Unlocking investment to innovate and commercialise transformative climate solutions
The scale of financing needed to affect transformative climate and environmental change remains hard to quantify. There are still no concrete global estimates, however recent analyses shows that at least USD 2.7 trillion will be needed per year, just to achieve the Sustainable Development Goals for developing nations. This is the same as the total figure for all active assets currently designated as sustainable across the globe. Quite plainly, this is not enough.
Our partners, Nicole Rycroft, and Paul Chatterton are globally recognised for successfully bringing conservation, markets and communities to the fore in their work. Nicole is the Founder and Executive Director of award winning environmental not-for-profit Canopy and has worked over the last 22 years to successfully conserve the world’s ancient forests by transforming unsustainable global supply chains and purchasing practices of more than 800 large corporations. Paul Chatterton is the Lead and Founder of the Landscape Finance Lab, a global platform for incubating and financing sustainable landscapes, recently spun out of the World Wildlife Fund for Nature (WWF).
Evolution of climate investment
We see a growing appetite for more sustainable and innovation-focused investing, demonstrating a clear shift from reactionary to precautionary climate funding.
Against this backdrop, both Paul and Nicole noted the need to develop larger investment vehicles with clear mandates in a bid to accelerate this shift and deliver real impact. Both happen to be engaged in developing new financing mechanisms that can help establish the commercial proof-points to unlock further financing
Paul’s venture Landscape Finance Lab looks at climate and environmental challenges from a landscape perspective, aiming to re-wire the mobilisation of capital more holistically to achieve greater impact. Rather than seeking to deliver results on a project-by-project basis, the investment ethos would factor in the scale and timescale required by nature to focus on entire ecosystems – coral reefs, peat restoration and regenerative agriculture production, etc. Illustrating with an example, he says “When saving coral reefs the purpose is to make the reefs resilient. You can align this with a set of SDG goals that are relevant to that specific landscape. For coral reefs these might be more sustainable fishing, mangrove restoration and switching to organic agriculture to stop pesticide use. A landscape vehicle brings these relevant projects together [under a blended funding structure] to achieve bigger goals.”
Nicole’s focus has been to displace the use of ancient forests in fashion, paper and packaging, and to do so, Canopy has been looking to unlock the scale of next-gen materials such as those from textile or agricultural waste. She reflects, “While these potentially game-changing technologies are exciting, scale and funding remain a challenge and are blocking their widespread application. Canopy has calculated that the funding needed for next gen solutions to replace 50% of forest fibre will amount to USD64 billion over the next decade. Encouragingly there is market demand - we are working with more than 800 companies that are ready to prioritise next gen solutions, we have a promising pipeline of technology, and are looking towards equity financing to build out commercial volumes.”
Risk-taking philanthropic capital
A key theme in the discussion was the need for deep innovation - a fundamental redesign of business models and supply chains, as well as the diversification of material sources (with viable alternatives) to driving this transformation. A crucial first step is giving industry proof points at small scales to build confidence, to ensure “that technologies and infrastructure being invested in has the ability to compete on price points at scale, and work better for the planet” in Nicole’s words.
Philanthropy therefore is a critical enabler of innovation, risk-taking capital that holds an essential role in the funding pipeline. As Paul puts it, “A billion-dollar fund is a very complex animal to build and will depend on commercial returns to make it viable. Those commercial returns must be proven in small scale to get to a larger scale and that’s where philanthropy is really important. It provides the initial capital for the experimentation and system design to allow those returns to be created.” Nicole similarly points out that “philanthropy has a great tradition of providing first loss capital and catalytic capital as well as patient capital. It understands that change isn’t always linear and helps lay the right groundwork… The beauty of philanthropy is the synergistic relationship it can achieve with equity and venture capital investment.”
Catalysing collaborative action
While scale ultimately impacts systems level transformations, collaboration among multiple actors will provide the muscle to unlock the size of investments needed. Vehicles like the Landscape Climate Fund being set up by Paul, incentivise collaboration. As Paul explains, “It's much more efficient and credible if companies work together in a landscape to decarbonise supply chains, you can measure impact much more effectively and get significantly better results.”
On the role of the private sector in leading these transformative efforts proactively, Nicole says “Companies within supply chains have shown a significant appetite to see next generation solutions come to scale and have proven willing to play an incentivising and de-risking role.” Such support is essential to provide “the commercial proof of concept to further scale next gen solutions and unlock the other $60 billion that's needed.”
At Laudes we are committed to enabling initiatives that operationalise mechanisms to unlock wider and deeper capital flows. We believe that financing mechanisms built on the premise for collaborative action to drive scale, are what will meet the urgent climate and biodiversity transformations needed in the world today, and invite other investors, philanthropic foundations and the private sector to join us.