JP Morgan Chase To Bankroll Conservation Investments

April 30, 2014       Eleanor Clift      

In a marriage made not in heaven but born of necessity and shared interests, banking and investment giant JP Morgan Chase announced the launch of an ambitious $1 billion initiative in partnership with The Nature Conservancy to find and cultivate investment opportunities that contribute to a sustainable planet.

Before an audience of some 200 people, investors, philanthropists and environmentalists, gathered at Washington’s landmark Newseum on Tuesday, Doug Petno, CEO of commercial banking for JP Morgan hailed the Conservancy as “incredibly smart, very focused, science based, apolitical…and so it couldn’t be a better fit.”

As a parent and someone who loves the outdoors, Petno said he couldn’t imagine a future where children couldn’t appreciate such natural assets as the Rachel Carson Wildlife Refuge on the coast of Maine that his family visits every summer. He said the bank’s investment would drive a range of conservation finance projects, while letting the market drive the solutions. “There’s no such thing as a free lunch,” he said, warning the audience dining on a buffet lunch of salmon, chicken and assorted salads that “we’re coming back to you. We’re counting on all of you to be active contributors.”

A panel moderated by Mark Gunther of Guardian Sustainable Business explained to a skeptical but interested audience what this new relationship of business investors and conservation advocates means both for the bottom line and for the environment. “How does private capital become a tool for conservation?,” Guenther asked Mark Tercek, CEO of The Nature Conservancy (TNC). It used to be done by raising philanthropic money and government grants. But given the mounting challenges, that’s not enough, Tercek said. “We were winning a lot of battles but losing the war. Environmentalists have to scale up their work – lever it up by raising capital,” he said.

Asked for examples of financial return, Tercek said everyone knows the world’s fisheries are in bad shape. “And we can fix that,” he said, citing a case in California where TNC was “hectoring” local fishermen to stop bottom trawling. It didn’t work, so TNC bought some boats, fished using a hook and line, and demonstrated that fish caught that way could be sold to the high-end sushi market. The idea, he said, is to incentivize fishermen to fish less, and as stocks recover, investors share in the profits. It’s not without risk, he added.

Joel Dobberpuhl, CEO of Jetstream Capital, spoke next. His family foundation has a $26 million partnership with TNC in Africa and “a bat cave in Northern Tennessee with our name on it,” he said.  It’s a big leap from protecting bats to protecting elephants, but it was TNC’s elephant protection initiative that drew him to Africa. The program is called “Livestock to Market in Kenya,” and the Peter Hawkins Dobberpuhl Foundation provided $7 million in impact capital to the program. “Are we giving our money away or are we investing,” Dobberpuhl said he asked himself. “Do they know what they are doing? Can it scale?”

The program is about sustainable cattle ranching in an area where a lot of poaching goes on. The herdsmen get paid a 30 percent premium for better grazing. They sign a pledge not to poach elephants and other wildlife, and they act as a neighborhood watchdog. Dobberpuhl funded the whole $7 million and wants half back, so it’s half loan and half equity. “It’s win-win, but it’s a business,” he said.

Rachel Kyte, Special Envoy for Climate Change with the World Bank and the third panelist, started by recognizing the “many war horses in the room, not just me,” who have been grappling with the challenges to the environment. Asked to cite a success worth emulating over her long career, as well as something that flopped, she said she learned early that if the investment climate isn’t great, then green equity won’t do well either. A micro-equity investment in a nature-based business was a flop even with the backing of foundations and green banks. “We lost our shirts,” she said.

She pointed to a Sovereign Resilience Fund that has taken hold in the Philippines as a success. Individuals who take out micro-insurance and take steps to protect the mangroves and the coastal zones receive payment from that fund, which is “more cost effective than if a typhoon size 5 hits the Philippines every two years,” she said. The Fund is a success because of who’s at the table, she said, adding that she often gets asked, “Who’s sitting at the table representing the fiduciary interest of nature?”

In the question and answer period, JP Morgan was asked what’s in it for them to pursue this initiative, and the answer was that in the long run they’d like to be the banker for these conservation deals, and in the short run act as an investment advisor for the opportunities that are emerging in the context of a changing climate and a heightened interest in sustainability.

The moderator asked Dobberpuhl: “What kinds of returns do you think NatureVest would have to promise?” The question prompted some wry laughter and Dobberpuhl jokingly asked if he could answer the previous question instead. The uncertainty surrounding this new venture colored everyone’s response. “This is not an investment panacea where you’re getting this great impact plus great return,” he said. “You’re going to get something in return – a blend between financial return and impact.”

Nature Conservancy CEO Tercek jumped in to emphasize “flexibility,” saying TNC will be able to develop various ways of return on investment, but they will in all likelihood be below market cash return. Investors would get an environmental return in wetlands protection, carbon sequestration and protection of salmon runs. “The return will be very robust, the question is how much environmental, how much financial,” said Tercek.

Doug Petno with JP Morgan brought the event to a close, commending the panelists for highlighting the challenges and the need to be realistic. “There aren’t a lot of prospectuses laying around,” he noted. “We’re in uncharted territory.”

There was a sense in the room and among the audience that they were on the ground floor of a new and important way of investing that they hoped will succeed. Conversation continued among the attendees long after the panel disbanded, an indication of great interest in an area of investment that given the need could and should be the wave of the future.