Behind one of the Nature Conservancy’s largest ever forest purchases
Backing a $134m land acquisition is a financial institution which wants to raise money from investors who care about the environment
Friday 30 January 2015 15.25 EST
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Even for the Nature Conservancy, which attracts more money than any other US environmental nonprofit – revenues were $1.1bn last year – buying 165,000 acres of land in Washington’s Cascade Mountains and Montana’s Blackfoot River Valley for $134m is, quite literally, a very big deal.
To raise the money in a timely manner and to negotiate the acquisition, which closed last week, the conservancy relied on NatureVest. Launched last spring, NatureVest is a division of the conservancy that functions much like a bank, albeit a bank whose purpose is to protect nature.
NatureVest raises money from institutions and high-net-worth individuals who care about the environment but want to get their investment back, perhaps with a modest return. It then invests that money in conservation projects – land acquisitions, sustainable ranching, green infrastructure or eco-tourism – that can generate money so it can pay back its investors.
Its purpose is to help the Nature Conservancy tap into what is believed to be a growth industry known as impact investing. Impact investing is loosely defined as putting money into a business or nonprofit with the expectation of generating social or environmental change, along with a financial return.
As Marc Diaz, the managing director of NatureVest, told me when we met recently: “Most people have a limited pool of money to give away. People wonder if there is more they could do with the rest of their resources.”
The deal that closed last week provides a glimpse into how NatureVest operates. The Nature Conservancy is acquiring the land, which includes forests, rivers and wildlife habitat, from Plum Creek, a publicly traded timber company. In his 2014 year-end letter to Nature Conservancy supporters, Mark Tercek, the group’s president and CEO, described the acquisition as a “very big financial commitment” and went on to say:
I think this will be one of TNC’s most significant land deals ever. The acquisition connects vast landscapes previously broken up into a checkerboard pattern of public and private ownership. In the process, it conserves vast swaths of wildlife habitat, protects sources of clean water, and expands recreational access. In my view, no organization other than TNC could have taken on this project.
Only a small fraction of the purchase price comes from traditional donations. The Wyss Foundation, which is the charitable foundation of Hansjörg Wyss, a Swiss-born health-care entrepreneur who now lives in Wyoming, provided the vast majority of financing for the project, in return for majority ownership of the land. Another $8m is coming from The David and Lucile Packard Foundation, which is providing a five-year loan with a 1% interest rate.
Both foundations expect to get repaid over the next five to 10 years, as the Nature Conservancy gradually sells the land to state and federal agencies, which will then protect it. This may sound risky, but it’s a tried and true way to conserve land. (Most of the land acquired in a previous, even bigger, nearby purchase, called the Montana Legacy Project, has already been sold to government and private conservation owners.)
“While the size and scope of the deal are unusual, it’s a pretty conventional land transaction,” says Eric Love, senior director of conservation transactions at the conservancy.
What sets this transaction apart is its capital structure. If all goes according to plan, the Wyss and Packard Foundations will get their money back and redeploy it into other conservation projects.
Susan Phinney Silver, who oversees about $180m in program-related investments for the Packard Foundation, told me by phone: “We have a fixed pool of capital. We’re not profit-motivated, but we are very motivated to maintain our capital. We need to recycle it.” Indeed, she says, Packard is seeking more opportunities to support conservation finance.
None of this, it must be said, is entirely new. The Packard Foundation has been making investments to support its mission since the 1980s. It has invested in a forestry company called Ecotrust Forest Management and a sustainable seafood fund called Sea Change Management. For its part, the Nature Conservancy once operated a private-equity fund that invested in businesses with a sustainability focus in Latin America, and more recently it sold $25m in fixed-income Conservation Notes to institutions and retail investors.
In November, NatureVest and EKO Asset Management Partners published an 88-page report called Investing in Conservation that found that private investors intend to deploy $5.6bn in conservation investments over the next five years. That’s way up from about $1.9bn that these private investors had deployed from 2009 to 2013. The reported surveyed 51 private investors, including foundations, fund managers and corporations.
The challenge facing conservation investors is a shortage of deals, not a shortage of money, the report found. That’s where NatureVest hopes to play a role.
“We’re at a moment when the market is unbalanced. There’s a lot of capital that wants to do conservation,” Diaz says. “Our job is to provide that deal flow, the way to put that money to work that appeal to a breadth of conservation priorities.”
To that end, NatureVest currently has a pipeline of about 50 deals. They range across the conservation landscape (pun intended), including land-acquisition projects in the American west, a Kenyan cattle ranch, an Australian water trading scheme, protected marine reserves in the Seychelles and Belize and green urban infrastructure designed to improve water quality around Washington DC.
NatureVest’s operating expenses are paid by the Robertson Foundation, the Jeremy & Hannelore Grantham Environmental Trust and founding sponsor JPMorgan Chase.