Four Returns A business model for ecosystem restoration

August 2014

Willem Ferwerda, Director & Founder, Commonland Foundation

Special Advisor Business & Ecosystems, IUCN Commission on Ecosystem Management Executive Fellow Business & Ecosystems, Rotterdam School of Management

Queste

“What is needed to involve business in

scaling up the restoration of ecosystems?”

Contents

What: introduction

Why: obstacles and opportunities of the private sector to participate

How: four returns; integrating purpose in a business model

Execute: from ‘restoration ready’ to ‘investment ready’

‘Nature as Usual’ Functional ecosystems that provide the vital ecosystems services for mankind, are decreasing.

El Salvador Netherlands

•  Optimization connectivity between species, creates food, water, carbon, oxygen, security

•  Diversity and Connectivity

•  Health, pure

•  Meaningfulness, beauty and reflection

China

Borneo China

‘Business as Usual’ It leads to degradation of ecosystems and biodiversity loss world wide. This is creating a threat to human well-being, the global economy, trade and society. Causing a loss of self reflection and purpose.

•  Maximization of Return on Investment per hectare creates deserts and biodiversity loss

•  Deforestation

•  Top soil loss, overgrazing, unsustainable agriculture

•  Unemployment, migration, security

SOURCES: World Resources Institute, Global Partnership on Forest and Landscape Restoration, The Economics of Biodiversity and Ecosystems (TEEB), UNCCD (2012)

The Bonn Challenge (2011) and UN Millennium Ecosystems Assessment (2005)

Degraded forest ecosystems

Deforested land

Other ecosystems incl. degraded grasslands and man-made deserts

15-23% of the land is degraded by human activity

•  More land was converted to cropland in the 30 years after 1950 than between 1700 and 1850

•  2 billion ha = size of the USA & China •  Annual Economic = USD 21-71 trillion/yr (in 2012, the

Gross World Product: appr. US$84.97 trillion

•  Private Sector is not involved

Urgent need for restoration of degraded ecosystems Protecting natural areas is not enough. Companies and investors should actively participate in conserving and restoring ecosystems, in order to sustain its own future and have a purpose.

SOURCES: Research Programme 6 on Forest, Trees and Forestr. CIFOR, CGIAR World Resources Institute, Global Partnership on Forest and Landscape Restoration,

The Economics of Biodiversity and Ecosystems (TEEB), UNCCD (2012), The Bonn Challenge (2011)

•  We can massively restore ecosystems: the technology exists, the science is available, the financial resources are available

•  What is lacking is will, purpose and persistence

Contents

What: introduction

Why: obstacles and opportunities of the private sector to participate

How: four returns; integrating purpose in a business model

Execute: from ‘restoration ready’ to ‘investment ready’

Finance, Technology and Science seek purpose …but lack ecology

•  Since 1960, supply growth came from yield improvement. This is now plateauing

•  Grain demand increased 2.2% per year. It is projected to grow 35% by 2030. Claims for biofuels, urban development

•  Crop prices came down 0.7% per year in 1960-2000. Prices increased 120% in 2000-2013. Cost for water, fertilizer, energy will increase

SOURCE: McKinsey: Resource Revolution: Tracking global commodity markets. Sept. 2013

“Conclusion McKinsey:

Adding land, in the order of 100 mln+ is needed and has historically happened. Agro that doesn't require energy and water will be advantaged. Access to capacity in slow growing fruit trees (agro-forestry) can be attractive in long boom-bust cycles”

Obstacles to involve business in ecosystem restoration

SOURCE: Willem Ferwerda: Nature Resilience: ecological restoration by partners in business for next generations. RSM, IUCN CEM (2012); McKinsey team analyses (2012), Commonland Foundation (2014)

Opportunities to address it

1 Lack of long term thinking Time frame needs to expand from 2-3 years to 20+ years

2 Economic value of ecosystems is poorly understood and externalities not accounted for

3 Local communities continue pattern of behaviors, which are unknowingly detrimental

4 Solutions are often presented overly complex while simple proven tools and techniques exist

5 Silo thinking approach Many stakeholders working in isolation projects; well intentioned but not additive.

Show that it works in existing scalable projects

Focus on Income, Jobs and Education

Use a Language that everyone understands…and film it!

Holistic (Systemic) thinking approach We need people with an internal approach of connectivity or purpose.

Focus on family companies and pension funds (patient capital, long term)

Social Foundation

SOURCE: Kate Raworth. A Safe and Just Space for Humanity, Oxfam Discussion Papers, 2012

Environmental Ceiling

SOURCE: Rockstrom,. J et all. The Planetary Bounderies. Ecology & Society 14, 32 (2009); Kate Raworth. A Safe and Just Space for Humanity, Oxfam Discussion Papers (2012)

Rethinking sustainability: ecosystems

Gross World Product

(2008): $ 78,36 trillion

Expenses Biodiversity

(2008): $ 21.5 billion

SOURCE: Willem Ferwerda: Nature Resilience Team Analysis, McKinsey Commonland, RSM, IUCN CEM , GPFRL, ELD (2012), Anthony Waldrona et all: Targeting global conservation funding to limit immediate biodiversity declines. www.pnas.org (2013)

Understanding purpose: a systemic approach

Active involvement in ecosystem restoration results in a process of understanding our inner purpose

SOURCE: UNEP / NASA

Contents

What: introduction

Why: obstacles and opportunities of the private sector to participate

How: four returns; integrating purpose in a business model

Execute: from ‘restoration ready’ to ‘investment ready’

Degradation of ecosystems leads to Four Losses

Ecosystem Functions

Ecosystem Disfunctions

Four Losses

•  Meaningfulness

•  Social & Jobs

•  Biodiversity

•  Economic

Forest Grassland

SOURCE: Nature Resilience: ecological restoration by partners in business for next generations. RSM, IUCN CEM (2012); Commonland Foundation (2014)

Restoration should be based on optimization of Four Returns per hectare

Inspirational capital: awareness, purpose, beauty, meaningfulness, worship

Social capital: employment, social cohesion and security

Natural capital: fertile soil, hydrology, biodiversity, biomass & carbon Financial capital increase of productivity based on ecology science

SOURCE: Nature Resilience: ecological restoration by partners in business for next generations. RSM, IUCN CEM (2012); Commonland Foundation (2014)

Return of Inspirational Capital

Different Entities Values measured

•  Meaningfulness, purpose / holistic awareness, Gross National Happiness, need to re-sacralize nature; Theory U

•  Local culture wisdom & outreach

•  Landscape leaders, commitment to local ownership, less corruption

•  Understanding meaning of long term commitment of companies, investors

•  Time for inner reflection, worship, rest and think: happy energy

•  % of stakeholder group / yr / ha: # local cultural & social & religion events # belief systems; # nature recreation; local landscape awareness and leadership

•  % of stakeholder group /yr / ha; •  % of stakeholder group / yr / ha committed; %

-/- corruption benchmark;

•  % responding to long term commitment; Natural Leadership; % of > # years commitment, investment

•  % of free time or community time; volunteering; social cohesion

Four Returns Values per hectare (I)

SOURCE: Nature Resilience: ecological restoration by partners in business for next generations. RSM, IUCN CEM (2012); McKinsey team analyses (2012), Commonland Foundation (2014)

Return of Social Capital

Different Entities Values measured

•  Jobs

•  Security

•  Local social cohesion

•  Education & Social Services

•  # of new jobs / project / municipality - ha

•  # various savings yr / project

•  # of social ventures / yr / project

•  # schools, trainings, services / project

Four Returns Values per hectare (II)

SOURCE: Nature Resilience: ecological restoration by partners in business for next generations. RSM, IUCN CEM (2012); McKinsey team analyses (2012), Commonland Foundation (2014)

Four Returns Values per hectare (III)

Return of Natural Capital

Different Entities Values measured

•  Biodiversity

•  Invasive species

•  Vegetation cover

•  Top soil

•  Water

•  # of (native) species / yr / ha

•  % decrease / yr / ha

•  % coverage / yr / ha; % cloud formation

•  mm layer / yr / ha; % micro-organisms; % Carbon / ha

•  % humidity; # stream flow (m3 / yr / ha)

SOURCE: Nature Resilience: ecological restoration by partners in business for next generations. RSM, IUCN CEM (2012); McKinsey team analyses (2012), Commonland Foundation (2014)

Four Returns Values per hectare (IV)

Return of Financial Capital

Different Entities Values measured

•  Agriculture, Carbon, Timber

•  Leisure, hunting, bush harvesting

•  Real estate & other incomes

•  Water

•  Decrease erosion

•  Increase topsoil

•  Communication, marketing, subsidies

•  Yield / yr / ha

•  Yield / yr / ha

•  Value / yr / ha

•  Production m3 / yr

•  Decrease costs versus loss

•  Increase versus costs chemicals / ha / yr

•  # clients, value per activity

SOURCE: Nature Resilience: ecological restoration by partners in business for next generations. RSM, IUCN CEM (2012); McKinsey team analyses (2012), Commonland Foundation (2014)

In every project, we define three landscaping zones

NATURE

(biodiversity)

ECO AGRO MIX

(agro forestry, water, soil)

ECONOMIC

(agriculture, real estate)

Restored biodiversity, soil for ecosystem services, carbon,

forest products, leisure and

hunting

Partially restored biodiversity, soil by agroforestry, fruit trees,

water, leisure and carbon

Productive zones for agriculture, dedicated zones for

housing and infrastructure

SOURCE: Nature Resilience: ecological restoration by partners in business for next generations. RSM, IUCN CEM (2012); McKinsey team analyses (2012), Commonland Foundation (2014)

Per project, the distribution per zone varies (Spain)

Nature

Economic

SOURCE: Farmland, near forest reserve, Soria, Spain. Photo: W Ferwerda. (2014)

Per project, the distribution per zone varies (S Africa)

Nature

Eco Agro Mix

Economic

SOURCE: Living Lands, Baviaanskloof, South Africa. Photo: W. Ferwerda (2014)

Per project, the distribution per zone varies (China)

Nature

Eco Agro Mix

Economic

SOURCE: Loess Plateau (China): Gao Xing Zhuang Village regreened (2009). Photo: Kosima Liu

Per project, the distribution per zone varies (Argentina)

Nature

Eco Agro Mix

Economic

SOURCE: Laguna Blanca, restoration project Tompkins Conservation, Argentina. (2012). Photo: Astrid Vargas

Business model for Ecosystem Restoration

Optimizations of Four Returns: generated from 3 zones: ecological, eco agro mix and economic zones

10 15 20

Years

Restoration investment (Grants, Loans,

Equity)

Return

5

First returns go to local stakeholders is key to success

Indicators for investment: -  Political stability -  High percentage of degradation (low value) -  Low percentage of land tenure issues

Within 20 years ecosystem functions are sufficiently restored to recover ecosystems services and provide multi economic benefits for investors and local people.

SOURCE: Nature Resilience: ecological restoration by partners in business for next generations. RSM, IUCN CEM (2012); McKinsey team analyses (2012), Commonland Foundation (2014)

Contents

What: introduction

Why: obstacles and opportunities of the private sector to participate

How: four returns; integrating purpose in a business model

Execute: from ‘restoration ready’ to ‘investment ready’ (ERF)

-  Tools exists -  Select existing projects -  Project Development -  Investment -  Connect to expert network -  Next steps

Alluvial fan, Baviaanskloof (South Africa)

SOURCE: Baviaanskloof – South Africa. Photo: Living Lands

Alluvial fan, Baviaanskloof (South Africa) after 4 yrs

C 

CO‐INITIATING 

crea.ng common intent 

C0‐SE 

SOURCE: Baviaanskloof – South Africa. Photo: Living Lands

Waterboxx – Life Land Box Permaculture

Waterworks Holistic Livestock Management

Dune stabilization Reclamation of mining sites

Many proven technologies exist

SOURCE: Nature Resilience: ecological restoration by partners in business for next generations. RSM, IUCN CEM (2012), Desire WUR, GPFLR (FAO, WRI, IUCN, WUR), Wetlands International, Savory Institute, RWE AG.

SOURCE: El Salvador – La Cinquera. Photo: W. Ferwerda.

This tree grew 130 cm in 6 months …

!

•  Waterboxx

•  Ecuador

•  Gmelina tree

… and 350 cm in 10 months

SOURCE: Aquapro - Ecuador

Identify and select promising

landscapes

Design Identify &

select Feasibility Implement

Scale up / replicate

Maintain

Design a four returns landscape with local

stakeholders

Technical and commercial

feasibility + testing

Commercial development

Scaling up / replicate

Day to day management

Select projects from “restoration ready” to “investment ready”

Selection stage: key challenges

Design Identify &

select Feasibility Implement

Scale up / replicate

Maintain

•  How to find the right projects

•  How to determine if a landscape initiative is promising

•  How to secure that people want to work with us

Finding the projects

Entry points:

•  Existing restoration projects; Integrated landscape projects; Eco-agriculture initiatives;

Rural development projects

•  Sponsors (companies / government)

•  Government

Search:

•  Ad-hoc, based on existing network of CL partners (2013)

•  Tapping new networks

(2014)

Next:

•  Structured search for initiatives, organizations and landscapes based on

NGO / public databases (2014)

Design Identify &

select Feasibility Implement

Scale up / replicate

Maintain

Quickscan: does a landscape qualify?

Can we maximize the 4 Returns? Financial, Social, Natural, Inspirational; Scale

1

Are external factors favorable? Political, Economic, Social, Technical and Legal factors Are projects / landscapes

favorable? Promising existing initiatives. Availability and quality of ‘Landscape entrepreneurs’, Land use decision makers in favor of restoration; Land Tenure etc.

2

Support needs Ability to deliver

3

Design Identify &

select Feasibility Implement

Scale up / replicate

Maintain

4 4 

3 

3 

4 

4 2 

2 2 

2 

3 

3 

3 

4 

0 0,5 1 

1,5 2 

2,5 3 

3,5 4 

Exis.ng successful project 

Poli.cal Stability 

Restora.on awareness 

fit within policy 

Ins.tu.onal quality 

commitment 

Tax/financial incen.ves 

local entrepeneurship 

fund availability 

business network 

local developer availability 

local awareness 

land tenure 

Stakeholder involvement 

Soria, Spain 

4 

3 

3 

2 

3 

3 

3 

2 2 3 

2 

3 

4 3 

0 0,5 1 

1,5 2 

2,5 3 

3,5 4 

Exis.ng successful project 

Poli.cal Stability 

Restora.on awareness 

fit within policy 

Ins.tu.onal quality 

commitment 

Tax/financial incen.ves 

local entrepeneurship 

fund availability 

business network 

local developer availability 

local awareness 

land tenure 

Stakeholder involvement 

Baviaanskloof, South Africa 

Multicriteria assessment tool developed

Design Identify &

select Feasibility Implement

Scale up / replicate

Maintain

Design stage: key challenges

Design Identify &

select

•  All stakeholders should be on board

•  Very good landscape design with sustainable economic activities (4R/3Z)

•  Decision makers need to be convinced to implement the design (incentives?)

•  Financial: the project implementation costs need to be covered for a long period (willing buyers, developers, investors)

Feasibility Implement Scale up / replicate

Maintain

Theory U offers a set of principles and practices for collectively creating the future that wants to emerge (following the movements of co-initiating, co-sensing, co-inspiring, co-creating, and co-evolving).

•  People-centered: local people themselves actively participate throughout the project cycle and are based on land use and tenure

•  Systemic: acknowledge that people adopt many strategies to secure their livelihoods, and that many actors are involved

•  Dynamic: understand the dynamic nature of livelihoods and what influences them.

•  Build on strengths of people and opportunities rather than focusing on their problems and needs

•  Promote micro-macro links: examines the influence of policies and institutions on livelihood options and highlights the need for policies to be informed by insights from the local level and by the priorities of the poor

•  Encourage broad partnerships broad partnerships drawing on both the public and private sectors

Stakeholder approach Making local people benefit and participate

SOURCE: Sustainable Livelihood Approach of the UN International Fund for Agricultural Development (IFAD) www.ifad.org Systemic approach based on the Theory U of Otto Scharmer, MIT, Harvard: www.presencing.com

Design Identify &

select Feasibility Implement

Scale up / replicate

Maintain

Long term commitment and awareness stakeholders Theory U

SOURCE: approach based on the Theory U of Otto Scharmer, MIT, Harvard: www.presencing.com

‐2.000.000 

‐1.500.000 

‐1.000.000 

‐500.000 

0 

500.000 

1.000.000 

1.500.000 

1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21 

NPV of different investment op2ons for average farmer 

Pasture sustainable 

Olives w/ drip irriga.on 

Ecotourism 

Game 

Carbon 

Wetland restora.on 

Restora.on non‐carbon 

land 

Most attractive investment opportunities seem to be game farming and ecotourism, but they have a payback time of 6-7 years

Highly preliminary – based on assumptions! Actual data needs to be gathered from farmers

Olives and sustainable cattle farming are slightly NPV positive and can generate a stable cash flow

Investing in restoration of degraded land is unlikely to be NPV positive and will need government subsidies; even if carbon

credits can be sold

Business case design (example)

Design

Identify & select

Feasibility Implement Scale up / replicate

Maintain

Feasilibility

•  People

•  Desk study

•  Field visit

•  Go / No go

Feasibility Identify &

select Implement

Scale up / replicate

Maintain Design

Location: Baviaanskloof Size: c200,000 ha Partners: Living Lands, companies in Port Elisabeth and authorities

Location: Madrid, Castilla-Leon, Andalucía Size: 3 areas to be identified: c10,000 ha In total 10m ha is degraded Partners: NGOs, government, Dutch Embassy, farmers and landowners

South Africa

Location: Otjiwarongo Size: c65,000 ha -> 10,000,000 ha Partners: Cheetah Conservation Foundation, ministry and company

Namibia

Poland

Spain

Location: West Sumatra Size: c19,000 ha Partners: local NGO, communities and ministry

Indonesia

Location: Java Size: c19,000 ha mangrove restoration Partners: Wetlands Int., communities and ministry

Indonesia

Location: Floreana (Galapagos) Size: 17,300 ha Partners: Charles Darwin Foundation and ministries, companies

Ecuador

Location: Tamil Nadu, Gundar river basin Size: 20,000 ha Partners: Dhan Foundation, Hivos and companies, local authority

India

Location: Wahab Size: 5,000 ha Partners: Sekem Company, Heliopolus University and local authority

Egypt

Location: Southern Poland Size: c5,000 ha, old mining pits Partners: RWE Poland, landowner, university.

Location: Bergrivier Size: tbd Partners: local NGO, communities and ministry, Dutch Embassy

South Africa

Creating a pipeline of projects

SOURCE: Commonland Foundation (2013)

Foundation

International endorsement and monitoring

Projects four returns

Commonland Foundation Selecting projects based on Four Returns

SOURCE: Commonland Foundation (2013)

Communication and training

Enterprise

Ecosystem Return Enterprise Business Development

SOURCE: Commonland Foundation (2013)

Foundation

International endorsement and monitoring

Projects four returns

Business development

Communication and training

Project execution

Asset management

Investment Fund Ecosystem Restoration

Companies

Commonland Investment Fund Funding restoration companies

SOURCE: Commonland Foundation (2013)

Enterprise Business development

Foundation

International endorsement and monitoring

Communication and training Projects four returns

Project execution

Asset management

ER Investment Fund Ecosystem Restoration

Companies

Four Returns: towards restoration companies Foundation – Business Developer - Investment Fund

SOURCE: Commonland Foundation (2013)

Business Developer Business development

Foundation

International endorsement and monitoring

Communication and training Projects four returns

International network

Private sector

NGOs and Universities

Governmental and multi-lateral organisations

•  APG Asset Management

•  McKinsey & Company

•  FMO

•  Baker & McKenzie

•  Triodos Bank

•  ASN Bank

•  Camunico

•  Groasis

•  Egon Zehnder

•  Eosta

•  Form International

•  Deltares

•  Land Life Company

•  IE Madrid (Spain)

•  Enviu

•  HIVOS (NL)

•  World Land Trust (UK)

•  IUCN Leaders for Nature

•  Wetlands International

•  ISRIC World Soil Information

•  Nyenrode Business School (NL)

•  Tropenbos International

•  Massey University (New Zealand)

•  Tompkins Conservation (US)

•  Wageningen University (NL)

•  Free University Amsterdam (NL)

•  Charles Darwin Foundation (Ecuador)

•  Global Footprint Network (US)

•  TEMA (Turkey)

•  Utrecht University

•  IUCN Spain, IUCN China, IUCN NL

•  Living Lands (South Africa)

•  EEMP (China)

•  Wildlife Trust of India

•  UN Convention to Combat Desertification (UNCCD)

•  UN Environmental Programme

(UNEP)

•  Global Partnership on Forest &

Landscape Restoration

•  IUCN Commission on Ecosystem Management

•  Economics of Land Degradation (ELD)

•  Bonn Challenge

•  Dutch Government (ministry Economic Affairs,

ministry Infrastructure & Environment)

•  Netherlands Institute for Ecology

(NIOO)

•  Government of El Salvador

(ministry of Environment and Natural Resources, MARN))

SOURCE: Commonland Foundation (2013)

Advisory Council

Serdar Sarıgül

Jane Madgwick CEO, Wetlands International

K.H. Moon CEO, New Paradigm Institute and Hansoll Textile, South Korea

Pavan Sukhdev Fellow at Yale University TEEB, UNEP Goodwill Ambassador, UK/US

Robert Reibestein Former CEO, McKinsey & Company - Europe

Geoff Lawton Director, Permaculture Research Institute, Australia

Sam Bruynzeel Forest & Hydrology Expert Professor, Free University Amsterdam

Pita Verweij Landuse Expert Professor, Copernicus Institute Utrecht University

Luc Gnacadja Former Secretary-General UN Convention to Combat Desertification

John Burton CEO, World Land Trust

Meiny Prins

Pauline van der Meer Mohr

Mike Jansen

Director TEMA, Turkey

Partner, Baker & McKenzie

President Erasmus University Rotterdam

CEO, Privagroup Ltd, The Netherlands

Zambyn Batjargal Former Minister Environment Mongolia

Jesus Casas Grande Former Director General National Parks and Director Rural Areas of Spain

Herman Rosa Chavéz Minister Environment and Natural Resources El Salvador

Herman Wijffels Former CEO Rabobank, former Director Board World Bank

Cai Mantang Associate Professor / Deputy Director, Beijing Development Institute, Bejing University

China: 1995

Tragedy of the Commons

SOURCE: Green Gold (VPRO Tegenlicht) John D. Liu – EEMP / Commonland Foundation. 30 April 2012

China: 2009

Promise of the Commons

SOURCE: Green Gold (VPRO Tegenlicht) John D. Liu – EEMP / Commonland Foundation. 30 April 2012

Our Mission

Our mission is to create an investable large-scale landscape restoration industry – aligned with international guidelines and

policies – in close cooperation with experts and existing initiatives.

Further Reading Millennium Ecosystem Assessment ((2008) - www.maweb.org

The Economics of Ecosystem and Biodiversity (2008) - www.teebweb.org

Dead Planet, Living Planet (2010) – www.unep.org

Nature Resilience: ecological restoration by partners in business for next generations (2012) - www.rsm.nl

Red List of Ecosystems (2013) - www.iucnredlistofecosystems.org

Corporate Ecosystem Valuation (2012) – www.wbcsd.org

Contact

“We are drowning in information, while starving for wisdom. The world henceforth will be run by synthesizers, people able to put together the right information at the right time, think critically about it, and make important choices wisely…”

E.O. Wilson, Harvard

Commonland Foundation A: Barbara Strozzilaan 101 | 1083 HN Amsterdam | Netherlands E: sofia.marrone@commonland.com T: +31 20 8116603 W: www.commonland.com