Recently, a colleague shared a paper with me, titled Catalytic Philanthropy – The Gap Nature Needs Filling (pg 16). The paper explores a challenge I regularly discuss in my articles, and that is the gap between small-scale, short-term donor-led projects (and mindset) and scalable, long-term investable business models in nature-based solutions. In this latest article, I summarize the key points of the article, differentiate between catalytic and venture philanthropy and provide some examples of catalytic philanthropy and investment.
Barriers to investment in Nature-Based Solutions
The Catalytic Philanthropy paper starts by setting the stage for the gross funding shortage in nature protection and restoration, citing the UN’s estimate of a global spending gap of $4.1 trillion from 2020 to 2050 for Nature-based Solutions. The article goes on to explain that the lion’s share of this funding will need to come from the private sector (no surprises there). The author, Helen Avery – rightly assesses that government grants and philanthropic donations are financing nature restoration, however, the private sector is scrambling for suitable investment opportunities in the space. I have written about this challenge several times – most recently, in my article titled Mobilizing Investable NBS Projects. Some philanthropic funding is truly catalytic – where its purpose is to mobilize private capital to NBS. Often the KPIs of such funding requires the recipient to demonstrate a certain multiple of private capital attracted.
The paper refers to research by Financing UK Nature Recovery that identifies more than 100 barriers to investing in nature in the UK (I’m certain this is not a geographically isolated result). Most of these barriers relate to an absence in the following:
- Robust and accessible data for baselining and measuring impact,
- Standards and taxonomies that give comfort to investors,
- Project developers trained in business development,
- Investors trained in ecology,
- Regulatory changes and policy tweaks to create private sector demand.
The authors call for creative, entrepreneurial philanthropic funding. Funding that will pay for research, business case development, pilots, standards creation, and community engagement. This in turn will help restoration projects become long-term sustainable businesses matched to investor requirements, as well as community needs. I couldn’t agree more with this conclusion.
Further, the paper calls for concessional capital that can act in a first loss capacity to de-risk deals and crowd investors in. Other avenues could be no or low-risk interest rate loans to help land managers address their own risk as they venture into entirely new territory. I argue that this doesn’t just go for land managers, but larger asset and fund managers doing this at scale.
Venture Philanthropy – Bridging the Gap to Financial Viability
Catalytic Philanthropy is indirectly defined in this paper as concessional capital that can support NBS business model development to crowd-in large-scale private funding. When distinguishing between Catalytic Philanthropy and Venture Philanthropy, the latter is defined in this paper as funding that looks for a blended impact and financial return and bridges the gap between grants and venture capital, or that acts as concessionary capital – also (having) the ability to drive behaviours and outcomes by ensuring the entire financial model delivers the highest social and environmental impact.
Another definition of Venture Philanthropy that I like, (though lacking direct mention of environmental impact), is the European Venture Philanthropy Association’s definition, where it defines Venture Philanthropy as a high-engagement and long-term approach whereby an investor for impact supports social (and I would argue also environmental) purpose organizations to maximise social (and environmental) impact through three core practices:
- Impact measurement and management,
- Non-financial support,
- Tailored financing.
In applying EVPA’s definition in the case of nature-based solutions with unproven business models, impact measurement and management could relate to determining which metrics best reflect the environmental shift through the business model, and how to manage for these. Better still would be to uncover a way to monetize this environmental shift – either through a pricing mechanism, or through the cost of inaction.
Non-financial support could relate to the application of the capital providers’ general business knowledge, in helping teams transform traditional grant-dependent impact projects into profitable and sustainable business models. Conversely, it could be in assisting businesses with unsustainable, conventional land-use businesses to transition into more regenerative approaches.
Tailored financing is just that. It’s not a one-size fits all approach. Where a repayable grant might be suitable to a high-risk, high-impact project where early cashflows are expected. In other cases, an equity stake into a business model, where cashflows will take longer to achieve might be more appropriate.
Most Philanthropy is not Addressing Nature-Based Challenges
The report cites Giving USA’s figures, which state that only three percent of all charitable giving in the US in 2020 went to the ‘environment or animals’, with the majority going to religion, education and health. Where grant funding is targeting the environment, recipients argue that it is not fit for purpose. For example, its short-term nature may cover the costs of one study, only to leave a project developer stranded with an expensive report.
“What would be helpful and which requires no more money, but a longer-term relationship and commitment from funders, is to provide core funding for two to three years that can help us – not only keep our experts – but hire in consultants and develop a business case to get to a place where we can attract large sums of private investment, or upfront repayable finance”
One of the explanations identified for mis-targeted grant capital in the NBS space is that donors look for opportunities where they can achieve tangible and immediate outcomes, such as planting trees. However, as I’ve indicated in the past, yes planting a tree is something you can count quickly – but having that tree grow, attract diverse flora and fauna, contribute to meaningful ecosystem improvement results, and not to mention derive numerous revenue streams – takes more time. More impactful would be allocating these funds to testing business models that can be scaled.
Examples of Financing Nature-Positive Business Models
There are several examples out there of funding mechanisms that are designed to support business model development around premature investment opportunities. Here are a few.
Coalition for Private Investment in Conservation
The Coalition for Private Investment in Conservation (CPIC) facilitates the scaling of conservation investment by creating models that they call “blueprints” for the successful delivery of investable priority conservation projects, and connecting a pipeline of providers of such projects with deal structuring support. They convene conservation project delivery parties with investors to execute investable deals. Though this approach tends to favor larger implementing agencies (such as international conservation NGOs) – the model could be replicated by other philanthropic sources and be applied to smallholders, or early-stage project developers.
NatureVest
The Catalytic Philanthropy article highlights the example of NatureVest (also a founding member of CPIC), founded by The Nature Conservancy (TNC) in 2014. NatureVest is the in-house impact investing team at TNC, which leverages its philanthropic muscle to source and structure investment products that support TNC’s mission at scale.
Treevive
Treevive is a new kid on the block when it comes to much needed accelerator support. The impact-driven company aims to conserve, restore, and sustainably manage 2 million hectares of tropical forest landscapes by 2030. It takes strides toward this goal by supporting tropical forest project owners with funding and technical assistance to accelerate the development of the carbon asset of their project, and market the results of these projects – including biodiversity and local community benefits. It acts as a revolving structure, where generated profits flow forward to fund new forest projects.
Colibri Catalyst
Colibri is a catalytic capital facility designed to unlock the land use sector’s potential to achieve 37% of the global emissions reductions needed by 2030. The facility deploys concessional capital: seed, patient and junior capital to vehicles investing in natural climate solutions – it takes that risk reducing position that the report (and more widely participants in the NBS space) acknowledge is a huge need to attract private capital.
Is Your Philanthropy building Resilient Nature-based Solutions?
If you consider yourself a Philanthropist, I urge you to ask yourself, if the funds you are investing to support nature and climate objectives are catalytic and creating lasting impact. In other words, are they crowding in other capital to scale the NBS you are supporting, and are the underlying activities you support going to generate long-term sustainable impact and a myriad of positive benefits? If you need support in fine-tuning your philanthropic NBS strategy to ensure your contributions indeed create resilient nature-based solutions, please reach out.
