Harnessing the Growth of Private Investment in Biodiversity and Natural Capital

As a result of climate change and environmental degradation, investors are increasingly favouring socially responsible and sustainable investments, which made up 26% of all professionally managed assets in 2016. A growing asset class is conservation finance, which is investment made directly or indirectly to conserve biodiversity, and maintain natural assets including soil, ecosystems, clean air and water resources. Advocates argue that investment in biodiversity and natural capital is an unparalleled business opportunity for private investment, which could profitably fund enterprises or projects that directly contribute to meeting global targets under the Convention for Biological Diversity and the Sustainable Development Goals. 

Although the involvement of private and other non-state actors in the governance of biodiversity and natural capital is not in itself a new phenomenon, the international community is currently on the verge of a new trend finance that has the potential to fundamentally change how biodiversity is governed, for what purpose, and by whom. Emerging financial instruments, including impact bonds, green bonds and ‘blended’ finance, are increasingly favoured by impact investors who seek to generate demonstratable social and environmental impacts alongside a positive financial return. 

Impact investing has potential to generate ‘win-win-wins’ for the environment, investors and communities, but there are a lot of unanswered questions around how to effectively operationalise the concept into on-ground outcomes. For example: 

• How can conservation actors adapt to impact investing and the greater accountability measures (performance-based contracts, monitoring, reporting and auditing) that come with it? 
  
• Will the total funding available for biodiversity conservation increase with greater private sector investment, or will public and philanthropic funding and interest be crowded out? 
  
• Will greater use of performance-based contracts improve the effectiveness and accountability of biodiversity conservation, or create a perverse incentive to seek out ‘easy’ short-term environmental gains over uncertain long-term outcomes? 
  
• Can the significant transaction costs identified from the use of impact investing in the development, health and social services sectors be sufficiently overcome? 

This project will use a governance perspective and an agency theoretical framework to evaluate the effectiveness of impact investing for biodiversity conservation. The impact investing ‘ecosystem’ involves multiple sectors, social networks, and actors. This project thus requires analysis at each of these three scales, while drawing lessons across multiple jurisdictions. A mixed-methods approach, incorporating literature review, social surveys, qualitative interviews, and social network analysis (SNA) will be used to identify key factors that enable or inhibit the effectiveness of impact investing for biodiversity conservation.