You have to show the business case!
Have you ever heard that before?
More and more, funders demand to see the financial sustainability and revenue generating potential of their investments, even ones that are primarily about social or environmental outcomes.
And as I’m sure you know, there’s a global effort to engage the private sector in delivering the solutions we need for sustainable development.
In doing so, public, civic and philanthropic entities have to accept that although private individuals and companies may care about social and environmental issues, profit remains a vital consideration. So in order to attract not just non-profit, or ‘donor’ investments, we need to show that it makes business sense to invest in landscapes.
So what does the business case for landscape investing look like?
To get stakeholders involved, landscape initiatives should deliver not only social and environmental benefits, but also financial benefits.
After all, stakeholders who contribute to or are affected by a landscape initiative, ultimately want their livelihoods to improve. In order to get their buy-in, which can range from participation to active financial investment, they usually need to see the prospect of some kind of financial return.
A challenge of course is that in landscapes, we deal with multiple stakeholders, often with competing claims and differing priorities. Finding a one-size-fits-all business case is impossible. Specific business cases are needed for specific investors across the landscape. As a partner or facilitator of a landscape initiative, you have to assess the needs of your landscape, where your landscape is located in a supply chain, your landscape’s dependence on natural resources, and much more, if you want to be able to identify the business cases for landscape investments that will appeal to all these different potential investors.
While there isn’t a one-size-fits-all business case, there are some tried-and-true pathways for generating financial value or returns for investors, either earning, by generating revenue, or saving, by reducing or preventing costs. These pathways are relevant whether we’re talking about sustainable land use investments, which are investments in one land management unit, or integrated landscape investments, which are coordinated investments that benefit multiple land management units and landscape functions.
The four pathways for generating financial value are:
- increasing revenue within a currently operating market,
- accessing new markets,
- reducing business risk, and
- lowering business costs.
Let’s take a quick look at each of these types. Investments that increase revenue within a currently operating market can simply be investing in a switch to a more sustainable practice. For example, investing in an on-farm composting system to improve water retention and soil quality can help improve productivity and increase the farmer’s income. Same market, more revenue thanks to the investment.
We can continue this same example and illustrate the second pathway. Our farmer next invests in switching completely to organic production practices and only uses her own organic compost on her farm, to receive organic certification.
She can now sell as organic and access a market of consumers who are more discerning and prioritize sustainability. Her investment enables her to access a new market. To go completely organic, she has also begun producing beans alongside her maize crop as a green manure. By selling the beans, she’s now offering a secondary product, gaining access to the (new to her) market for beans.
While our farmer produces organically and strengthens her own soil, others in the landscape are not so conscious. And they’re not using the landscape’s water sustainably. Downstream, a water-bottling company is considering paying for watershed restoration activities, among other investments. They’re concerned that if they don’t, their source of production will be in jeopardy. Such an investment would be an example of reducing business risk. The financial value of the investment is protecting future revenue, which can directly translate into lower costs to borrow money or a higher valuation of the company’s stock today.
Finally, either one of these two potential investors could reach out and contact the other. Together, and preferably with other landscape stakeholders, they can coordinate their actions to address water issues in their landscape, thereby sharing responsibility. This is one example of reducing business costs.