Green private-public finance models aim to protect forest landscapes

Julie Mollins
24 January 2018

BONN, Germany (Landscape News) – Tropical forests are disappearing at a rate of 7 million hectares a year, largely due to agricultural activities, making sustainable landscape management practices critically important.

Forests and agriculture combined hold more than 30 percent of the solution to the climate crisis, but currently receive less than 3 percent of climate finance, according to UN Environment, the U.N.’s environment program.

Financial investment in agriculture typically results in further expansion into forests rather than leading to sustainable intensification of land already under agricultural production.

Persuading policymakers and investors in the public and private sector to develop financial incentives that encourage sustainable management of landscapes could hasten international efforts to meet U.N. climate and environmental development targets, said delegates speaking at a session on “How to Scale Up Climate Finance for Sustainable Land Use” at the Global Landscapes Forum in Bonn, Germany.

Grants and loans can benefit smallholder farmers by giving them the opportunity to learn about land management practices that will increase crop yields, improve livestock and preserve forests by preventing degradation.

Designing effective low-risk investment models, credit and insurance facilities is complex. Risks are often high – or perceived to be high – for investors and donors.

GOING GREEN

A strong grassroots movement, brave political leadership, innovative leadership and job creating forces from the business sector are key to forging change and preventing landscape degradation, said Erik Solheim, head of UN Environment, at the Global Landscapes Forum (GLF) in Bonn, Germany.

“Historically, environmentalists were very skeptical of the private sector,” he said, acknowledging that certain business practices can damage the environment. “I’d rather focus on businesses that want to transform society, that want to be part of the change, that lead us on to change and that see a business opportunity to create jobs in the new sectors,” he added.

A new $10 billion agreement between UN Environment and BNP Paribas, France’s biggest bank, aims to support smallholder farmer projects related to renewable energy access, agroforestry, water access and responsible agriculture in the developing world, Solheim said. It funds the Tropical Landscapes Financing Facility (TLFF) partnership in Indonesia, a collaboration with the World Agroforestry Centre (ICRAF) and hedge fund manager ADM Capital.

“Families will be fed better and get more income,” Solheim said. “This is a win for the government, a win for the farmer and a win for the environment.”

RISK FACTORS

Satya Tripathi, executive secretary at TLFF, said the biggest challenge is finding the dealmakers — partners who are willing to take on the risk models.

“Funding is available,” Tripathi said. “It’s finding the right model so that the money can be deployed.”

The main hurdle is bringing private investment into sustainable land use, said Jane Feehan, senior investment officer at the European Investment Bank (EIB).

The rationale for investing in the productive resource base of the planet must be built and made one investment at a time, Feehan said.

Owned by European Union member states, EIB lends about 4 billion euros ($4.9 billion) a year to agriculture, agro-food and agroforestry projects.

The Andgreen.Fund protects tropical forests and peatlands while supporting companies through private investment and by involving stakeholders around a specified region under agricultural production. The fund only invests in areas that have a target to stop deforestation.

To encourage private sector investment, ways to reduce reputational risk must be found, said Nanno Kleiterp, board chair at Andgreen.Fund, which invests in the livestock, palm oil, rubber, and pulp and paper sectors.

SMALLHOLDER BENEFITS

Financing requires that companies have a landscape protection plan, Kleiterp said. “We need companies that see that commodity production without deforestation, and with the inclusion of smallholders, can be done and can managed.”

Ben Valk, head of food and agricultural partnerships at Dutch cooperative Rabobank, said the key to successful investment in smallholder operations is economic development.

“You can’t afford to leave out the economic development angle because that’s what will drive the smallholder farmer’s decisions,” Valk said.

“These are not well to do people, and they cannot afford to ask the sustainability question. We first need to work on their economic development, their food security, their personal access to electricity and health, to sustainable food production, landscapes management and development towards sustainable landscapes.”

Rabobank is part of the Farm to Market Alliance, a public-private sector consortium including the World Food Programme, which provides more than 100,000 farmers with access to markets, high quality farm inputs, finance and technology.

“The key thing we do isn’t finance, isn’t inputs, isn’t technology, it’s (providing) access to markets,” Valk said. “When you do that you can very easily make a real difference in the life of a smallholder farmer by raising annual income by hundreds of dollars.”

Increased income can lead to the financial freedom for smallholders to get involved in sustainable food production, determine how best to reduce greenhouse gas emissions, improve soil care, make carbon effective crop choices and diversify, he added.