Chris Stone is the grant director for the Global Conservation Fund (GCF). He oversees the grant portfolio, working directly with GCF partners to ensure that performance targets are being met and funds are strategically allocated. Julie Shaw talks with him about the fund’s unique focus on securing financing to cover the management costs of protected areas in the long term.

Q: How does GCF go about helping its partners secure long-term financing for protected areas?

The model that GCF is premised on is this idea of setting up something permanent, something that will be there in perpetuity to provide the resources for these sites to implement their management plans.

That being said, these vehicles are expensive. Generally, we need a significant amount of capital to sufficiently fund a protected area. For instance, a $1 million fund is only going to generate on average $50,000 a year, which for most protected areas is not sufficient. So one of the challenges is to try to work with the grantees to come up with a holistic assessment of what the actual costs will be year in and year out of managing the protected area and implementing the management plan.

We work very closely with grantees to support this type of analysis, looking at what the recurrent costs will be, and looking at different scenarios as well. We consider what you would call an ideal scenario, where you’re basically able to fund the full suite of activities in your management plan; and then there’s the minimum bare bones type of scenario, where you’re able to continue to support the core staff and some of the core functions like surveillance and monitoring that are necessary to ensure that the integrity of the site is maintained.

We take that analysis and formulate a capitalization target for an endowment. Perhaps a protected-area manager estimates that a site can be effectively managed for $250,000 a year. Now we know we need in the range of a $5 million endowment. Once you have your target set, you’re able to roll that figure out to a broader audience, to potential donors to the fund, and be able to say this is rooted in some type of analysis.

Securing long-term funding depends on the capacity of the grantee and the project stakeholders to mobilize resources. Some obviously have higher capacity than others in terms of fundraising and their access to the donor community. In those cases, it’s often not necessary for GCF to become too directly involved in the fundraising aspects.

But in other cases, where we have grantees with lower capacity and not that kind of access, we do, as much as possible given our own limited resources, try to facilitate some fundraising and try to link them to potential donors. It’s not always possible, but we do make best efforts to do that.

We’ve come to the realization that in most cases it’s unlikely that an endowment is going to be able to fully support 100 percent of the annual costs of managing a site. We’re recognizing that there are other realized and potential revenue streams that may go into a protected area.

One of the things we’re doing is working with a lot of grantees to come up with a business-planning approach to protected-area financing. The idea being, if you try to take a more holistic look at your expected costs and potential revenue streams, then you maybe get a better sense as to what your real funding gaps are going to be. Potential revenue streams can be things such as site entry fees and/or tourism revenue that can be used each year to support management of the site; perhaps there’s a way to set up some type of payment-for-environmental-services agreement with communities or stakeholders near a protected area.

The latest wave of this type of thinking is carbon credits from avoided deforestation, which will be potentially marketable under the anticipated new U.N. climate agreement. We have several of our projects looking at the potential for receiving funds under an avoided deforestation carbon market framework.

Q: How are carbon offset markets coming into play for protected areas?

The majority of our projects are terrestrial and tropical forest projects, and it certainly appears that forest conservation is going to be creditable in any new regulatory carbon market established by an updated global U.N. climate change agreement.

In fact, a voluntary market for carbon credits already exists, and many forest conservation projects are aiming to sell avoided deforestation carbon credits on this market. As such, all of the offsets being sold and purchased today are on the voluntary market.

When a company buys carbon offsets on the voluntary market, it’s more of a symbolic gesture that a company is trying to offset its own carbon footprint – these credits cannot be bought and sold under a cap and trade system. But we do see this market as eventually evolving toward this type of regulatory scheme.

For tropical forest countries, that is a potentially significant financial incentive to practice forest conservation and sound forest management. Many of our grantees have been thinking about this regulatory market and trying to position their own avoided deforestation projects and protected areas in a future global cap and trade system.

At least 10 of the projects in the GCF portfolio have engaged the services of these consulting firms to come in and perform a baseline analysis on site-level carbon stocks and the feasibility of marketing carbon credits from avoided deforestation.

The consultants assess the condition of the site, make estimates of what the carbon stock of that site would be, and then, based on historical deforestation rates within and surrounding the site, they estimate the amount of carbon credit that would be generated by avoided deforestation and/or active restoration into the future.

Then, by estimating the price per ton of carbon dioxide under this new market scheme, they can predict the potential revenue stream coming back to the project if the project successfully markets and sells its carbon credits. Naturally there are still many uncertainties and a lot of unknowns in this emerging market. The consulting firms do their best to take into account these unknowns.

One of the big variables, I would say, is carbon rights and carbon ownership. A lot of our projects are actually on community-owned or indigenous-owned land and territory, so it needs to be determined whether these communities actually own the rights to the carbon and are able to market the carbon as independent entities.

The other thing to look at is how does a project fit within any sort of national framework for carbon markets. All of the countries that do participate in the U.N. climate change agreement will develop a national policy framework for how carbon offsets are marketed, and these projects will need to adhere to those policies.

There are a lot of unknowns, but it’s great to see a lot of our projects being proactive in recognizing the future potential of carbon offset revenues to support the current management costs of protected areas. We have much technical expertise within CI and we’ve been able to link up some of these projects to our technical experts on carbon markets and carbon financing. That’s something we’re often able to provide to our grantees.

Q: What are common challenges in securing long-term financing?

The real challenge is trying to mobilize sufficient resources to go toward the capital of an endowment or trust fund. The majority of donors, generally speaking, prefer not to make investments into endowments for a variety of reasons.

Also, many donors just have a preference to provide direct block grants, sinking funds over a discrete time period, to these projects, so that they can track and monitor the direct results of their funding. Many donors are under pressure to show direct and immediate impact of their investments, and this is generally accomplished by investing directly into field activities, as opposed to tying up capital in an endowment.

We’ve done our best to advocate the benefits of conservation trust funds and endowments. I don’t think there’s much question that these institutions have an important function in the world of conservation financing and protected-area financing. But it’s been an uphill battle for a lot of these projects to actually be able to draw donor interest, and these trust funds are naturally expensive. You need a lot of capital, because you’re only using the interest revenue that is generated by the capital.

It’s particularly challenging in cases where we have to create a new long-term financing structure. Often we can use an existing structure. For instance, in Latin America, there are a lot of existing national environmental funds, many of which are willing to open up a dedicated account to support a specific protected area or set of protected areas.

So in many cases, when GCF is working on a site in, say, Ecuador, the first option for us would likely be to go to the national environmental fund there and ask if they would be interested in opening up an account to support a specific protected area. And often it’s in their interest to do so because they are designed to administer funds, and it’s often in their mission and their mandate to serve as a holding facility for different funding streams.

For us, it certainly decreases the amount of transactional work that needs to take place; it cuts down on the time required for our staff and the money that’s involved.

For new structures, the financial and legal instruments that need to be set up are often very time- and labor-consuming. I think people sometimes don’t realize it’s not simply a matter of putting money in a bank account and letting it generate interest. You have to put in all of the governance structures. You have to decide things about where you want to invest those funds and who gets custody of the funds.

Often the political and investment climate in a lot of the countries where we work would just be too risky for most donors, including ourselves, and as such, you need to set up an offshore vehicle. And where do you set up that vehicle? It all depends on the political and financial circumstances that we’re dealing with in each project. A lot of times these transactions can have complex structures and their set-up is time-consuming and costly.

The task of creating protected areas and ensuring that they are effectively managed and sustainably financed over the long term is a major undertaking, and we’ve learned that it involves a significant amount of time and resources. However, I believe GCF is now positioned better than ever to work with our partners and build the institutional capacity needed to ensure that these protected areas have the best chances for long-term conservation success.