Mexico shows opportunities for impact investment in nature

By Massimiliano Riva, Kevin Jones, Mariana Bellot

UNDP’s Biodiversity Finance Initiative (BIOFIN) has partnered with the Social Venture Exchange Mexico (SVX) to explore opportunities for impact investing in nature-related projects and ventures in Mexico. The objective is to diversify the means for financing biodiversity beyond philanthropy and promote a new generation of sustainable businesses.

Industries include fisheries, agroforestry, permaculture, regenerative cattle ranching, circular economy and the blue economy. These exploration efforts could lead to regenerative capital opportunities, the most advanced layer of impact investing.

Only by expanding sustainable businesses can we preserve and sustainably use the Earth’s terrestrial species and ecosystems. Fifteen percent of the world’s land is currently under protection, but that does not cover all areas important for biodiversity. Nurturing a new generation of enterprises and investors will be critical for achieving Sustainable Development Goals 14 (Life below water) and 15 (Life on land).

The impact investment market is growing in double digits worldwide. In Mexico, it's estimated that US$392 million has been invested to date.

But the pipeline of bankable investment opportunities connected to sustainable management and conservation of natural assets is limited, despite the demand from private impact investors as this recent report, Capitalising Conservation, has found.

BIOFIN and SVX.MX are using a systemic approach that searches for underserved investment opportunities to optimize the potential outcomes of innovative biodiversity finance. Despite the limited pipeline, impact enterprises are already showing leadership, and today we profile Ejido Verde, a successful enterprise ready to reach scale.

Ejido Verde (meaning “green rural collective” in Spanish), is a Mexican regenerative forestry enterprise aiming to restore 24,000 acres of degraded lands with resin producing pine tree plantations. Ejido Verde believes it will create transformative wealth for the indigenous Purhépecha communities.

It’s estimated that the project will bring around US$49 million in income for just one community of 6,000, with more than 800 acres of pine over the 20 years of the project. Overall revenues are expected to exceed $1 billion across the project, all while reducing carbon emissions by an estimated 6 million tonnes and improving water, wildlife and generating market rate returns.

The company comes as the result of a partnership between the pine resin industry and indigenous and rural Mexican communities. It is an innovative form of social enterprise and community forestry that benefits the most marginalized rural families while improving the environment – in addition to providing a key raw material for an established industry.

It combines native tree reforestation, climate-change mitigation and heritage trade promotion. Indigenous communities and collective farms (ejidos) in Mexico own thousands of hectares of idle lands that can be reforested with native pine trees, which can be tapped in a sustainable way.

In 2009, Ejido Verde was established as a pilot project by the Mexican pine chemical industry to overcome the 60-year decline of raw materials resulting from deforestation despite increasing demand. It will create a unique industrial supply chain where the indigenous communities get 90 percent of the revenue from a renewable resource over 70 years. It will help with poverty reduction while also producing market rate profits to investors of an estimated 13 percent internal rate of return.

In the 3,000 hectares already under cultivation, people are seeing the return of coyote and deer and hearing more birds while the groundwater quality is improved.

To scale the operation, founding investors recruited a seasoned veteran of scaling social enterprises with indigenous communities to improve natural resource management. Ejido Verde is currently aiming to establish 12,000 hectares, which represents tripling Mexico’s resin exports while creating community wealth and greatly expanding reforestation.

Ejido Verde is an example of long-term progressive use of the market; yet unlike fair trade, it does not require extracting a premium and building a brand. Ejido Verde’s founding investors have been doing respectful business buying resin from these communities for 88 years. They realized that the only way to reliably ensure long-term supply is through a deep partnership with the communities.

BIOFIN and SVX Mexico will continue to explore and support this emerging market in Mexico. In 2017 a training on impact investment was organized for representatives of NGOs and others working on biodiversity and conservation projects. It showed that there is great demand to understand the market and match investor and impact enterprise expectations.

This workshop was the first step towards enabling and evolving capacities to build a biodiversity impact investment pipeline of potential projects in Mexico. Other countries in Latin America, such as Costa Rica and Columbia, already host impact enterprises in search of funding and can benefit and learn from these early experiences and market development. 

About the authors

Massimiliano Riva is a policy specialist working on innovative finance at UNDP. Follow him on Twitter: @massimilianoriv

Kevin Jones is co-founder and convener of SOCAP as well as co-founder of Good Capital. Follow him on Twitter: @Kevindoylejones

Mariana Bellot is coordinator of the BIOFIN Project with UNDP Mexico. Follow her on Twitter: @mabellot