Marc Gunther | Sustainable Business Forum | 17 September 2012
This is a good time to consider “impact investing,” and if you don’t know why, check the latest statement from your savings account or money market fund. My Vanguard money market fund is paying 0.04 percent interest; a Bank of America savings account pays 0.01 percent.
You don’t need an MBA to understand that the financial return on those investments is close to zero. The social or psychic returns? No better.
Mark Tercek, the president and CEO of The Nature Conservancy, happens to have an MBA (from Harvard), and he spent more than 20 years at Goldman Sachs before leaving in July 2008 (good timing!) to lead TNC. So it’s no surprise that he has introduced impact investing, in the form of interest-bearing Conservation Notes, to the conservancy.
Investors can lend money–minimum $25,000–to The Nature Conservancy to help the organization protect natural resources.They get a modest payback, along with the knowledge that their money is doing good. “It’s an investment-grade opportunity to achieve environmental impact on the ground,” Mark told me, when we spoke by phone the other day.
Impact investing is a catch-all term for investments that promise measurable social or environmental benefits, along with a financial return. (I would argue argue that all investing should be impact investing, since successful companies deliver social or environmental benefits, but that’s a conversation for another day.) Microfinance is the best known type of impact investing, but there are others. One of the pioneers of impact investing is my neighbor here in Bethesda, MD, The Calvert Foundation, which has been selling investment notes since the mid-1990s; it has about $200 million invested in community development projects in the US and abroad. (I’m an investor, and I wrote about the foundation in Fortune in 2005. See Social investing that hits home.) Impact investing hasn’t, to my knowledge, been offered by environmental groups until very recently.
Unlike most environmental groups, The Nature Conservancy is a very capital-intensive organization; it spends hundreds of millions of acres buying land and easements that protect land from over-development, and has outstanding debt of more than $400 million, most of it borrowed from banks. Moody’s has given the organization a solid Aa2 rating. So it made sense for TNC to seek out new sources of finance. In 2009, Mark hired Charlotte Kaiser, who had worked in community development finance at Citi, to create an impact-investing program.
They wanted to accomplish several things. First, they wanted to diversify their sources of capital by turning to individuals and foundations as well as banks. “We live in a volatile world,” Mark said. “Sometimes you have good investment opportunities at a time when traditional sources of capital are not available.” Second, they wanted to establish new relationships with people who may begin by investing but eventually decide to donate to TNC. Finally, because impact investing appears to be a growth business, they wanted to create a product for impact investors who have a passion for the environment. A thorough 2010 report from Hope Consulting, called Money for Good, estimated that impact investing could be a $120 billion opportunity.)
In a brochure for potential investors, TNC says its Conservation Notes “allow you to put your money where your values are.” Investors can buy a note for one, three or five years, and select an interest rate of 0 to 2%, depending on the term. Investors have to pony up at least $25,000–the minimum is high, Mark and Charlotte told me, to hold down administrative costs. This first round of Conservation Notes has already raised $16 million, nearly all of it from small foundations and so-called family offices, and it is authorized to raise up to $25 million. “This is a pilot,” Charlotte said. “We’re testing the market to see who our investors are.”About $600,000 worth of bonds have been sold to individuals.
And where does the money go? Conservation Bonds aren’t tied to particular projects, but Charlotte said they help finance such ventures as the protection of endangered grasslands in eastern Colorado. TNC describes the project this way:
When the 37,000-acre Winship Ranch, located a couple hours southeast of Denver, went up for sale, it catalyzed a complex conservation project that will protect a large swath of Colorado’s eastern plains while generating income for ranching and farming communities.
Four ranching families worked with The Nature Conservancy to place conservation easements on their existing ranches, a step that lowered their out-of-pocket funds to buy portions of the original Winship Ranch. In turn, the Winship Ranch is now protected through conservation easements as well, creating a total of more than 48,000 acres safeguarded.
Complicated? Yes. A major achievement for conservation and ranching families? Yes.
TNC says it has protected more than 119 million acres of land and 5,000 miles of rivers worldwide.
By coincidence, right after I heard from The Nature Conservancy about their Conservation Bonds, I met with Patrick Bergin of the African Wildlife Foundation,, which recently launched its own impact investing program — this one to invest in for-profit, conservation-friendly businesses in Africa. I’ll have more to say about that soon, but it’s encouraging to see these new approaches from traditional charities.