new, novel, or unproven and rely upon new markets, technologies and companies.
However you frame the environmental challenges ahead of us, the need for investment in new infrastructure is staggering. Credit Suisse, World Wildlife Fund and McKinsey estimate that “to meet the need for conservation funding, investable cash flows from conservation projects need to be at least 20-30 times greater than they are today. “ The World Economic Forum reports $5.7 trillion will need to be invested annually by 2020 to build the infrastructure needed to mitigate catastrophic climate change. Much of this investment is additional—meaning it faces new risks and, without intervention, it will not otherwise occur.
Given this context, it’s essential for the public sector to use its limited dollars in a way that mitigates risks and attracts private capital to needed infrastructure investments. The Climate Trust has explored options for raising capital to invest in building new GHG offset projects, and has identified a variety of new models for using public financing to mitigate and manage the risks associated with true impact investments—models that attract private capital to new ideas that otherwise wouldn’t be funded. These concepts think beyond traditional grant making, and offer public sector investors opportunities for capital preservation and returns. Three compelling examples are outlined below:
These concepts ask the public sector to take on new risks—because the public social and environmental goods provided by these investments are essential. Those risks have real consequences, as we saw when Solyndra defaulted on a $535M loan guaranteed by the Department of Energy. Yet, as Oregon Public Broadcasting reported, that Department of Energy program overall was a success, collecting $810M in total interest payments and $30M in profit for the US taxpayer while accelerating the development of clean energy technologies.
As Bruce Usher, Director of the Tamer Center for Social Enterprise at Columbia, told The Climate Trust, “If you don’t take any new risk, you don’t change anything.”