Investing in the Environment: From Niche to Mainstream at SBSI17

This post was written by Pia Morante, a second-year Fuqua MBA student, CASE i3 Fellow, and member of the Fuqua chapter of the Net Impact Club, in February 2017. The 2017 Sustainable Business and Social Impact (SBSI) conference focused on how business can tackle global challenges by exploring innovative models and collaborative partnerships that are already working to solve these challenges and discussing how these solutions can be scaled across industries and geographies. 

Today’s environmental challenges are bigger than ever. Mismanagement, over-use, and pollution of our natural environment have become apparent over the last several decades. As the cost of solving the world’s most critical problems runs into the trillions, there is a growing need for the mobilization of large-scale finance to tackle the environmental challenges we face as a global community.

Impact investors have not let this need pass and have been expanding their investments into conservation. According to the State of Private Investment in Conservation 2016 report, between 2004 and 2015 investors put over $8 billion USD into conservation. Investors are unlocking and will continue to unlock significant environmental progress while achieving significant returns.

On February 8th, I had the opportunity to attend the Sustainable Business and Social Impact (SBSI) conference at Fuqua and to listen to a panel titled “Investing in the Environment,” in which Eric Letsinger, Founder of Quantified Ventures; Jennifer Pryce, President & CEO of Calvert Foundation; Brian Dangler, Vice President of The Conservation Fund’s Working Forest Fund; and Blake Stansell, Senior Vice President of Investments at The Forestland Group, led an informative, engaging, and spirited conversation about their experiences developing innovative investment products for the environment.

The panel highlighted some of the critical issues facing stakeholders who invest in conservation. Over the course of the panel discussion, several lessons for aspiring impact investors and fund managers emerged. Among the ones that most resonated with me are the following:

Maximize value of resources and use them in the environment

Blake Stansell, from The Forestland Group, highlighted the importance of responsible stewardship through sustainable forest management while being innovative and creative to maximize value in a sustainable way. He emphasized that the real challenge in the industry is finding ways to effectively manage resources and monetize the companies’ assets.

One example he gave was that in the forestry industry much effort must be put not only into the growing asset, timber land, but also into monetizing non-timbers assets, such as the land value and nonproductive forest, in order to maximize value. Purchasing companies that can be managed in a sustainable way and helping them to maximize value is definitely an area of interest for impact investors seeking conservation while achieving attractive returns.

Renewables as an evolving sector capable of attracting mainstream capital

Jennifer Pryce brought up a very interesting point regarding Calvert Foundation’s approach when deciding where to allocate capital. She believes that the best way of creating value and having a huge impact is to focus on opening new markets by investing in niche industries. She believes that investing in the renewables space is a very attractive industry nowadays and that market is able to attract mainstream commercial capital, so Calvert has moved away from that industry. She also highlighted the importance of financing the value chain where entrepreneurs can get the right type of capital they need. In that sense, funds that aggregate entrepreneurs and feeds them with investments in a more wholesale way can make a huge impact in the development of the sector.

The right type of capital for the right stage of growth

During the course of the panel our presenters emphasized several times the importance of providing the right type of capital to companies depending on their stage of growth. For early stage companies equity investments might be a better fit, whereas for more mature companies, instruments such as senior debt could make more sense given their ability to generate cash flows. Furthermore, Jennifer Pryce mentioned that an important consideration is that more capital allocated into a business is not always better. Determining when businesses are getting more capital than they really need is also an important challenge for investors.

Scaling and replicability is needed to attract more investors

Although there is a big interest among investors in acquiring impact investing products focused on conservation, one of the biggest challenges that the industry needs to overcome is how to create more efficiencies in order to make these products more attractive for accredited investors. Eric Letsinger, from Quantified Ventures, emphasized that the best way of scaling the market is by lowering transaction costs and making deals more replicable. A very good example is the DC Water Bond, a US$25MM bond issued to fund DC Water green infrastructure project, which is an easily replicable instrument with low transaction costs and that has gained a lot of interest among investors.

A last reflection I would like to make is that in this era of economic uncertainty, investors are looking for safe bets in the market. In order to attract more investors in the conservation space there is a need to educate them by providing transparent and relevant information in order to help investors become more familiar with these products. As was mentioned during the panel many of these products are actually low risk/low volatility investment solutions. We just need more change agents willing to go into this model, be creative and brave enough to make a huge impact in the environment.

I am looking forward to discovering the countless conservation solutions impact investing can bring, and am excited about the innovative and high impact deals that investors can make possible by working together.

About Pia Morante:

Pia Morante SBSI17

Pia has a background in asset management working in the Investments team of a pension fund in Peru and is very passionate and excited about growing her career in the impact investing space. Since she started at Fuqua, Pia has been very involved in our Impact Investing initiative. As a CASEi3 Fellow, Pia is currently leading a consulting project with an impact investor, which is helping her to immerse in this industry. Pia’s goal is to leverage these experiences to grow the impact investing field in Latin America.