Nicolas Pascal, of the BlueFinance project, a data collection initiative aimed at developing finance mechanisms for marine conservation management, says market mechanisms have potential to fill a big part of a funding gap that exists in marine conservation. But its practical experience in coastal environments is limited and so more know-how is needed to spur private investment.
This article was originally posted on the Conservation Finance Alliance blog. Click here to read the original.
13 May 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.
Today, 80% of biodiversity finance is generated from non-market mechanisms (Parker et al., ed. 2012), the Global Canopy Programme’s Little Biodiversity Finance Book says. 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, according to GCP’s Finance Book. Long-term, reliable sources of market financing for biodiversity conservation must be established and strengthened, according to a report note that instruments for conservation finance are diverse. 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.
Recent recommendations from the CBD (Convention on Biological Diversity) 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 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.
Some of these concepts are being explored in the Bluefinance project, which is a special division of Forest Trends’ (publisher of Ecosystem Marketplace) 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.