Private investment and coastal management: an unsuited pair? by Nicolas Pascal

Monday, Apr 27 2015


Many recent studies have confirmed that total funding for protected areas and biodiversity conservation has to be increased dramatically to achieve the targets set at national or international levels (e.g. CBD Aichi targets (Pascal et al., 2014b)).

Today, 80% of biodiversity finance is generated from non-market mechanisms (Parker et al., ed. 2012). With the exception of philanthropy, non-market mechanisms are public sector mechanisms relying on regulation for their implementation. They cover domestic budget allocation, Official Development Assistance (ODA), debt-for-nature swaps and subsidies reform. The allocation of public finance is primarily a question of political will (and public opinion) and these mechanisms therefore tend to vary with political cycles.

Although these mechanisms could scale-up in the future, market-based mechanisms have a greater potential to increase in scale. The market-based mechanisms could generate up to 50% of biodiversity finance for coral reef in 2020 (Parker et al., ed. 2012).  Long-term, reliable sources of market financing for biodiversity conservation must be established and strengthened (Forest Trends and The Katoomba Group, 2010).

Instruments for conservation finance are diverse and several classifications, such as tools to internalize the damages and profits, based on the "polluter-pays" or "beneficiary pays", environmental taxes, taxation of contamination and compensatory measures of impacts (avoid-reduce-compensate sequence), have been proposed (TEEB, 2010; UNEP, 2006).

Recent recommendations from the CBD identify exploring new and innovative financial mechanisms at all levels with a view to increasing funding to support the three objectives of the Convention. Seven areas of financial innovations have been set out and five of them concern private finance: schemes for payment for ecosystem services; biodiversity offset mechanisms; markets for green products; business-biodiversity partnerships and new forms of charity; development of new and innovative sources of international development finance.

The marine and coastal environment have very few practical experience of these mechanisms (Pascal et al., 2014a) and one of the main priorities for the next years is therefore to provide empirical experiences of non-public funding mechanisms for integrated coastal management (ICM).  

The real potential of various non-public financial instruments for sustainable long-term financing of ICM has still to be proven though concrete financial flows from the private sector. In that sense, the investor perspective has to be analyzed to propose concrete funding opportunities to the supply side.  

From on-going activities of the Bluefinance project, the following preliminary results have been found:

 

Coral reef ES beneficiaries with potential payment capacity are mainly the tourism industry, end-users, real estate owners and impact investors. These beneficiaries might invest to enhance the ES of scenic beauty, coastal protection (against coastal flood and beach erosion) and fish biomass. Business models to make the project investable must be tested in the field. Agreement with the public sector, through Public-private partnerships (PPPs), must define clearly the management of funds as well as marine tenures. This is a preliminary step that must be defined before designing PES or other financial mechanisms.

Regarding business models, their aim is to provide funding for the initial investments and the management cost of the ICM activities through classic financing (e.g. equity, debt, Tourism User fees) and some more innovative (Payment for Ecosystem Services, bio-banking).  Given the early stage of development of the investment opportunities in marine conservation, initial investors target will include local high-net-worth individuals as well as venture philanthropists. Each of these groups has its own risk-return expectations, liquidity exigencies, investment horizons, ticket sizes and investment product preferences.

Regarding PPPs, agreements can take a wide range of forms, which vary in the degree of involvement of the private entity in a traditionally public infrastructure. Five main categories of PPP agreements have been selected as having the greatest potential for ICM: a parastatal agency, management contracts, leases, concessions and joint ventures. The agreement, which ultimately will be used, will be decided via negotiations between the public and private stakeholders. The objectives of the agreement; balancing between conservation of marine habitats and business enhancement of the ES will form the basis for these negotiations (Delmon, 2010).

Some of these concepts are being explored in the Bluefinance project, which is a special division of Forest Trends' Marine Ecosystem Services (MARES) Program and GRID ARENDAL.  Bluefinance represents a portfolio of projects which aim for rapid uptake of marine ecosystem services information, in order to develop financing mechanisms for conservation and management.  

The Bluefinance project is funded primarily by the United Nations Environmental Programme (UNEP), GRID ARENDAL and the Organization of American States (OAS).  Demonstration sites are in Barbados, Croatia, Colombia, Mexico and Vanuatu.  A similar approach will be taken in each site; developing challenging business models with private sector balancing financial bottom line with conservation objectives. In Barbados, for example, an Island with a heavy reliance on the Tourism Industry and an extremely well informed and active tourism sector, the focus is on utilizing this sector in the management of marine areas and involving them in a PES system with the Fishers. 

Implementation will demonstrate the potential of these instruments in a coral reef setting prior to considering their application at a larger scale and replication in other countries. More precisely, it is expected that the experiences from Barbados will contribute to updating existing guidance on PES, PPPs and tourism concessions to support their increased use in coral reef areas.

 

 

Bibliography:

Delmon, J., 2010. Understanding Options for Public-Private Partnerships in Infrastructure: Sorting out the forest from the trees: BOT, DBFO, DCMF, concession, leases, . Policy Research working paper ; no. WPS 5173; The World Bank Finance Economics & Urban Department Finance and Guarantees Unit.

Forest Trends, The Katoomba Group, 2010. Payments for Ecosystem Services Getting Started in Marine and Coastal Ecosystems: A Primer. Technical Report, Forest Trends, The Katoomba Group, and UNEP IISBN: 978-1-932928-42-6, 80 pp.. .

Parker, C., Cranford, M., Oakes, N., Leggett, M., ed. 2012. The Little Biodiversity Finance Book. Global Canopy Programme; Oxford. 142 pp.

Pascal, N., Agardi, T., Carter, E., Dujmovic, S., Quétier, F., Pioch, S., 2014a. “Private financing” for MPAs: concrete experiences. Proceedings of the 3rd International Marine Protected Areas Congress, Marseille, France. 2014 - 8 pages.

Pascal, N., Brander, L., Crossman, N., Dang, T., 2014b. Regional research to inform the high level panel on global assessment of resources for implementing the strategic plan for biodiversity 2011-2020. Final report for Australasia and Pacific region. CBD technical report, 35 p. .

TEEB, 2010. The Economics of Ecosystems and Biodiversity: Mainstreaming the Economics of Nature: A synthesis of the approach, conclusions and recommendations of TEEB. http://www.teebweb.org/teeb-study-and-reports/main-reports/synthesis-report/.

UNEP, 2006. Marine and coastal ecosystems and human well- being: A synthesis report based on the findings of the Millennium Ecosystem Assessment. UNEP. 76pp.

 

Nicolas Pascal, PhD, environmental economist and conservation finance professional, is specialized in marine ecosystems and his past projects have focused on the economic valuation of ecosystem services and the development of financial instruments for conservation of coastal ecosystems. His professional experience includes (i) the private sector (as investment banker and new business developer) and (ii) the conservation sector (environmental economy and conservation finance projects). In the conservation sector, through experiences as project coordinator, scientist and consultant, he has developed skills in the economic valuation of marine ecosystems and Marine Protected Areas, the establishment of marine PES (Payment for Ecosystem Services) and other financial instruments, conservation trust fund business plans and communication strategies for policy makers. Projects were undertaken with several kinds of organizations (multilateral, bilateral, NGOs, research institutes and private financial sectors) in South Pacific countries, South and Central America, the Caribbean and Indian Oceans. Presently he is the project director of BLUEFINANCE, private financing for marine conservation. He is also the coordinator of the project “Economics of coral reef ecosystems” with IFRECOR (French Initiative for Coral Reefs) (2011-2015).  In parallel, he is the head of the ICRI (International Coral Reef Initiative, www.icriforum.org) Ad-hoc committee on economy and finance, representing more than 60 institutions and countries. Nicolas has been a CFA member since 2013 and can be reached at NPascal@forest-trends.org.

 

 

Photo Credits: Kip Evans


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Private investment and coastal management: an unsuited pair? by Nicolas Pascal
Monday, Apr 27 2015

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