Advisory firm Finance Earth is launching the first nature-based solutions blended finance fund in the UK, a venture it co-designed with investment manager Federated Hermes and with proposed seed funding from the UK’s environment agency.
The parties have so far received “huge interest” from institutions, many of which are just starting to get to grips with natural capital, and is in the late stage of due diligence with quite a few, said Richard Fitton, director at Finance Earth, at the First Annual Conference on Nature-based Solutions using Carbon and Biodiversity Credit Funding, hosted at the UK’s University of Lincoln, on Friday.
The fund aims to close by year end and to achieve investment returns at commercial levels. It will have a 15-year lifetime, with five years to deploy the capital and a further 10 years to hold the investments.
Some £30 million of seed funding is proposed to come from the UK government’s Department for Environment Food and Rural Affairs (Defra) via its Big Nature Impact Fund (BNIF), with private finance to come from institutional investors, Fitton told Carbon Pulse.
The BNIF will sit within a wider UK nature fund, he explained. Financing for investments in England will be channelled through the BNIF, while the wider umbrella fund will invest directly into opportunities in Scotland, Wales, or Northern Ireland.
BNIF capital is ringfenced for projects in England under the UK Woodland Code, UK Peatland Code, and Biodiversity Net Gain (BNG) crediting mechanisms, in addition to green enterprise or private equity.
“About three-quarters of the wider fund will go into real assets, while the remaining quarter will go to impact private equity – growth capital to go into businesses that operate across the supply chain for nature restoration, both green and blue (marine) investments,” said Fitton.
BLUE FUNDING
Investments into projects and businesses in the marine space will be led as part of a two-year strategy developed with green group WWF. That was originally called the Blue Impact Fund but was absorbed into the UK nature fund following feedback from investors for a more diversified strategy, said Fitton.
The capital aims to help plug the gap in the huge funding required for sustainable aquaculture businesses, such as humane fish harvesting, oyster, and mussel farms. Many businesses in the space may not be profit-making and are in need of growth capital, said Fitton.
The venture is partnering with environmental NGOs as key delivery parties for the fund and has created a scientific impact advisory committee for an extra layer of governance, which advises the investment committee on proposed investments to ensure that projects are of high integrity and done in partnership with local communities.
Finance Earth aims to expand its fund strategy in future, to potentially include regenerative agriculture and to replicate the strategy internationally.
By Bryony Collins – bryony@carbon-pulse.com
*** Click here to sign up to our weekly biodiversity newsletter ***
