To protect nature, we need to build businesses that can protect and restore our most at-risk ecosystems
A message from our founder, Matt Legget, CEO of Terratai.
In common with many founders, the idea behind terratai was born both from a feeling of frustration, and a sense of opportunity. I had spent nearly 20 years working for non-profits to protect nature and biodiversity, but with every passing year it was getting harder and harder to ignore that what we were aiming for felt further and further from reach.
In early 2023 my frustrations coalesced into something more tangible, while flying over the forests of the Democratic Republic of Congo. Looking out of the jump-seat window on the mosaic of small farms, logging areas and mining operations linked with a web of dirt roads, I felt overwhelmed with the sense that I didn’t have good answers to the question of how the conservation strategies of NGOs alone could prevent the kinds of habitat and biodiversity loss I was watching unfold below me. Although my colleagues and I could point towards resounding and hard-won successes in particular sites and programmes, I couldn’t help but feel like we were losing the war.
But why? Each land or seascape held its own set of complex answers, but a common unifying thread was that the short-term financial incentives derived from actions that led to habitat loss pretty much always outcompeted the alternatives offered by conservation NGOs. In short, we were doing a terrible job at convincing communities of the long-term benefits of protecting and restoring nature. And worse, as most conservation initiatives were not even able to offer a convincing pathway towards those hazy potential future benefits, we were forcing communities to make an absurd choice - pursue short term economic security (the kind that can pay for school fees, housing costs, medical bills and the small luxuries that all families hope for, OR, forgo that option, and trust that the latest conservation initiative from a NGO might deliver….well, some intangible future benefit (oh, but only if continued grant funding allows).
None of this is particularly revelatory, but as I flew over swathes of still pristine rainforest in the Congo it occurred to me that perhaps more than ever before there might be a unique opportunity, if not an imperative, to attempt a different approach.
First of all, the latest science tells us with increasingly clarity where we should focus.
We know that it is impossible to address climate change without fixing our food systems (how we grow, harvest, process and consume our food). This is because our food systems are inextricably dependent on nature, but are also the largest driver of ecosystem and biodiversity loss, and a major source of greenhouse gas emissions.
In parallel, it is also increasingly clear that the majority of ecosystem loss begins with the most economically vulnerable in our food systems – the smallholder farmers and fishers at the very frontier of our most important ecosystems.
On land, at the scale of an individual family smallholding, these losses appear tiny, only fragments of hectares. But, at a landscape scale, and through the small window of my plane, the results were stark - hundreds of thousands of hectares of forests lost or degraded every year, none of it easily attributable to a specific company or beneficiary, yet all of it continuing to feed global food systems – a true death by a thousand cuts. We therefore have an economic imperative to address food systems, but also a need and a responsibility in the light of the latest data to prioritise providing communities at ecosystem frontiers with viable alternatives to the rinse-repeat cycle of short-term economic gain in exchange for ecosystem damage. It is unequivocally clear that this provides the best, lowest cost strategy for securing positive outcomes for nature, climate and biodiversity.
Secondly, over the last five years there has been a seismic shift in the availability and scale of finance available to support nature. The full scope of these changes deserve a more thorough introduction that I can’t hope to offer here, but in general terms, a combination of data transparency, remote sensing tools, and a blend of regulatory and reputational risk have increasingly forced commodity supply chain companies to examine their own consciences along with their supply chains, and have created a demand for actions designed to protect, sustainably manage, or restore ecosystems to address climate change and biodiversity loss – i.e. Nature Based Solutions (NBS) - and a rapidly deepening pool of capital seeking nature positive outcomes and financial returns. A vital development at a time when an additional USD$824bn per year is needed to safeguard nature and biodiversity, and a gap that cannot be met by public funding alone. At the forefront of this breaking wave of course is the demand for carbon credits, which for many has become (unfortunately) synonymous with NBS.
So far, this all sounds pretty positive – a clear imperative for action, and a pool of capital seeking positive impact on nature. However, my overwhelming realisation during that spectacular flight in DR Congo was that although many of the pieces were in place, I knew that there were a number of fundamental challenges that needed to be overcome in order for financing to flow, with few clear mechanisms in place to unlock the logjam.
First and foremost, there are precious few places to make serious investments into nature, particularly when looking beyond carbon projects. While some NGO projects become commercial enterprises, this is definitely the exception to the norm, and although business accelerators and incubators often exist, (programmes designed to provide technical support to small businesses to help them scale), few have any real expertise in designing strategies that create positive impact on nature, and support is primarily short term. Practically speaking, this means that the failure rate is extremely high for early-stage companies with business models that could benefit nature at scale, and significant numbers of smaller-scale investments and related incubation opportunities are being foregone.
Secondly, and no less important, most investors are looking to invest in relatively mature projects, and largely interested in deploying >US$3-4 million per project. However, beyond only a handful of large-scale carbon projects, most early-stage ventures, particularly those that can demonstrate credible outcomes for nature, are at the post-concept / seed stage and have much smaller initial financial and technical needs (c.US$0.5-1m) – often beyond the capacity of most philanthropic organisations, but below the radar of most investors. This fundamentally puts downward pressure on the pipeline, and disincentivises entrepreneurs from developing nature positive businesses. Similarly, typical venture capital return horizons (5-7 years) are far too short for developing and executing nature-based solutions, which address long-tail problems, and most institutional investors look for investment opportunities that can provide market rate returns (25% IRR), so many business ideas that can generate a modest financial return (5-15% IRR) remain overlooked and unfunded.
Collectively, these factors create an ever-expanding ‘lost landscape’ of opportunity.
Put simply, attitudes of impact focused investors have to evolve – for a nature-based economy to thrive, more investors must be willing to invest in the planting of the seed, not just in the harvesting of the fruit.
Or to put it another way, we’re not going to solve the challenges we face with the same financial tools, strategies, approaches and thinking that created them.
It was this realisation that ultimately led to the creation of terratai – we span this divide by providing the early-stage finance, tailor-made company building services and the deep environmental expertise needed to scale impactful and innovative businesses that halt and reverse nature and biodiversity loss.
Just a few days ago, I took another small plane flight, this time over the spectacular forests of the Gunung Leuser National Park in Sumatra, returning from our first field visit to one of our venture partners, one of more than 25 we’ve already met with in our first few months of operations. This time, looking down at the chaos of oil palm, coffee and smallholder farms under the wing and the fragility of the forest remaining, I felt energised rather than despondent. terratai’s strategy provides a credible pathway to build the next generation businesses that will ultimately underpin a future nature-based economy, and incentivises investors to finance this vital transition. I’ve been doing this too long to be lured into the trap of believing in silver bullets, but I’m incredibly excited to put the ideas and talent behind terratai to work in service of the environmental, social and economic challenges faced by rural communities across Asia, and to get back ‘down to earth’, to the land and seascapes where our impact matters most. To support us on our journey, connect with us on LinkedIn or follow us on Instagram.
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Overflight of Gunung Leuser National Park, Indonesia (Matt Leggett, 2023)[/caption]
