John Maynard Keynes once said that the importance of money is as a link between the present and the future. If that is so, what does our present use of money say about our future? Will our children live in a world populated by Apple gadgets, reality TV, and video games? Will anything truly be “natural” anymore? Will the concept of wilderness even exist? And if that is the world we are headed toward, how will we get our fresh water, our clean air, our liveable climate?
To create a more environmentally sustainable future we need to change the way we invest money today, and that is precisely the issue that Fabian Huwyler, Juerg Kaeppeli, Katharina Serafimova, Eric Swanson, and John Tobin tackle in their article. They argue that saving the global environment is not only possible, but it might even be made profitable if only we can make some small changes to how we invest private capital. They suggest as much as $200- to $300 billion a year can be channeled to environmental protection from institutional investors, high and ultra-high net worth individuals, and retail investors.
I have absolutely no doubt that they are right. I also have absolutely no doubt that doing this will be exceedingly difficult. The main problem is the first barrier they cite in their article: we don’t value most of nature’s goods and services. This means that most conservation investments cannot compete on returns with what may in some cases be “un-environmental” investments, like soy and palm oil.
It boils down to the risk-reward equation. For the world’s investors to want to put down even 1 to 2 percent of their capital into conservation investments, they will be looking for a return on investment that makes sense given the risk, even if it is nothing more than a return of principal.
Sadly, because we don’t properly value conservation, most current conservation projects don’t generate cash flows, and when they do, it is usually from either tourism, or the production of traditional commodities (coffee, cocoa, other agricultural products, or forestry). Some of these activities may be “sustainable.” But in a world where the environment isn’t given a value, there can be trade-offs between generating returns and conservation.
The authors know this, and they write about it, and they make a compelling case for change. In giving us hope, and a roadmap going forward, the paper is immensely valuable. But, after more than 20 years in conservation finance, I can say that it will not be easy, and it will require some fundamental re-thinking of the way our economic systems operate.
As a more modern day philosopher, Yogi Berra, once said: “In theory there is no difference between theory and practice, but in practice there is.”