Interview with Tenke Zoltani, Development Finance Advisor for UNDP
By Marley Tinnock
What do you call Conservation Finance?
“Conservation finance is a sub-set of environmental finance” explains Tenke Zoltani, Development Finance Advisor at UNDP Geneva.
“It involves generating cash-flows from eco-systems or other nature-based opportunities, in order to either provide returns or for reinvestment in other nature-based investment opportunities,” she continues. “What you’re doing is in fact, relying on nature for generating revenue streams.”
An example of a Conservation Finance Initiative is The Lion’s Share launched in mid-2018. This fund raises capital through the donations of large advertising firms and companies each time they use animals in their advertisements. In each case, 0.5% of the media spend is committed for reinvestment in a variety of wildlife conservation and animal welfare programmes; from the UN and Civil Society organizations. So far, the fund has raised 1.5 million US$ in commitments, supported three conservation initiatives in 2018 - ensuring the provision of national park lands for wildlife protection in Northern Sumatra, expanding vital radio networks in Mozambique to ensure the security of protected reserves, and funded critical studies to inform the economic value of Elephant protection.
Is Conservation Finance the same as impact investing?
“We should view conservation finance as a subset of impact investing,” says Zoltani. “It’s just one strategy within the broader impact investing world, which is intentionally investing into companies, projects or funds that are generating a return that has a social or environmental – not just financial – benefit. “
“For conservationists, they approach this kind of investment for its environmental impact, whilst for the investors, the environment is more of a sub-strategy – sometimes a part of their corporate social responsibility (CSR) or responsible investing strategies,” Zoltani explains.
What is the time-frame on returns?
“Broadly, this kind of investment strategy is more long-term focused, requiring patient capital – so the investor has to consider the associated risks,” says Zoltani. “Despite it being a long-term approach, it doesn’t preclude more investment coming in per se, because conservation finance enthusiasts are committed to this sector. They put money into regenerative agriculture or eco-tourism without expecting to get money back in a year. The managers on the investee side also necessitate a long-term approach; they are looking to build capacity for adaptive management through financing which could lead to new innovations and ultimately greater impacts.”
“One of the benefits of this approach is the low correlation to other asset classes, and the diversification benefits it brings to a classically invested portfolio. To illustrate this, the risk, return, and liquidity are very different if you consider public equities, real assets through affordable housing in Kenya, versus a direct investment into an ecosystem services project. You can see that the risks and the period for a return are very different but can be complementary” Zoltani explains.
She also pointed out that whilst most forms of conservation finance are long-term, NOT all iterations are, “If you look at something like green bonds, which can have conservation finance attributes, or they have a use of proceeds that’s possibly linked to sustainable agriculture, clean water management or biodiversity conservation, then you’ll have a differing duration and even have income that can come as regularly as quarterly.”
What is UNDP doing in the field of Conservation Finance?
In mid-2018, UNDP supported the design and development of a project to protect coral reefs, beginning with a project under way led by The Nature Conservancy along the Mexican Caribbean Coast. “The project, known as Reefs to Resilience, supports the development and replication of so called Coastal Zone Management Trusts, into other viable geographies. This is a first foray into using insurance as a tool to protect natural public assets – in this case coral reefs,” explains Zoltani.
“There are a number of well-known tourist sites along this coastline, many of them heavily prone to disasters such as tropical cyclones and storm surge,” she adds. “But, coral reefs are actually very effective at diminishing wave strength or wave power – absorbing something like 97% of a wave’s energy before it hits shore.”
“So, in the case of storms and strong waves along the reef’s length, they can act as a really effective barrier to diminish the storm surge,” says Zoltani.
The Coastal Zone Management Trust – with insurance partner Swiss Re, is designed to use revenues from tourism tax, that the government levies on the sector, to feed the trust. “With this project, the tourism sector has been very supportive, to use this revenue in a trust and purchase an insurance policy for the coral reef,” describes Zoltani. “Then when a hurricane of a certain force hits the area, it’s predefined in the policy that with a certain wind speed, the policy will pay out, and the payout will be used for reef related expense – restoring the reef, cleaning up debris in the water or restoring aquaculture, thereby ensuring that the tourism sector is more resilient and can rebound after disaster quickly, also ensuring stability for the livelihoods of those employed by the sector.”
“The trust could also provide things like limestone support for the reef and actual physical enhancements, to build resilience.”
Another project UNDP has supported is the Rhino Impact Investment Project, through the Global Environment Finance Unit, and in partnership with seven of the world’s leading wildlife charities based primarily in Kenya and South Africa.
“This is a species conservation project, with the goal of increasing Rhino numbers,” explains Zoltani. “It’s a pay-for-performance or results-based financing strategy which also is a pillar of UNDP’s strategy in 2019.”
“The goal is to fund interventions needed in order to grow rhino numbers – most of which are around preventing poaching and illegal wildlife trade,” Zoltani describes. “At the level of the animals, the issue of monitoring is key, so that’s where most funding is going – if we know there are supposed to be 50 rhinos in a protected area, we actually need to able to see them, not only every three months or when we find their carcass.” adds Zoltani. “Other issues relate to policy and enforcement of the judicial system.”
“The structure is an income bond that offers investors their money back, plus several percent interest. These bonds are being financed by donors, so the project isn’t yet developing its own revenue streams. However, ecotourism and Conservation Finance could work together. For instance, putting fire breaks into the park could be funded by the ecotourism sector, so that once a fire strikes, instead of destroying everything, we can potentially save the costs associated with the destruction of homes, infrastructure, and animal deaths,” Zoltani continues.
“It’s complex to look at how to make it financially sustainable, but in the meantime, there is quite a lot of donor interest and funding just to make sure results are achieved,” says Zoltani. “Once we finetune the mechanics, this model could also be applied to other endangered species.”
So how do we mobilize the funds?
“Mobilizing private investment – mostly from ultra-high net worth individuals and some foundations – to provide the working capital for investment, has been smooth” says Zoltani. The challenge is the pipeline of projects.
“The assets – water, forests, fish – are independent from macroeconomic developments like inflation or public equity volatility. This kind of investment offers portfolios numerous advantages: uncorrelated returns, diversification, potential for market rates of risk-adjusted return, measurable impacts and the creation of sustainable systems.”
Zoltani explains that despite a clear business case, the difficulty to set such a program up is the need to have everyone agree “We rely on the asset owners –the government and citizens – to trust that their natural treasures will be kept safe in the hands of private sector and that their insurance is for mutual benefit.”
How to measure success?
“In certain cases, such as with the rhinos bond, the key performance indicators (KPIs) are very clear – more rhinos, less poaching,” she explains. “But, indicators and metrics are often created based on donor or investor interest and as a result, there is no commonly used set of standards.” The International Union for the Conservation of Nature (IUCN) is carrying out work specifically on monetizing biodiversity through the Biodiversity Return on Investment Metric, which holds promise.
About the interviewee
Tenke Zoltani, Development Finance Advisor for UNDP
Tenke Zoltani is a Development Finance Advisor based between Geneva and New York. She specialises in impact investment and with a background in environmental finance, she is guiding UNDP in structuring innovative financing opportunities for coral reefs, on constructing impact bonds, and on embedding impact management and measurement into the organisation. She spoke to SGS Geneva to paint a picture of conservation finance.