The Nature Conservancy has spent the last 64 years conserving the lands and waters on which all life depends. Working in all 50 states and more than 35 countries, the Conservancy seeks solutions that balance human well-being and natural resource preservation. This need for balance is acutely felt in the northern rangelands of Kenya, where the pastoralist Samburu and Masai tribes herd their cattle alongside dwindling herds of elephants, rhinos and lions.
The grasslands of Kenya are important to the survival of both humans and wildlife. Unfortunately, the increasing populations of pastoralist tribes and their cattle threaten the area’s natural equilibrium. Overgrazing by cattle, sheep and goats in addition to climate change has resulted in desertification, the reduction of land available as wildlife habitat, and poaching due to decreased incomes.
To enable pastoralists and wildlife to flourish together, The Nature Conservancy has been working with the Northern Rangelands Trust (NRT) for over a decade to engage with local community conservancies to counteract the degradation of these important grasslands. By demonstrating how sustainable grazing practices can improve grassland health and carrying capacity for both cattle and wildlife, and by encouraging herders to adopt rotational grazing, grass banking and other practices, NRT has made conservation relevant to tribesmen who count their wealth by heads of cattle owned.
Historically, this work was supported through grants to NRT from individuals and institutions. These gifts supported educational campaigns that showed the benefits of sustainable grazing and enabled its adoption. Through this work, NRT noticed a market failure: the pastoralists had no access to markets to sell their cattle. This led to reduced incomes, as herders would trek their cattle for up to four days in order to sell them to a middleman, who would offer low prices for the animals – which had lost substantial weight during the trek. It also meant that herders overstocked their herds, never knowing when they would have access to a market.
Opportunity for Heightened Impact
NRT realized an opportunity to create a local market for cattle purchases and, in 2009, launched its Livestock to Markets (LTM) program. In conservancies where herders use sustainable grazing practices and achieve specific conservation targets, LTM brings access to markets. Herders who once were forced to trek their animals for many days in order to sell just one or two cows to a middleman can now sell their animals for a fair market price on scheduled market days within their own communities, when LTM buys several hundred animals from many dozens of households. The cattle are then fattened for an additional 15 months, which improves the grade of beef and allows the program to obtain higher prices in the Nairobi meat market.
As a result of the LTM program, hundreds of thousands of acres of grasslands are better able to support not only cattle but also the elephants, rhinos, zebras and other species that call them home. At the same time, the LTM program has created tremendous social benefits for the local communities. Pastoralists’ incomes have improved substantially thanks to higher prices on cattle. And each animal sold through the LTM program carries a levy that goes back to the community conservancy to fund investments in wildlife guards to prevent poaching, in eco-tourism lodges, and in community facilities like clinics and schools.
NRT initially launched the LTM program with a $1 million grant. Over seven years, this capital enabled the purchase of 7,000 cattle, provided almost $1.5 million of income to pastoralist families and funneled more than $80,000 in revenue to the community conservancies. However, similar to many social enterprises, the LTM program’s growth was limited by a lack of available philanthropic capital. This also limited its conservation and social outcomes.
Creative Financing to the Rescue
In 2014 The Nature Conservancy launched NatureVest, a program focused on developing the market for impact investing in conservation. NatureVest’s deal team works with TNC colleagues and other partners to source and structure investment opportunities for impact investors to support conservation outcomes while earning a financial return. NatureVest and TNC-Africa saw in LTM the potential for a high-impact conservation investment. Working with an individual impact investor, NatureVest structured a tiered $7 million investment to grow Livestock to Markets into a sustainable social enterprise. To facilitate this, NRT created a new for-profit subsidiary, NRT-Trading (NRT-T).
The $7 million investment is structured as a combination of debt and equity, and is sourced from a single investor, the Peter Hawkins Dobberpuhl Foundation. The Foundation made a $3.5 million program-related investment (PRI) loan to TNC, which has been on-lent to NRT-T. Due to the nascent stage of the company, the loan earns 0% over 7 years. The proceeds of the loan are being used for working capital to scale up the livestock purchases, growing from 1,000 cows per year to 10,000 cows per year. Instead of reaching just five conservancies managing 760,000 acres, the debt-funded program will reach 19 conservancies managing 1.2 million acres of grasslands.
A follow-on $3.5 million equity investment from TNC-Africa will support capital expenses such as a new abattoir, trucks and fencing to further support the LTM expansion. The equity is financed by a gift to TNC-Africa from the Dobberpuhl Foundation, which sought to create capacity for TNC to provide market discipline to NRT-T. This structure has allowed us to work with NRT-T to set an enterprise valuation, facilitating NRT-T’s efforts to raise additional equity for new enterprises. And if we choose to exit at the end of our 10-year term, we can recycle the capital to support future work in Africa. In addition to capital, the Conservancy has also provided technical assistance and relationships to NRT-T, introducing the organization to potential investors in Kenya and the US.
Through this investment, The Nature Conservancy and its NatureVest program learned three important things:
- Optimize for risk, return, and impact. The Dobberpuhl Foundation explicitly structured a $7 million commitment to the LTM program as half loan, half gift to TNC to invest as equity, with the intent that TNC receive a return on the equity portion of its investment to reinvest in other projects. While the program has a proven track record of over half a decade, a brand-new social enterprise is a risky business. A 0% loan for working capital will allow the program to grow and manage execution risk without also needing to manage debt service. The equity investment will minimize the debt burden and provide the capital needed for expansion – all while allowing TNC to use its returns to increase its impact.
- Capital alone isn’t the answer. Ensuring that high-impact investments in developing countries are successful over the long term requires tremendous resources, the cost of which is rarely supported through that first deal. TNC-Africa provided business guidance as well as a volunteer interim CEO for NRT-T in its critical first year. Further, by using its network, TNC Africa has been able to engage new potential investors for NRT-T.
- The solution must be holistic. Focusing on a conservation outcome alone would not have generated the intended outcomes. By creating a solution that spoke to the needs of the herders, the communities, and the wildlife, TNC was able to balance all interests, enabling greater adoption and ultimately, success.
In March 2014, the Livestock to Markets program bought 234 head of cattle from a single conservancy. Six months later, the program purchased more than 950 animals from 4 different conservancies, benefitting over 2,500 people. At the same time, over the past two years, elephant poaching in the NRT region is down 38%. By focusing on holistic investments that create social and conservation outcomes, the Conservancy has been able to ensure both humans and wildlife can thrive.
Taryn Goodman is a Director at NatureVest, the Nature Conservancy’s impact investing group focused on conservation finance, where she is responsible for structuring and managing external investment partnerships. She earned a Bachelor of Science degree from Cornell University and an MBA from Cornell University’s Johnson School of Management.
Charlotte Kaiser is the Deputy Managing Director for NatureVest’s deal team, where she leads devevlopment of pipeline of projects to support investment in conservation. A former community development banker, Charlotte holds a BA from Harvard University in Environmental Science & Public Policy, a Masters in Environmental Science from the Yale School of Forestry & Environmental Studies, and an MBA from the Yale School of Management.