CHILE Coastal wetlands in Batuco © TNC Chile

Bridging the Nature Funding Gap

Could the Sustainable Water Impact Fund (SWIF) provide a new conservation north star for impact investing?

May 12, 2021

By Eric Hallstein, Deputy Managing Director, NatureVest & Charlotte Kaiser, Managing Director, NatureVest

When scientists and conservation leaders from The Nature Conservancy (TNC) first sat down with our now-partners at the investment firm RRG Capital Management (RRG) to explore initial ideas for collaboration, none of us realized that we were putting into place the early building blocks of what could become one of the most meaningful conservation impact investment funds in the world. We began the path to establishing the Sustainable Water Impact Fund (SWIF), but did not know exactly how it would work—nor that it could lead to the development of a new blueprint for investing in nature with commercial capital.

As one of the world’s largest environmental non-profits, TNC is always looking for innovative ways to drive outcomes at scale. RRG is highly regarded as a strong-performing investor, developer, and manager of water, energy, and agriculture assets, and has recently secured B Corporation status highlighting its commitments to positive social and environmental impacts. We believed that the Fund’s high aspiration for delivering ecologically meaningful results—not just top-line impact metrics, but actually protecting land where it matters most and providing water for species that can directly benefit—would set it apart from other impact funds. But how would our collaboration look once the rubber hit the proverbial road? Would SWIF be able to deliver against the ambitious conservation and investment benchmarks set by the two organizations?

As we publish SWIF’s first annual Impact Report, we are excited to highlight progress that has been made in many important respects. We recognize that SWIF is still in a very early phase with plenty of work ahead. The fund’s team must work hard to ensure that investor return expectations are met and that these favorable financial outcomes are mirrored by the depth and durability of conservation impacts. But we think what SWIF has built so far, with the full and ongoing involvement of TNC’s scientists and RRG’s investment managers, shows great promise as a blueprint for the wider investment sector to follow.

Sandhill cranes (Grus canadensis) in rice fields in Colusa, California. — **TEMPORARY WETLANDS** Sandhill cranes benefit from the flooded rice fields of Colusa, California, USA. © Drew Kelly for The Nature Conservancy

In the pursuit of real impact, SWIF seeks to demonstrate new ways of investing in land and water assets that deliver meaningful conservation outcomes, such as making water available in streams and wetlands at critical times for wildlife, and protecting and restoring ecosystems. Executing on that ambition requires several features we haven’t seen elsewhere in the market.

The Fund’s governance structure integrates RRG and TNC’s teams with complementary diligence and asset management roles. The Fund has standards in place to minimize negative impacts to the environment, and TNC advises on the Fund’s conservation and ecological outcomes. TNC, as the technical advisor for the Fund, relies on science and decades of conservation expertise to embed the value of ecosystem services as one of the pillars of RRG’s investment decision-making, complementing more conventional aspects of value creation strategies and business plans. In the process, we are also hoping to help reshape the rules of the investment business as we know it—establishing new models for resource management, agriculture, and investment.

Via SWIF, investments have so far been made in properties in arid and semi-arid locations in Australia, California, Chile, and Peru—a portfolio exhibiting exciting potential for demonstrating sustainable agricultural operations and meaningful conservation outcomes. For example, in California SWIF is proving that you can create temporary wetlands during critical times of the year for migratory birds, while also recharging groundwater reserves to benefit farming and farming communities—and to generate investor income. In Chile, SWIF is progressing toward implementing one of the first conservation easements in the country, which would protect a contiguous, intact, and highly biodiverse Mediterranean habitat, while also safeguarding water supplies for a productive orchard downstream.

As RRG and TNC continue down this road, we expect SWIF to generate more data and evidence to show when, where, and how it is possible to deliver compelling investor returns and significant environmental benefits in parallel. We think the information and innovative models identified in SWIF will encourage others to follow suit, thereby supercharging the amount of investment flowing into conservation at a global level. This in a nutshell—creating new business models that allow some of the world’s financial assets to better incorporate the value of environmental goods and services—represents our collaborative vision for SWIF.

Creating new business models that allow some of the world’s financial assets to better incorporate the value of environmental goods and services represents our collaborative vision for SWIF.

The importance of this aspiration is thrown into sharper relief by the headline findings from Financing Nature, a comprehensive analysis of the conservation finance landscape published by TNC last fall in collaboration with Cornell University and Paulson Institute. This study estimated that in 2019, approximately US$124-143 billion was spent on activities that benefit nature, compared with the $722-967 billion per year that’s needed to arrest current declines in biodiversity by 2030. An array of fiscal interventions, many of them on the public finance side, could potentially help to close this $824 billion per year “nature gap”—but the kind of private investment innovation being piloted via SWIF is another example of approaches the world urgently needs more of during the coming decade.

Which is where perhaps the best thing of all about SWIF comes in: because, over and above the targeted financial returns and environmental benefits is the fact that many of its core elements are entirely replicable, and deliberately so. It was never our goal to be sole players in this field. On the contrary, we understand that success often encourages imitation, and so we hope to see other collaborations following SWIF’s lead, driving more investment capital into conservation outcomes. We are already seeing signs of this as external parties, including other investment firms, notice SWIF’s growing momentum and ask how conservation impacts can be incorporated into the structure of other funds to reconcile what have historically been considered mutually exclusive outcomes.

Conservation, like investing, will ultimately always be a long game, demanding both intention and thoughtful planning. As SWIF’s first annual impact report is released, we acknowledge the progress still to be achieved on the ground, while also finding motivation in the way TNC and RRG are working together to try to establish a north star for the wider impact sector at the start of this critical decade for nature.