The International Union for Conservation of Nature is a membership organization focused on nature conservation and sustainable use of natural resources, it serves over 200 states and government agencies, and over 1200 NGOs and indigenous peoples’ organizations.
IUCN engages in blended finance on several levels. They unlock public finance from multilateral and bilateral sources and blend them with private finance to create vehicles that invest in natural capital for climate, biodiversity, and local economic development. They build capacity and provide technical assistance to strategic public and private partnerships to address barriers to investment (e.g., investment pipeline) and scale them up. They stimulate the achievement of strong environmental and social impact, alongside financial benefits, in private and blended partnerships, by integrating robust environmental and social risk management systems and Nature-based Solutions (NbS) wherever possible. Finally, they develop and apply global tools and metrics to track progress for conserving nature and achieving multiple societal benefits (e.g., IUCN Global Standard for NbS, STAR metrics etc.).
We spoke to Dorothée Herr, Manager for Oceans and Climate Change at the Global Marine and Polar Programme (GMPP), and Elmedina Krilašević, Senior Program Coordinator, NbS Finance, about COP 26, gaps in blended finance for conservation, and how they expect IUCN’s blended finance activity to evolve.
Can you describe one or two blended finance transactions that IUCN has been involved in? In what capacity? And can you describe some of the outcomes/expected outcomes?
IUCN manages, with its partners, the Technical Assistance Facility to the Subnational Climate Fund (SCF) – a $750 million blended vehicle that aims to bring private sector finance for climate resilience infrastructure to the subnational level. The Fund invests in renewable energy, sustainable energy, water and sanitation, energy efficiency, and regenerative agriculture and aquaculture, all linked to NbS to the extent possible. IUCN oversees the execution of the feasibility work for the investment pipeline development, capacity building, as well as the development of appropriate methodologies for project and Fund certification. We work closely with our partners R20 and Gold Standard to ensure that NbS is properly integrated in all projects and develop the SCF’s capacity building program. We also coordinate technical assistance activities very closely with Pegasus Capital Advisors, who are the fund manager for SCF. The Fund expects to invest in a diversified portfolio of 20 to 25 infrastructure projects, with an investment size ranging from $ 5 to 75 million, across emerging markets in Africa, Asia-Pacific, Latin America, Eastern Europe, and the Middle East.
IUCN also runs smaller, boutique efforts, such as the Blue Natural Capital Financing Facility (BNCFF), which supports, through grants, the development of blue natural capital projects with clear ecosystem service benefits, with the ultimate goal of attracting private finance. IUCN launched the Project Impact reports from the first round of funding last Monday.
Also at COP 26 in Glasgow we will be announcing the first close of the Nature+ Accelerator Fund, which we’ve developed with the Global Environment Facility (GEF), Mirova, the Coalition for Private Investment in Conservation (CPIC), and a few more public and private investors. Nature+ has recently received support from the Central African Forest Initiative’s (CAFI) for the first close and we are working with a large European corporate for additional investment. The Fund will invest in projects and enterprises with a transformational and positive outcome for biodiversity, climate, and communities through local development. It’s a $50 million blended vehicle, with an expected $200 million in investment portfolio size – the Fund aims to be highly catalytic for the broader natural capital market development, while focusing on seeding and accelerating new deals, hence building new and currently untapped investment opportunities globally, with a focus on less developed markets. It is aligned with current economic and sector trends, including green recovery, corporate net-zero and sustainable supply chains as well as the Taskforce on Nature-related Financial Disclosures (TNFD). Finally, the Fund will focus on small-ticket, early stage, and high impact projects. IUCN is channeling the public funds towards this blended vehicle and providing technical assistance, while also leveraging our members and partners from CPIC for pipeline development and use of CPIC blueprints for investment.
What are some interesting or unexpected challenges IUCN has had to navigate in the blended finance space?
The most interesting aspect is learning to speak the language of the private sector counterparts, and vice versa. We come from different angles, we have different needs and perceive different risks, yet we want to ensure we achieve positive impacts, and contribute to tackling climate change, as well as other challenges the world currently faces. The different pace at which public and private actors move can also make blended partnerships challenging to manage. But our differences can also be our strength. For example, at IUCN, having the means of operating a technical assistance facility allows us to use some donor money to investigate possible solutions, that an equity fund by itself would not have looked at, because the projects aren’t mature enough.
Another challenge is that of engaging with the private sector for nature conservation in the first place. There are some people who do not agree with this approach to start with. Private investors want to see a stable financial return for their money, which means that some of the nature’s externalities or things that we currently don’t pay for (e.g., carbon, biodiversity, etc.) would need to be valuated and monetized. Some argue that nature should not be in the hands of shareholders. There are projects however where this can be done properly, if we apply proper ESG and NbS approaches. Yet we also know that in some areas, a financial return is not possible. For the management of a Protected Area you could use private finance in theory and sometimes in practice, as revenues can be created from, for example, eco-tourism. It’s more for other types of services that a return is not possible – the ones where you cannot exclude the others from benefiting, and hence paying (public goods and common pool resources) such as clean air. Here more funding from governments and philanthropists are needed.
Moving from innovation to mainstreaming and scaling up nature-focused investment also remains a challenge and requires time and effort to further develop the markets. While there is an overall recognition and keen interest in blended finance there is still reluctance from both public and private investors when it comes to actually investing in blended finance. The market is still in its infancy. This is why the “early movers” and champion investors in this space deserve special recognition, which will hopefully encourage others to support transition from project-based to market-based solution to reach the trillions in needed investment in nature.
How do you measure the impact of your blended finance transactions?
The SCF is going to be the first Sustainable Development Goal (SDG) certified fund, with certification of all projects using internationally recognized Gold Standard methodologies. IUCN is working with the Gold Standard to ensure that the Global Standard of NbS is reflected in the SCF’s impact measurements.
Nature+ has a robust impact framework developed in collaboration with CPIC and IUCN experts. The Global NbS Standards will be employed by the Fund at the project level, as well as STAR metrics (to allow businesses to estimate the potential contributions of specific nature-positive actions in specific places towards global biodiversity targets) to capture the reduced pressure to biodiversity from the fund’s investment. We also hope to learn from and apply early lessons on disclosure from TNFD and similar initiatives.
What are some gaps in blended finance for conservation that you’ve observed? What needs to happen for blended finance to work better for conservation?
The main issue is that not enough capital is flowing into projects with a clear conservation outcome. Projects are still on a smaller scale ($1-5 million), so they need continued project development support (grants) to also be brought to scale, for the project developers to develop a track record so more traditional investors start building trust in these efforts, for replication and upscaling. So, we also need investors that are willing, for the time being, to invest in these smaller tickets, before they can be bundled or scaled up to larger tickets sizes, while maintaining the local benefits for communities and nature. What is encouraging is the growing interest in NbS from Multilateral Development Banks (MDBs). The question is how can we bring the smaller high impact projects to a level that not only attracts impact funds, but that also makes it possible for them to be integrated into larger infrastructure investments from MDBs.
How do you see IUCN’s blended finance activities evolving in the future?
From the perspective of technical assistance and blended vehicles, we need to ensure that those that we started to build and structure are delivering, while we incorporate early lessons learned into new efforts. We are already seeing growing interest for replicating SCF on a more regional basis.
We want to explore new opportunities for increasing investment in NbS, through developing appropriate business models and steering existing resource flows from public and private investors. Public players have a crucial role to play by supporting emerging innovative finance mechanisms, realigning incentives, and making Official Development Assistance more impactful to climate goals via NbS. Private actors need to bring additional innovation through blended finance, address the inherent and perceived risks for investors, and bring up these solutions to scale for further market development.
Does IUCN have any blended finance related COP 26 activities that you would like to share?
We hosted a high-level session and a reception on NbS Financing at the Nature Pavilion on November 3, with inputs from our partners from the public and private sector, as well as about IUCN’s supported blended finance initiatives. The participants expressed strong support for blended finance having a crucial role in mainstreaming and scaling NbS. We also announced a new partnership with CAFI for Nature+ at the Congo Basin Pavilion, which was witnessed by the His Excellency, the President of the Republic of Congo, and its delegation to COP.
We will share the results of the first three years of the BNCFF on Monday, November 8, from 14:45-16:00 at the BENELUX-EIB Pavilion.