Conservation finance thrives in the Chesapeake Bay, finds report

The Chesapeake Bay on the US east coast provides an ideal testing ground for expansion of the private sector’s role in natural resource conservation, said the authors of a conversation finance report.

Chesapeake Conservancy chief executive and president Joel Dunn said he and other regional officials have worked for years to create conservation-focused partnerships with investors in a 64,000 square mile ecosystem stretching from as far north as Cooperstown, New York down to Virginia Beach, Virginia. Dunn said Chesapeake Bay states are currently committing about $3 billion annually to restoration projects, though needs have been estimated at $6 billion and he hopes private investors can help fill the gap.

“We’re re-engineering the conservation movement from an effort-based movement, to a results-oriented one,” he told Agri Investor soon after release of the report entitled Private Conservation Finance: The Chesapeake Bay’s Global Lead and How to Expand It.

Written in collaboration with Washington, DC-headquartered nonprofit Environmental Policy Innovation Center, the report describes conservation efforts in a Chesapeake Bay ecosystem that includes parts of Maryland, Pennsylvania, Virginia and Washington, DC.

It examines how investments by Ecosystem Investment Partners,  KKR-backed Resource Environmental Solutions, Lyme Timber Company and others have utilized incentives including $1.7 billion in transferable tax credits for forest and farmland preservation, $1.3 billion in support for forest sustainability certification and $620 million wetland, stream and nutrient mitigation projects, where private investment is used to replace ecosystem functions lost elsewhere to stay in compliance with regulations.

The report also discusses the provision of $450 million in green infrastructure spending through public private partnerships that use the same “pay for success” contracting framework they advocate for conservation, as well as $40 million in impact bonds where private lending to public agencies is linked to success of specific environmental projects.

Those projects contributed to the more than $4.2 billion in private conservation finance deployed in the Chesapeake Bay over the past 20 years, according to the report (which acknowledges the estimate likely understates the true extent of activity).

No dog in the fight

Environmental Policy Innovation Center executive director Timothy Male told Agri Investor the body focuses on public policy changes that support the development of private sector approaches to conservation, which he said are more routine in the Chesapeake Bay states than any other area of the country. Approaches to funding conservation that were initially supported by grant funding there, he explained, have since been repeated thousands of times.

“You’ve got this predictable backdrop of public spending that will ensure your assets never go to zero. Then you have this reliable set of activities you can undertake and you can make more efficient, if government programs let you make them more efficient,” said Male, who assumed his current position in 2017 after serving as associate director for conservation in the Executive Office of President Obama’s Council on Environmental Quality, according to his LinkedIn profile.

“That’s a great way to come up with a system to extract a modest amount of profit and deliver something at scale over and over again,” he said.

Male estimated private conservation investments generally target annual returns of between 5 percent and 20 percent and said he is not familiar with return expectations or achievements associated with conservation projects highlighted in EPIC’s report. He stressed that lawmakers focus on savings and outcome improvements relative to existing conservation approaches, rather than specific conditions of private contracts.

While integrating private investors into public conservation spending can elicit opposition from opposing local bidders or officials who fear losing their traditional control over every step of the process, Male said the cost reductions and improved outcomes already provided by firms like EIP have helped overcome opposition.

“It’s not a change in control; it’s a change in mechanism through which control exists,” said Male, summarizing his counsel to hesitant local officials.

Non-profits like EPIC and the Chesapeake Conservancy, said Male, play a key role in educating lawmakers by supplementing the firms’ own outreach efforts.

“When EIP comes in, or RES comes in to explain this stuff, people sitting across the table from them know those companies have a financial interest in the outcome of that decision. Whereas we come in and say: ‘We don’t have a dog in this fight.’ We’re not here because it’s going to give us another $1 million in revenue; we’re here because it matters and changes the outcome.”

Key steps lawmakers can take to help increase private participation in conservation include a move away from complex permitting and authorization processes as well as grant-based contracting for conservation projects, Male said. Another change that could help, he added, involves a move way from single-year contracting toward awards of up to five-year contracts for environmental mitigation or related services.

“Then, instead of talking about $5 million and $10 million proposals, you can start talking about $100 million proposals and it gets to be at a scale that is relevant to investment-backed entities,” said Male.