The Economist had a few encouraging stories about a new way of financing the environmental restoration of forests and wetlands.
The Panama Canal will suffer from floods and silting because the hills upstream are being deforested. So a forestry insurance company is seeking to issue a 25-year bond to pay for the forest to be replanted. The Economist lists a number of other examples of “downstream long bonds”. For example, New York City uses similar financing to keep the Catskill feeder streams clean, to protect the City’s water supply.
Of course, the “downstream long bond” solution only works when there is an identifiable, deep-pocketed downstream buyer. When the “buyers” are spread out — like citizens harmed by polluted air — the government regulation is probably needed to assert the collective demand of those who value clean air.
When I read Natural Capitalism a few years ago, it struck me that the lack of financing was one of the major obstacles to sustainable business practices — and that there were interesting opportunities for new financial instruments.
Another good sign is the rise of VC investments in clean energy from $509 million in 2003 to $520 million in 2004 — though this is still small potatoes for the $20B US VC market.
The sheer presence of a market research firm doing segmentation and forecasting of industry revenues and VC investment is a good sign of an emerging market.