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Environmental impact investment

Credit: Jeremy Holden/FFI.
Written by: Jane Dunlop
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There is a growing need for the mobilisation of large-scale finance to tackle the environmental and social challenges we face as a global community. This will not be realised through traditional donor aid or philanthropy.

Impact investment has developed out of the recognition that there is a need to complement traditional donor approaches and move towards sustainable and for-profit approaches in order to achieve long-term change at greater scales.

Impact investing, defined as investments intended to create positive social and/or environmental impact beyond financial return, is gaining increasing attention globally.

Impact investment carries an expectation of repayment of some or all of the finance. It can cover loans, equity, bonds, and is sometimes used alongside other instruments, such as guarantees or underwriting. As with any other investment where the investee business performs well, returns generated may be reinvested in the business or offered to investors.

Different types of return

Investors in social or environmental outcomes weigh up the balance between the social or environmental returns and financial returns which they expect from an investment. Impact investors will often accept lower financial returns (even just return of principle) in order to generate greater environmental or social impact.

In the next decade, 70% of global GDP growth is expected to come from emerging markets. Small to medium-sized enterprises (SMEs) will make up 95% of private sector companies worldwide. These enterprises represent the missing middle – a currently underserviced and untapped resource for delivering positive impact. The fostering of SMEs to spur green growth in emerging markets requires different types of investors and a new way of doing business, while it offers new opportunities for the ways in which we approach biodiversity conservation.

While investment for social impact is gaining considerable traction globally, environmental impact investment has received much less attention to date. Fauna & Flora International (FFI) has identified a burgeoning appetite from donors, philanthropists and investors for markets-based approaches to environmental protection through impact investment.

We are working to create a hands-on impact investment fund that will invest in and provide support to biodiversity and socially-positive businesses. The investment fund will utilise our global networks and detailed local knowledge to ensure the most impactful and financially viable investments are made.

FFI’s impact investment approach

Our approach recognises that:

  • Environmental impact needs to be emphasised as much as financial sustainability and the financing process will need to be designed to reflect this.
  • Hands-on technical support from intermediaries will be required alongside the provision of capital.
  • In order to leverage change in emerging markets we need to concentrate on activities, not diversification and dilution.
  • We need to rely on and help to build local expertise for efficiency, knowledge, networks and buy-in, while not being beholden to government bureaucracies.

In impact investment, FFI aims to operationalise our expertise in a way that positions us as an intermediary between impact investors and green entrepreneurs, working on behalf of biodiversity stakeholders, though a range of investment models including venture capital, debt, risk reduction, insurance and grant mechanisms.

By ensuring all these innovations are closely integrated with the wider work of FFI, and in collaboration with the wide range of FFI partner organisations, we aim to identify and realise opportunities to accelerate the ‘greening’ of markets worldwide.

Written by
Jane Dunlop

Jane Dunlop is the Community Specialist in FFI’s Environmental Markets Programme. Most of Jane’s work focuses on the FFI partnership with BioCarbon on commercial REDD+ projects, including project scoping, development and auditing pursuant to carbon standards in order to ensure these projects deliver social benefits. She also provides ongoing technical advice and support to other initiatives within FFI’s Environmental Markets portfolio. Jane specialises in land and natural resource tenure and livelihoods, focusing on the nexus between communities and conservation. Jane is a New Zealander and has a Bachelor of Laws (first class honours) and a Bachelor of Arts (Geography) from the University of Otago, New Zealand.

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FFI has identified a burgeoning appetite from donors, philanthropists and investors for markets-based approaches to environmental protection through impact investment.

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