Last month, MEAM covered impact investing – that is, investment in ventures or initiatives that have positive social or environmental results as well as financial returns – and its potential for helping ocean ecosystems and communities. In this issue of MEAM, we learn from two entrepreneurs, Kelly Wachowicz of Catch Invest and José Koechlin of Inkaterra, about specific ventures they believe can lead to healthier ocean ecosystems and communities as well as financial profits for investors.
- Kelly Wachowicz is co-founder and principal of Catch Invest, a firm which partners and invests with fishermen to build a just and sustainable food economy. She can be reached at email@example.com.
- José Koechlin is founder and CEO of Inkaterra, a pioneering ecotourism and sustainable development company that is committed to scientific research and conservation and shares biodiversity and culture with the world through authentic travel experiences. He can be reached at firstname.lastname@example.org.
Fishing for impact investments: Promoting sustainable fisheries with private capital
MEAM: Can you give us some examples of how impact investing has helped to promote sustainable fisheries and improve fisher profitability?
Wachowicz: Much has been made about the potential for private capital and impact investors to play a role in transitioning fisheries to sustainable management. Yet very few checks have been cut, especially with respect to small-scale fisheries. There are four key barriers to prospective private investment right now, namely: a) the risks of inadequate fisheries governance, b) the risk of insufficient participation from fishers, c) the complexity of transaction structuring required to generate real cash flow, and d) a lack of project sponsors with a demonstrable record of success. Several promising developments may offer a way forward, however.
Investing in rights-based fisheries: Cape Cod Fisheries Trust
One great example is the Cape Cod Fisheries Trust (CCFT) which launched an innovative investment strategy aimed at protecting fisheries with strong rights-based management measures already in place through the New England Fishery Management Council (NEFMC) catch share program. CCFT was formed as an investment partner of the Cape Cod Commercial Fishermen’s Alliance, a membership organization advocating for the interests of small-boat fishermen in Massachusetts.
In 2008, CCFT raised a combination of grant funds, low-interest loans, and equity to acquire US$4.7 million of newly allocated fishing quota in the New England scallop fishery. It then began to lease its quota to fishermen at a 50% discount to market rates in exchange for participation in its programs, including community meetings, improved fishing practices, small-business management training, data collection projects, and general support for the newly implemented catch share system in that fishery.
This strategy, known as a community permit banking, supports ongoing management improvements by generating US$400,000 in cash flow that can be reinvested directly into the fishery and by staking the community with an economic asset whose value is tied to the long term health and productivity of the resource. The 100+ fishermen in CCFT’s program have become supporters and advocates of good management because they are able to realize the economic benefits derived from good management. CCFT’s scallop quota investment delivers ongoing conservation impacts, stabilizes 40 Cape Cod fishing businesses, and generates an annual 11% cash yield, not including significant asset appreciation that has accrued alongside the increasing health and stability of the fishery. Its strategy reduces risks to investors by engaging in a fishery that has a strong governance already in place through the NEFMC, by enlisting fishermen as partners through its socially innovative membership organization, and by establishing a track record of performance that supports ongoing replication in other catch share fisheries.
Investing in overexploited fisheries: Bloomberg Philanthropies Vibrant Oceans Investment Blueprints
Ocean advocates are eager to identify impact investing strategies that can support more challenged fisheries in need of transition to sustainability, not just protection. The Bloomberg Philanthropies Vibrant Oceans Investment Blueprints point to strategies for using private capital to fund fisheries management improvements in fisheries suffering greater degrees of overexploitation.
For example, the Merluza Strategy profiled in the Vibrant Oceans analysis proposes a US$17.5 million investment to fund a combination of fisheries management improvements, onshore infrastructure and processing, and quota acquisition in partnership with twelve fishing communities comprised of some 1,800 hake fishers in Chile. If successful, the strategy is projected to improve stock biomass by over 175%, pay fishers a 50% premium for their catch, and deliver an additional 136 million meals-to-market annually by its tenth year of operation, all while achieving a 16% base case financial return.
For this strategy to succeed, its sponsors need to use the promise of the investment to catalyze government funding and regulatory commitments to increase monitoring and enforcement and to structure the transaction in a way that creates meaningful financial incentives for hake fishermen to reduce fishing effort and participate in the various aspects of its programs.
MEAM: What needs to be done to create more initiatives like these and bring them to fruition?
Wachowicz: The implementation of such complex strategies is extremely challenging, requiring intense multi-stakeholder collaboration, and ones like the Merluza Strategy have not yet been tested with private capital backing. Indeed, investors may find it difficult to support the high-risk hake strategy without the support of a newly emerging actor on the fisheries reform seascape, the professional fisheries project developer. Armed with technical expertise, commercial knowledge, and local partnerships, high quality project developers can work to stitch together sufficient commitments from the relevant fisheries stakeholders. These commitments can significantly reduce the project execution risk for impact investors willing to more directly fund the cost of sustainable fisheries transitions.
Analogs for the project developer role exist in other real asset investing sectors such as real estate and infrastructure investing. In the fisheries space, a range of emerging and existing organizations might be well-suited to play the role of project developer, such as the highly qualified MRAG organization, the newly formed and ambitious Ocean Outcomes group, the globally active Blueyou Consulting, and others. These players can be good partners to NGOs and other fisheries advocates in ensuring comprehensive management improvements are designed and accurately budgeted for, and in making the necessary commercial linkages required to generate cash flow and financial returns.
MEAM: Is there anything else ocean advocates should be doing to increase the flow of private investment to support sustainable fisheries and fisheries communities?
Wachowicz: There is no special financial product needed to finance these opportunities – basic equity and debt will do just fine. Fisheries advocates should not focus too much on the money side of the equation. If you build it, the money will come. The challenge is to create attractive investment opportunities with fishermen as partners that deliver impact and financial results with enough risk mitigation to convince investors to open their checkbooks. To do so, reformers should work with project developers to reduce project risks, create transaction structures that enable capital to flow, and match projects with the right investors.
It also may be worth noting that not all fishery reform projects are likely to attract private investor interest. In fisheries where the cost of transition far exceeds even the long term cumulative commercial value of the catch or other economic activity related to recovery, or in fisheries where community subsistence is the primary goal for reformers, philanthropic or community resources are better suited as sources of funds. But research suggests that many fisheries can deliver positive financial return on investment (ROI) with improved management. The 2015 Ocean Prosperity Roadmap suggests that improved management can increase aggregate fishery profits by 168% – 315%. This should serve as a powerful signal to fishery stakeholders and impact investors alike to put private capital to good work.
“Conservation shouldn’t take money – it should make money”
MEAM: Can you tell us about the work Inkaterra is doing in Cabo Blanco (Peru)?
Koechlin: Since 2012, Inkaterra Association (ITA), Inkaterra’s NGO, has been working with the Cabo Blanco community and the Peruvian Ministry of the Environment on the creation of a marine reserve – the first marine reserve in Peru – and the potential application of zoning to restore and conserve the sea of Cabo Blanco. Seventy (70) percent of Peru’s fish diversity is found in the sea of Cabo Blanco, but sea life there currently suffers due to overexploitation. At the same time, ITA is working to develop a series of integrally-managed activities that would benefit local communities. One of these activities would be traditional sport fishing. In contrast with commercial fishing, sport fishing does not seek the massive capture of fish, rather, it involves finding the best specimens with regard to dimensions and weight.
The sea of Cabo Blanco boasts tremendous sportfish diversity – including black marlin, swordfish, and numerous tuna and sharks – due to the confluence of the cold Humboldt Current, warm El Niño waters, and the Cromwell undertow. During the 1950s and 1960s, Cabo Blanco was considered one of the most important sport fishing spots in the world. Cabo Blanco still holds two game fishing world records. In 1953, the all-tackle world record – a 1560 lb. black marlin, filmed by Warner Bros. for the movie The Old Man and the Sea – was landed by Alfred Glassell Jr. Four years later, the largest tuna ever caught, a 435 lb. bigeye tuna, was caught there. Numerous celebrities visited Cabo Blanco during the 1950s and 1960s, including Nobel Prize laureate Ernest Hemingway who went in search of marlin on board Alfred Glassell’s iconic fishing boat, ‘Miss Texas’. This watercraft has now been restored by ITA as a symbol for the recovery of the sea.
MEAM: What sort of environmental and community benefits will this work have?
Koechlin: With this project, ITA aims for the integrated and sustainable management of marine resources – including fishing and hydrocarbon extraction – and the restoration of the marine richness of the sea of Cabo Blanco. And with the recovery of the sea of Cabo Blanco, fish specimens of record-setting size and weight would be restored to the area and lead to the recovery of traditional sports fishing and Cabo Blanco’s international reputation. In addition to these industries, the marine reserve aims to develop other activities – sustainable fishing based on artisanal methods, ecotourism, and environmental education –to generate added value.
These activities offer economic alternatives for local communities. Local communities are already receiving training for careers in hospitality and eco-friendly activities such as marine life observation (especially humpback whales, green turtles, and pelagic birds), surfing, sport fishing, and artisanal fishing. ITA is also creating tourism infrastructure, such as bringing back running water service – lost during the 1983 El Niño phenomenon – which has a positive social impact. The construction of a new dock is currently in progress.
In addition, ITA is performing scientific research including reports on weather, sea conditions, and fish counts (dock reports to determine the volume of fishing and species caught daily) to assess the current situation of the Cabo Blanco ecosystem after decades of overexploitation of marine resources. This information is valuable for working with local populations on sustainable fishing initiatives including educating fishermen on proper techniques, commercial species, and substitute species during closed seasons.
MEAM: Do you have any suggestions for ocean advocates and entrepreneurs looking to do this same sort of work in other places?
Koechlin: The United Nations has declared 2017 the International Year of Sustainable Tourism for Development. Ecotourism can produce better results for communities than many extractive industries because it depends on conserving biodiversity and sustainable use of natural resources.
One of the reasons Inkaterra has been successful in its ecotourism work, such as in the Peruvian Andes and Amazon, is that it has gained public support at different levels. In Cabo Blanco, it first built rapport with the artisanal fishermen by organizing workshops on sustainable fishing techniques and fish management. ITA is also working on ‘Sea to Table’ traceability certification to guarantee good fishing practices and product quality, which will create added value for local fishermen. In addition, ancestral fishing techniques are being recovered to bring some of Cabo Blanco’s cultural values back to life.
Inkaterra has also established public-private alliances – with the Latin American Development Bank (CAF), Peru’s Ministry of Environment, the National Fund of Fishing Development (FONDEPES), El Alto Town Hall, the Association of Artisanal Fishermen, etc. – to support the sustainable use of natural resources with local, regional and national policies and systems. And the national and international media attention that Inkaterra has brought to the Cabo Blanco project has helped build support from the (Peruvian) government, the private sector, and the global sports fishing community.