Creating “bonds” at landscape level: Five speakers, five unique perspectives

Howard Shapiro, chief agricultural officer at Mars, Inc. GLF/Leigh Vogel
5 June 2018

WASHINGTON (Landscape News) — At the Third Global Landscape Forum Investment Case Symposium in Washington D.C., a panel on “bonds” moderated by World Agroforestry Centre director general Tony Simons, showcased innovative approaches to enterprise-level investments and discussed ways to better align the financial system with sustainable goals.

First up was film actor and humanitarian Connie Nielsen, who spoke about the role of private philanthropy in a video presentation from London, where she was working.

“Let’s face it: the finance part of landscapes is not working hard enough or well enough for us, is it? Otherwise, we would not have such poverty in the world, such inequity, such habitat degradation.,” she said.

Nielsen has had first-hand experience launching a project in the sprawling slum of Kibera in Nairobi, Kenya.

“Myself and a group of California-based philanthropists acted to shift the equation of degradation and despair. One key principle that we employed was that the community had to co-invest at the same location they had prioritized for our help. What we created, we believe, is a first: it is not just a water source or a hygiene project or impoverished lifestyle transformation. It is a town hall in a massive informal settlement. We call it Kibera Town Centre.

Over a period of eight years we have been working with government, local leaders, donors and specialists to create an amazing enterprise. Although the facilities themselves are impressive, they are not the success. The success is the co-design, co-location and the co-investment of a wide range of actors. What users benefit from is an access to one-stop -shop services, one place where all of the necessary services for job readiness are available at their fingertips at a payment that they can afford.”

Nielsen said that “Informal settlements “ like Kibera are typically of the lowest land quality and their trajectory is downwards. “Yet intriguingly, they still remain a magnet for rural populations and we will see another two billion people migrate to cities over the coming decades. This is a huge problem, but it is also a huge opportunity.”

Unfortunately, she said, funding tends to work in silo forms. “What we need to do is optimize those funding mechanisms and make it easier for innovative and holistic projects to come at these services solutions and get access to funding.”

Nielsen said that “private philanthropists, or at least the ones I know, are not interested in charitable giving per se. They want to connect, rather, with pressing global issues and with the human side of the problem. “

Lack of money is not the big problem, she said. Rather, it is how the money is allocated.

“Economists tell me that for every $1 of international philanthropy there are $5 of overseas development assistance, $30 of foreign direct investment and $120 of domestic private-sector money to spend. But honestly, I cannot see it. I cannot see the impact of that on the ground.”

In summation, Nielsen issued a call to arms.

“My hope coming out of this forum is for more action on the ground. Let us get the multiple forms of finance better aligned and working for us all. We need more robust design of projects, we need to de-risk the poor person and not add extra burdens of debt. We need to locate effort in overlapping geographies. Dispersed efforts will lead to dispersed impacts.”

Next up was Howard Shapiro, chief agricultural officer at Mars, Inc. His talk focussed on the private sector and a change of theory.

“I’m not sure if you all know, but a crew of five people … can plant 25,000 trees a week; that’s 100,000 trees a month, that’s 1.2 million a year. So, how many hectares do you all want to restore? It’s really all just a numbers game, isn’t it? So the notion of restoration is only numbers: build the nurseries, train the people. If one crew can do 1.2 million trees a year, how many people do we have unemployed in the rural sector that could become tree planters, that could replant the landscape? And all of a sudden, most of this land we have which is unusable for multiple reasons becomes usable.”

New challenges demand new thinking, said Shapiro.

“For me, this is called a change of theory, not a theory of change, because essentially what we have been doing is sitting on the same pile of thoughts for the last 15 or 20 years. We talk about the arc of habitat loss, we talk about inequality and supply chains, we talk about illegalities and responsibility, we talk about reforestation. The private sector receives the brunt of that because we’re responsible for it.”

Sustainable goals can be achieved, but we need a fresh approach, said Shapiro.

“I think there are only five criteria for measuring: productivity, profitability, environmental stewardship, good government /solid management and social inclusion. Skip all the other stuff. Take the money you pay for certification and put it back into the field, or buy bonds, or build bond systems.

Imagine how much you spend on certification with little result except for a semi-socially acceptable stamp on your package. I think if you take [those] billions of dollars and invest it in doing the right thing based on productivity, profitability, environmental stewardship, good government/solid management and social inclusion, much of what you’re talking about would be over.”

We need to understand what change of theory means, said Shapiro.

“The language we’ve been using for so long seems stale to me. We need to have this agri-performance system, and it must be driven by science. Feeling and knowing are very different things. What that does, it allows us to have observed change and to induce change, change of context and change of policy.”

In conclusion, Shapiro offered a sobering take on carbon pricing.

“It’s embarrassing what you all want to pay for carbon. The state of California pays as much as $50 a metric tonne for offsets, and I hear of people paying $5. It’s an insult. There is a sweet spot somewhere. Why would you keep an asset when it’s worth more for the five or 10 years  of getting something productive off the land and then you lose it all? The value of the Ivorian forest before it was cut was $150 billion. The value of cacao the last 10 years essentially is $120 billion. So, who won and who lost?”

The World Bank’s Tracy Johns, an expert on climate change and sustainable development, focused her talk on the role of developing finance institutions in creating bonds at the landscape level.

“The work that I focus on at the World Bank is a fund called the Forest Carbon Partnership Facility, which is a climate finance facility that provides capacity-building to countries developing landscape-level REDD+ (reducing emissions caused by deforestation and forest degradation) and sustainable landscape programs, and then provides results-based climate finance to pay for results when emissions are reduced from the forest and land sector.”

Johns said she has about 40 countries in her portfolio that are “developing landscape-level forest conservation and climate mitigation programs at the level of provinces generally, so quite large-scale. “

She said these programs create a framework or scaffolding “to enable the kind of bonding of different kinds of finance and actors in a landscape. So a lot of the work has been done by governments to design the framework, but what isn’t included in the support that the Forest Carbon Partnership Facility provides is all of the actors and all of the investment to come in and build on that scaffolding that is there.”

She concluded: “So my pitch to you is to consider these programs and learn more about the work that’s being done that the governments have taken a real leadership role in designing systems around which or within which you can invest.

And although it’s too small of a cherry at the top of the cake, there’s a results-based finance element at the end of the road.”

Bruce Cameron is lead agricultural specialist at the Overseas Private Investment Corp. (OPIC), basically the development bank of the U.S. government, that is looking to use finance to leverage positive landscape change.

“It’s a fairly straightforward problem to be solved: Blend different types of capital together, or different types of funds, that have different requirements to them as far as financial return -equity dollars, grant dollars, senior debt, subordinated debt- and take a portfolio approach to projects.”

Trying to do individual projects is inherently too risky, said Cameron.

“If you work through a finance vehicle that allows you to support [up to] 20 projects and perhaps across different countries, that offers the opportunity to reduce the risk exposure to any one project and offers a learning opportunity to see what works in certain settings “

Smallholder agriculture, forestry and deforestation are land specific, which sometimes “gets lost in the equation,” said Cameron.

“If it’s land specific, then there are things we can do from a financing standpoint, or in that legal, financial structuring approach, to incorporate that to help us feel like we’ve reduced our risk exposure.”

Technological advances have also reduced financial risk, said Cameron.

“It seems like where technology has moved in the past five years-from what the geospatial satellite imagery can do, the drones, the little hand-held devices and the software that already exists-it’s not going to take all the risk out of it , but …it just changed the equation of how we might be able to support these type of projects.”

Cameron offered this personal, thought-altering anecdote.

“A few years ago I participated in something called the Food Chain Reaction Game. And I guess that’s what really snapped me to attention. It basically projected out for the next 15 or 20 years in five-year increments and threw out scenarios-dramatic climate change, mass movement of peoples, wars and political unrest –and all of a sudden you realize that even with institutions that do own these arenas and private corporations, how hard it is to change the senior level thinking. The speed at which change is occurring in the world, and with climatic events happening so much faster than before, somehow we collectively have to come up with solutions and we have to do it a lot faster than we’ve been doing over the past 20 or 30 years.

It’s not simple, but it’s a pretty straightforward way to start solving the problem.”

Rounding out the panel was Christine Negra, principal at consultancy Versant Vision and an adviser to the Climate Bonds Initiative (CBI), who addressed the issue of standards.

“What is the environmental credibility of a particular bond if it’s got that CBI certification? In many cases there’s transparency around financial dimensions but those non-financial impacts can be quite invisible even in some cases for bonds that have positive environmental impacts. So having a standard that really pulls that transparency piece forward is part of a much larger vision of where the bond market needs to go.”

If you want to issue a bond and come to market with a label on it that says “certified by CBI” you have to follow fairly elaborate criteria, which keep evolving, said Negra.

“To set universal criteria is a challenge, and at the same time you don’t want to set criteria so burdensome, which requires so much monitoring and additional cost that there’s no certified bond volume. It forces people to really think carefully about things like burdensome monitoring requirements and where that is truly necessary.”

Negra gave a quick rundown of the state of the bond market.

“At this point there’s $4.2 billion in climate-aligned land-use bonds out there. At this point there’s $21 billion in 2017 that is Climate Bonds Initiative-certified. It’s primarily transport renewable energy that’s coming mostly from municipalities, local governments and corporate issuers. The big geographies of issuance are the U.S. and China. Also, India and Australia are big players. “

Interesting from the landscape perspective, said Negra, are the sovereign issuers.

“Poland, Nigeria and others have these sprawling, mixed -asset-class, mixed-sector bonds that include sustainable forestry/reforestation.”

Negra ended her talk with some keen observations about the larger work ahead.

“Building the experience in evidence base for how to grow the pipeline is really the issue in the bonds sector. The ability to actually take the work that needs to be done in forestry and land use and sort of package it into a form that fits inside the bond space in a way that also meets a wide variety of climate and other environmental criteria, is not readily obvious. So, we just need a lot more experience in that.”

Cross-pollination of ideas is key, said Negra, whose background is in soil science.

“I think people who are able to come from their original area of expertise and discipline and go sit in other institutions, for example, or work closely, that’s incredibly powerful.”

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