Risks

Risks

To engage institutional investors in landscape restoration, reducing financial risks is vital. To minimize the risks, an organization has to get stable projections of the future ecosystem services outcomes, and thus, to get stable projections of the cash flows in time. 

Blended finance can be an instructive tool here. According to the World Economic Forum, blended finance uses public or philanthropic money to improve the risk-return profile or commercial viability for a private investor, allowing it to invest in places and projects where it wouldn’t otherwise go, by mitigating a raft of real or perceived barriers, including political risk, currency volatility, lack of liquidity, weak local financial markets, knowledge gaps about investment opportunities, and challenging investment climates, including poor regulatory and legal frameworks.

The first step to deploy blended finance is to determine the risk of a project. A high risk will decrease the Net Present Value (NPV) of ecological services in time.

The second step is to allocate the cash flows to the various stakeholders. Local government would, for example, benefit from the social capital generated by the project and may thus be interested in co-investing in the project. For the environmental capital, one should look to all stakeholders. Both private and public parties benefit from land restoration through ecological services in different forms (e.g. higher crop prices, improved water management, more tourism).