PHILOSOPHY AND VISION
What is the vision behind Coastal EcoVentures?
Property development plays a critical role in the fate of land – once developed, it is hard to go back. Development is particularly risky when sensitive ecosystems and communities are impacted. However, humanity needs development – we spend over 90% of our lives in buildings for shelter, work, and play. The vision of Coastal EcoVentures is to make development practices more environmentally and socially RESPONSIBLE.
Why focus on responsible tourism?
Responsible choices are especially important in developing countries, such as Mexico, where less strict government regulations and high growth rates have led to poor development decisions. In these emerging markets, growth in beautiful coastal areas with rich biodiversity is being largely driven by one form of development: TOURISM. Although large tourism projects can severely impact ecosystems and communities, the industry’s success increasingly depends on the preservation of the cultural and natural assets that attract visitors. This is the low-hanging fruit. Coastal EcoVentures will use this opportunity to promote responsible tourism in Mexico as a way to catalyze changes in property development practices.
How are we influential as an investment firm?
On a global level, land conservation is seriously under-funded, and poverty continues to afflict many communities. As investors in responsible tourism, we will be able to finance the conservation of important habitat by selectively choosing appropriate sites for development; and we will finance projects that benefit local communities with measures such as health, employment, and education. Our projects will have triple bottom lines (financial, environmental, and social) with metrics to monitor performance.
How do we measure success?
Coastal EcoVentures will ultimately measure its success by virtue of the financial, environmental, and social benefits that we support. Although we have financial targets, we will also judge our success by our contribution to sustainable development goals. We will monitor our positive environmental and social impacts with a few basic measures. In the environmental area, we will track the total land area under managed conservation by the projects we invest in, as well as the climate change benefits of renewable energy technologies. For community impacts, we will keep a tally of direct employment of local community members, as well as indirect economic effects, through support of local entrepreneurs. In so doing, we seek to lead by example, and change how investment choices are made in tourism and real estate.
MEASURING ENVIRONMENTAL AND SOCIAL IMPACTS
What quantifiable environmental problems are we solving by offering new investment opportunities in responsible tourism?
Conventional development has many impacts, which responsible development practices seek to address. The major impacts include:
Habitat Degradation - coastal areas rich in biodiversity and important habitat are being damaged by development. Forms of habitat impacted:
Terrestrial - including the buildings and supporting infrastructure such as roads, and waste.
Marine - water pollution from runoff (excess nutrients from sewage/fertilizer, or pathogens), and waste.
Any form of development has an impact on habitats; responsible forms seek to minimize these impacts, by protecting the sensitive habitats and developing in the most ecologically-appropriate locations. Also, by actively improving environmental conditions through restoration, education, or financing other groups.
Impacts on Local Communities - the local residents of an area benefit from an increase in economic activity but can also be impacted by various side-effects:
Close access to common resources - traditional places used for livelihood may be restricted, such as beaches and private property.
Non-local employment / price inflation - economic activity tends to increase prices but increased revenues may not be disbursed evenly in community, if locals are not being employed or fair wages not assigned. The result is decreased buying power and a poverty spiral.
Communities are complex and large so issues cannot be addressed by one specific development. However, a responsible project can have a catalytic effect for social norms, as it can also have for environmental impacts.
Wouldn’t it be best to just preserve these coastal areas?
Financing protected areas is an ideal solution if money is not a limitation. However, protected areas are severely underfunded worldwide because purchasing land, maintaining land, and managing it require vast resources from the public. That is why many conservation organizations now look to private sector involvement in the protection of lands; if their business interests can be aligned with conservation, then financing can come from private business operations, not from limited public resources. Developments such as Playa Viva can effectively create a reserve for 160 acres of sensitive habitat, and justify financing it; whereas even if the land were "given" to a trust fund it is not certain if they'd have the resources to manage the land.
Another issue is that non-profits and government agencies step in to protect areas when they recognize a "need"; that is, when the areas are under threat. By that time, land prices are high and development pressures from interest groups are difficult to counter. Developments that take conservation interests into account from the start are in a better position to increase the net quantity of lands under managed conservation.
How is responsible coastal zone development a solution?
We assume that tourism development in coastal regions of Latin America will continue in some form for the foreseeable future. Within this reality, our goal is to make tourism development as responsible as possible. Placing a moratorium on new development is not a credible alternative to continued development. Even if a local community were able to enforce such an approach, development would very likely spill over to neighboring areas, a phenomenon known as leakage.
ECOVALUATOR - TOURISM INVESTMENT SCORECARD
How do you plan to gather information for all 63 performance indicators in your EcoValuator methodology?
To initiate a potential investment relationship with Coastal EcoVentures, a developer must supply information related to a core set of 15-20 indicators that we deem particularly valid for the scale and geographical location of the development. The 15-20 indicators will provide a representative sample and an initial score with the EcoValuator, which will form the basis for filtering and selecting responsible projects for investment.
Once a project is approved as an investment, we will employ the full suite of performance indicators, while engaging with the project’s managers to ensure that they have the capacity to measure their performance regularly and accurately. We anticipate that projects will be able to measure and monitor all performance indicators within three years. This amount of time allows us to achieve our goals of measuring environmental and social impacts without placing excessive demands on fledgling tourism projects, whose managers are unlikely to have experience with such rigorous performance measurement.
How are social considerations verified and valued? Who is responsible for this part of the analysis?
Like other indicators in the EcoValuator methodology, the information about social indicators will come directly from the developers applying for funding; with Coastal EcoVentures performing a yearly audit as a site visit. Most of the indicators are objective, such as “dollars being invested in community education programs”. Other indicators are more subjective, such as Equitable Hiring, on a scale of 1-5, for example with points being gained depending on whether policies are enacted (1 point) and current employees receive a fair wage (2 points). The point is not to ensure that every single piece of data provided by developers is accurate; but as they say “what gets measured gets managed.” With random audits and support to build management capacity, the project will accomplish more and more ESG goals.
Will ventures be required to do ongoing monitoring to ensure that they meet expectations for positive environmental and community impacts?
We expect high demand for this type of financing, since traditional construction loans have become scarce in the economic downturn. Under these conditions, we believe that it is realistic for us to offer conditional loans. We believe a suitable role for us to play would be in providing technical assistance to offer solutions that both help deliver the financial bottom line as well as other environmental and social benefits. However, it is more likely that the developers we wish to invest in will already have a similar social and environmental ethic. If a developer has an issue with conditions we would expect, then they would not be a likely candidate for our funding anyway.
How do you audit information supplied by developers? What elements of ‘on-the-ground’ monitoring will be done by a CEV staff member?
An annual or bi-annual site visit would be a standard part of our investment protocol, to verify a project’s on-the-ground status. This is part of conventional financial valuation and due diligence, to be aware of dynamics in the management team, staff, changes in local circumstances, and other variables that might impact business feasibility. As part of the site visit, we would conduct a random audit of 5-15 indicators, about 20% of indicators being monitored by a development; the site visit team would evaluate accounting and paperwork as part of the auditing process.
INVESTING IN MEXICO
Why invest in Mexico?
Our Fund will focus initially on projects in Mexico, because of its a) robust domestic economy; b) government incentives for business growth; c) thriving tourism economy; and d) high environmental importance vis-à-vis other Latin American countries.
What challenges exist when investing in Mexico?
Investors are routinely rewarded with higher returns in exchange for taking on the relatively higher risk of investing in emerging markets. And by dealing with real estate, we are adding yet another level of risk. In general, we’ve accounted for all the factors of doing business in Mexico and developed a country-specific risk premium, based on bond yield spreads, and risk assessments that judge Mexico to be a moderately risky business environment, but with acceptable risks on par with Brazil and Panama. Also, analyses of credit risks, based on export transactions and direct investments, indicates favorable conditions for direct investment in Mexico. We’ll use these analyses to temper our conventional valuation methods, namely through higher discounting.
We’ll also take advantage of the World Bank’s investment guarantee program (called MIGA) to protect against the risks of investing in emerging markets. This insures 95% of debt and 90% of equity investments.
How is tourism in Mexico affected by the current economic downturn?
Fortunately, our team has experience in Mexico. But the main reason we’ve chosen this market is for its attractiveness, especially during a recession. Mexico has a favorable regulatory and business environment, along with plentiful natural and cultural resources.
Close to US: Mexico is close to the US, a 3-4 hour flight from most major US gateways, and is therefore attractive at a time when many consumers are cutting back. Anecdotally, Mexico has benefited from people who no longer want to travel farther afield; Mexico is closer than South America, Asia, and Europe.
Ease of doing business: In our conversations with Latin American developers, it’s clear starting a business in a developing country is a lot harder than it would be in the US. That said, Mexico has many of the institutions and the political environment needed: things like registering property and enforcing contracts. It’s not perfect—we’ve heard some horror stories—but the IFC (part of the World Bank) ranks Mexico as the most attractive in Central America for doing business.
Conservation potential: Finally, we’re interested in making a positive impact on biodiversity and on economic development. Mexico has great natural resources: intact primary forests, coastlines, and spectacular flora and fauna. The World Bank (actually, GEF) ranks countries on such things—the potential for doing good based on these remaining environmental assets—and Mexico scores the best in Central America.
How will you handle the potential for corruption? What if the government is unable or unwilling to enforce environmental regulations?
Lax governmental regulations and corruption is one of the reasons that coastal development is leading to substantial environmental degradation in Mexico. The intent of responsible investment is to allocate money to projects that are going beyond legal compliance in terms of environmental and social laws. Inefficiency and corruption will certainly continue, but our investments will support well-planned projects that have a higher bar.
These same government inefficiencies and corruption can pose a significant obstacle to development – and sometimes a greater challenge for responsible projects. For example there are many cases where responsible developers apply for permits but later realize the bureaucratic problems are so great they should have gone around the permitting process.
The key is to develop sound relationships with various government agencies and officials in order to ensure that the development process is not compromised, and to successfully promote environmental goals. We aim to do this with our Huatulco-based Business Development manager Kristian Beadle, who will use his network with Rotary Clubs in the area as an entry point to building relationships with the government.
COASTAL ECOVENTURES TEAM
Why will we succeed?
Coastal EcoVentures is moving forward and changing the status quo by steering investment capital toward more responsible tourism development. We are a group of earnest environmental managers and business professionals who have invested the time and energy to understand the problems with current development practices, and now we have a solution that is needed in the market. By developing opportunities for collaboration, we are connecting with the resources we will need through our partnerships with governments, NGOs, private sector developers, and finance institutions. We are in the process of carefully assembling an Advisory Board and Investment Committee that will ensure our team succeeds.
The EcoValuator, our proprietary assessment methodology, is a superior method for measuring the environmental and social impacts of tourism development projects. Most finance institutions lack an environmental and social analysis tool with the EcoValuator’s level of analytical rigor. The methodology generates a coherent snapshot of the environmental and social factors that are material to responsible investment decisions. Our methodology is made stronger by our relentless focus on a narrowly defined niche of projects: small- and medium-sized tourism projects in Mexico with predicted expansion throughout Central America.
