The Nature Conservancy is offering conservation notes to retail investors
By Ellie Winninghoff
What does the sale-leaseback of fishing quotas and trawlers in central California’s Morro Bay have in common with helping four ranching families in eastern Colorado buy a fifth ranch?
Both were negotiated by The Nature Conservancy (TNC), the $6 billion nonprofit hybrid social enterprise/private investment company whose work is evolving beyond its core competency of conserving “forever wild” land to forging a nature-based economy where it believes both the environment and people can win.
“[TNC is] viewing conservation as a solution for peoples’ challenges rather than as an end in itself,” says Deborah Froeb, director of land conservation and finance at TNC’s Colorado field office.
TNC has started offering “conservation notes” to unaccredited retail and other impact investors. The notes, which will yield between 0% and 2% for 1, 3 or 5 years, will not trade, and there is a penalty for early redemption. Moody’s rates them AA, and minimum investment is $25,000.
An early investor: The Packard Foundation, which will invest $5 million in the three year notes and $5 million in the five year notes at 1%–less than the maximum offered. Packard has supported TNC for decades with bridge financing for landscape-scale projects that preserve entire eco-systems rather than taking a piecemeal approach.
“We will continue to finance these projects directly,” says PRI officer Susan Phinney Silver. “But we hope the conservation notes will give TNC the flexibility to be more creative.”
TNC owns 2 million acres of land in the U.S. and has preserved millions of acres in both the U.S. and overseas. But according to Charlotte Kaiser, who is managing TNC’s conservation notes, its focus is on deals that smaller nonprofits and land trusts cannot do.
Take the Montana Legacy Project–310, 000 acres in the heart of the Crown of the Continent, an 18 million acre mosaic of land encompassing Glacier National Park and extending into Canada.
One of the few places left without species extinction and still untouched by industry, the project stitches together land originally parceled out in a checkerboard fashion to public and private landowners–something detrimental to habitat and migration. TNC bought the land in partnership with The Trust for Public Land over three years for $490 million with financing that included $250 million in federal Qualified Forest Conservation Bonds.
Conservation that allows working the land
Traditionally, TNC’s strategy has involved conservation easements. Easements are the legal removal of a right of use, and conservation easements generally protect wildlife habitat, recreational land, etc., by eliminating development rights. Until the l990s, most conservation easements were “forever wild,” meaning all economic use of the land was strictly prohibited. They usually were bequests donated by families for tax relief, and were fairly small scale.
But according to Peter Stein, managing director of the Lyme Timber Co., in Hanover, N.H., there has been a sea change in the use of conservation easements.
Today, they are used to preserve entire watersheds–often tens of thousands of acres. The newer, more complex “working forest conservation easements” (WCFEs), which often include comprehensive stewardship requirements, are usually certified by a third party like the Forest Stewardship Council. Buyers usually include land trusts, local or state governments, or federal agencies. But they allow private landowners to keep the land working.
In eastern Colorado, for example, TNC had an interest in making sure that the ecologically significant 37,000-acre Winship Ranch was not developed for housing. After buying the ranch at appraised value, it placed an (working) agricultural conservation easement on the property, which reduced its value by 20%. It also bought agricultural conservation easements from four ranching families on their own properties, which removed development rights they did not need but provided them with the capital to buy the Winship Ranch from TNC.
“The conservation easements allowed these ranchers to monetize these development rights now,” Froeb says. “They acquired land at a reduced price without having to put up the capital to purchase the development component of it, which they are never going to use.”
Environmental financial engineering
But while this deal represents the type of conservation that TNC’s controversial chief scientist Peter Kareiva calls “people friendly,” Kaiser says there is simply not enough public money available to do all that is necessary from a conservation perspective.
“We are trying to push the envelope around how we structure and pay for conservation transactions,” she says.
* To preserve 89,000 acres in the Adirondacks, TNC in 2007 bought 160,000 acres plus a pulp mill and power plant among other assets in a $200 million transaction with a timber company. But it ended up spending only $35 million of its donors’ money after it flipped unwanted assets, restructured a note the company had with Hancock Timber Resource Group, and sold sustainable timber rights on preserved land to a Dutch pension fund.
* In Morro Bay, in San Luis Opispo County, where the fishery was no longer viable, TNC bought quotas and trawlers from fishermen who wanted to get out of the business. But instead of retiring the boats altogether (something environmentalists have done), the nonprofit agreed to lease them back to fishermen who honored their conditions of sustainability.
* In Latin America, TNC has launched 15 water funds–a strategy for providing fresh water that it hopes to take global. Modeled on the Quito Water Fund, established over ten years ago in Ecuador, users downstream create an endowment that pays farmers and ranchers upstream to protect the watershed by caring for and restoring streams, rivers and forests.
The latter is a form of payment for ecosystem services–something that TNC is involved in taking to the next level. At Rio+20 in June, 24 companies including Dow Chemical and General Motors announced that in an effort led by the Corporate Eco Forum and TNC, they are developing a methodology to assign a value to the world’s forests, freshwater and marine systems.
Follow the Money
Is putting a price on nature the best way to save it? The devil, of course, is in the details. But this may pit Deep Green versus Big Green.
Kareiva, who wrote that “we create parks that are no less human constructions than Disneyland,” has already set off a firestorm in ecological circles regarding his claim that nature is far more resilient than we think. He cites nature’s regeneration at Chernobyl. (He also supports GMOs, which he says has passed Big Science’s sniff test.)
TNC is a private investment company–and a sophisticated one. While land etc accounts for 60% of its $6 billion piggy bank, about 14% of its assets are lodged in hedge funds and 9.2% in private equity. It has nearly $1 billion in public equities and swaps, and lends securities to short sellers.
TNC is an impact investment, so the question arises: Is its investment portfolio being managed responsibly? Among other things, after all, David Blood–former vice president Al Gore’s partner at Generation Asset Management (a leading sustainable investor) sits on the board.
“This is very traditional endowment management,” Kaiser says. “More people are asking about this, and [TNC] is actively considering ESG strategies.”
In the meantime, CIO Addison Dana declined to discuss TNC’s portfolio. TNC is a nonprofit–and therefore exempt from certain securities laws. But even mutual funds must disclose their holdings. It’s offering notes to unaccredited investors, and it behooves TNC to honor the first rule of responsible investing: transparency.
A former investment banker, Ellie Winninghoff is a writer and consultant specializing in impact investing. Her work about impact investing is linked at: DoGoodCapitalist.com, and she can be reached at ellie.winninghoff (at) gmail (dot) com.