Environmental credits

Credit market considerations

Purchasing environmental outcomes is similar to any market, there are bargains, there are fair prices and there are high priced brand-based purchases. It is hard to compare projects across these investment categories because not all projects are defined by the same criteria. Some are low cost, but with a high risk of limited environmental outcomes, others are expensive, but with guaranteed outcomes. We think that there are two basic variables that define the quality of a potential NRM investment, governance and science. There is a third highly influencing factor which we term hot or not?

Governance

When we invest in the environment, who is making sure that the work gets done, is delivered to a high standard and that ongoing maintenance is carried out? Very few NRM investment programs have any form of third-party auditing to confirm what was done, let alone that the environmental outcomes were achieved.

Low governance doesn’t mean a project will have limited outcomes; it just means there is low certainty in knowing if any outcome has been achieved. Anecdotal evidence would suggest that by and large, Landcare programs produce excellent value for money because they are driven by volunteers who are focused on the outcome (not the income). Compare this with a commercial operator driven by income, who will guarantee tree survival from a revegetation process due to their ongoing paid staff funded by the project. There is a financial cost to this increased certainty of outcome. The basic principle is that more checks and balances will provide a higher certainty in the desired outcome, but at a financial cost.

Science

How good is the claimed science on which the investment is based? We may replant native forest to support an endangered species. However, the limiting factor for their survival may be the presence of feral cats, so our revegetation program becomes a cat feeder unless there is a feral animal management program. Like strong governance, to increase investor confidence in an environmental outcome requires good scientific evidence to underpin the investment. This will come at a financial cost. However, more checks and balances to ensure decision are based on science, will provide a higher certainty in the desired outcome.

Hot or not?

The focus of environmental investment varies through time, depending on what the current environmental crisis of highest public interest is. In the past it has been salination, soil erosion, vegetation loss, and threatened species preservation, and most recently carbon sequestration is hot. All these topics are worthwhile endeavours, but at any given time, the perceived value of environmental investment will be elevated for activities that focus on hot topics with high public interest.

Environmental investors

There is a continuum of value for money in environmental investment (depending on your perception of value), and there is equally a continuum of investors in environmental outcomes. Traditionally we would look to government investors, but increasingly philanthropic investors are motivated by high quality environmental outcomes. Corporate investors want both high-quality outcomes but demand a high degree of governance as delivered through credit schemes to create fungible assets that can be accounted and traded.