Lush green meadows and cascading waterfalls have long been favoured for postcards and hotel lobby landscapes, yet the profit-making potential of these subjects is seldom talked about in investment circles. In years past, natural ecosystems have been damaged beyond repair as host countries have looked to the land and the resources contained within it as a stepping-stone on the way to economic prosperity. A new report from NatureVest, however, shows that investors are beginning to recognise the importance – and financial viability – of preserving these landscapes.
Defined as travel that conserves the environment and also benefits the welfare of local people, ecotourism is among the travel and tourism industry’s fastest-growing sub sectors
“Up until very recently, most of what we call natural capital, or the soil, water, and clean air which all life depends [on], was not factored into the cost of doing business”, says Marc Diaz, Managing Director of NatureVest. “Over the past few years, this has begun to change with companies (and governments) now recognising the importance, or the value, of these [natural] assets that were once taken for granted.”
Irresponsible business practices have pushed any number of natural ecosystems to the brink of survival, and the industries that rely on them – tourism being chief among them – are looking to a saviour before the issue gives rise to yet more grey buildings in once green spaces. With concern for environmental preservation, ecotourism and conservation investment on the up, spoiling said ecosystems could be a thing of the past.
Investment in conservation
If history is anything to go by, the protection and preservation of these places is a mandate that concerns only governments and multilateral agencies. However, a recent NatureVest report shows that attitudes towards conservation are shifting – and that, more importantly, investors are beginning to make a difference.
Impact investment was scarcely a recognisable term until the dawn of the 21st century, at which time investors finally began to realise the importance (as well as the profit-making potential) of socially and environmentally responsible causes. “We define conservation impact investments as investments intended to return principal or generate profit while also driving a positive impact on natural resources and ecosystems – specifically, decreased pressure on a critical ecological resource and/or the preservation or enhancement of critical habitat”, according to the NatureVest report.
According to NatureVest figures, conservation impact investment amounted to a cumulative total of $23.4bn from 2009 through 2013. This was largely owed to development finance institutions (DFIs), whose response to a widening funding deficit has been to up their commitment to environmental protection. Still, the most important figure to take away from the report is that the market for conservation impact investment is on course to expand threefold in the coming five years, bolstered by an influx of private names into the mix.
Environmental concerns
Discussions concerning the effects of environmental degradation on both the land and on nearby communities have been gaining momentum recently. And without committing more funds to environmental protection and conservation, coastal populations and rural communities could find themselves put in serious harm’s way. For too long, climate change has been little more than a peripheral concern for countries whose nosedive into industrialisation has resulted in economic prosperity. However, it seems that now the time has come for investors to stand up and take note of the consequences.
“Investing in conservation has historically been philanthropic and public sector-led”, says Nick Oakes, Finance Programme Manager at the Global Canopy Programme. “Impact investment, which can generate a financial return and can be a route for private sector money, has typically targeted investments with social impacts, but increasingly there is a small but growing focus on investments that generate an environmental impact (e.g. conservation).”
The world’s population is tipped to peak at approximately nine billion before 2050, and the disparity between the consequences of environmental degradation and the resources dedicated to it gives serious cause for concern. The Global Canopy Programme estimates that close to $300bn is needed every year to adequately address the world’s conservation challenges, yet studies show that investors mustered only $50bn last year.
“The small growth of private investors interested in conservation – and indeed investors in environmental protection more generally – is far lower than the scale of funding that is needed to avoid dangerous climate change”, according to Oakes. However, given the present amount dedicated to conservation, the part played by private investors is of increasing importance.
The rise of ecotourism
One key area where this concern for environmental protection is abundantly clear is in the ecotourism sector, which has recently enjoyed a period of sustained growth and still shows promise for the years ahead. Defined as travel – particularly to natural areas – that conserves the environment and also benefits the welfare of local people, ecotourism is among the travel and tourism industry’s fastest growing sub sectors. Countries such as Costa Rica and South Africa are buoyed in large part by it.
“Right now, the direct link between ecotourism and impact investing is the on-the-ground projects that The Conservancy’s NatureVest is working to fund”, says Diaz. “Successful conservation projects do more than protect lands and water, they also support, in some cases, local economies like ecotourism. For example, NatureVest is funding a Livestock to Markets [programme] in Kenya that is focused on preserving grasslands that sustain wildlife such as elephants and zebras. These animals, in turn, draw tourists and diversify the range of economic opportunities for local communities.”
Beginning most significantly in the 1990s, eco tourists then started to consider what consequences their actions might bring for the community and the environment. And whereas the eco traveller profile was originally construed as any person who chose to visit exotic locales, the term has since taken on greater meaning and applies to all manner of socially and environmentally responsible persons. Once a niche market for only a limited number of individuals, the ecotourism market has come to represent an estimated quarter of the world’s travel and tourism market as a whole.
This focus on responsibility has also added another layer of value to the hospitality business, as hotels and operators look to incorporate greater lengths of sustainability – and, in doing so, boost their standing in an industry where reputation is everything. In a time where changes to the tourism industry, such as the rise of low-cost carriers and an emergent Asian middle class, have been well-documented, this focus on sustainability has been somewhat neglected by the wider media – not to mention by the investment community itself.
Interests converge
Taking into account the burgeoning ecotourism market and a growing call to reduce environmental degradation, it’s no surprise that the number of private parties invested in conservation is on the up. In a climate where natural ecosystems – or ecotourism hotspots – are falling foul of wayward emissions, private investors could even represent a means of preserving ecotourism’s prospects for decades to come.
In only the next five years, private investors plan to deploy close to $5.6bn in conservation impact investments; far and above the $1.9bn made through 2009 to 2013. Speaking to those responsible for NatureVest’s report, conservation objectives remain the primary reason for investment, though financial performance is also a factor – and for as long as there is money to be made, more investment will come.
Now that investor concerns are beginning to align with those held by travellers, green – and not grey – could be where the money is headed. Generally speaking, popular tourist destinations have kept to a tried and tested course, whereby idyllic or ‘undeveloped’ areas are quickly made into bustling metropolises of hotels and fast food chains. However, the growing number of private investors interested in preserving key areas could disrupt the age-old progression that we’ve seen time and again among the world’s more popular destinations.
When there is pressure to protect natural ecosystems, authorities are more willing to commit the funds to do just that. However, when there is actual financial incentive to protect these areas, those same authorities surely cannot help but sit up and take note of the changed situation. If there is truly a change at hand, with investors looking to protect natural ecosystems against environmental damage, we could hopefully see explosive growth for the ecotourism sector in the years to come.
