Blended finance for forest landscape restoration: putting the puzzle together

Lina Dolores Pohl Alfaro, Minister of Environment and Natural Resources, El Salvador, speaks during the GLF Investment Case Symposium 2018 at the IFC in Washington on May 30, 2018. GLF/Leigh Vogel
24 June 2018

WASHINGTON (Landscape News) — In the urgent push for forest landscape restoration (FLR) to mitigate climate change and preserve biodiversity around the world, it is clear that no single sector has all the answers.

In fact, the solution may look more like a complex puzzle, said El Salvador’s Minister of Environment and Natural Resources, Lina Pohl, at an International Union for the Conservation of Nature (IUCN) discussion forum on the many faces of blended finance at the recent Global Landscapes Forum Investment Case Symposium in Washington.

Pohl and her fellow panelists highlighted successful examples and exciting propositions for combinations of private and public funds to address FLR at local, regional, national and international levels, and explored the pressing question of how to bring the various actors together. As Karin Kemper, senior director for natural resources at the World Bank put it: “Where do the different pieces of capital fit into the FLR ecosystem?”

MODELS OF SUCCESS

Part of the motivation for this forum was to bust the myth that FLR is hindered by a lack of funding and of “bankable projects.” Several panelists shared inspiring examples of successful projects that are already leveraging unique blends of public and private investment to make a real and scalable difference at the landscape level.

Leslie Weldon, deputy chief for national forest systems in the U.S. Forest Service, described an initiative in which $400 million was invested in a suite of 10-year FLR projects in 23 defined landscapes around the country.

That investment was then almost fully matched with funds that flowed from private landowners and other entities within and around the designated landscapes, in order to grow and enhance the projects further.

“It’s a model of anchoring commitment to a landscape over the longer term, with defined outcomes that are supported by the community,” Weldon explained. “It enabled others to say: ‘This is worth us investing in leveraging the federal dollar to get additional work done’.”

Anna Tejero Arando, coordinator of the Oaxaca State Coffee Producers (CEPCO) in Mexico, shared some of her organization’s pioneering work finding alternative niche markets for its coffee, such as organic and fair trade.

A crucial component was developing the financial mechanisms to help its 4,000 smallholder members to access these markets, in which they can earn approximately double the regular market price for their crops.

The initiative also incentivizes growers to farm in ways that serve the surrounding environments, which are some of the state’s most vulnerable to climate change, such as cloud forests and plantations of pine and oak.

“We’re demonstrating that it’s possible to produce while restoring, and restore while producing,” Arando said.

PUBLIC FUNDS: CREATING AN ENABLING ENVIRONMENT

Gustavo Fonseca, program director at the Global Environment Facility (GEF), shared his organization’s journey from relatively straightforward grant funding into the “messy terrain” of blended finance, involving both public and private funders.

Public funds are at a stable, if not declining, level, so in themselves they are not sufficient to do what’s needed to protect the global commons before it’s too late, he said. “So we have no other option but to look at private finance in order to scale up financing for this area.”

But public funds do have an extremely important role to play in creating an enabling environment for further investment, said Kemper.

“Not everything is privately investable right away: you need to have the regulatory work done, you need to do pre-work like terracing to avoid landslides and so on, in order then to have the private investment,” she said.

Securing land tenure is one of the most important elements to mobilizing this investment, said Fonseca. “The first thing investors will ask you is: ‘What’s the land tenure security that I have for this project?'” While taking into account the diversity in landscapes and contexts around the world, we have to find the commonalities that will help us to find and attract private sector financing under different conditions, he added.

“The market hates uncertainty, and to the extent that we can provide some level of confidence that the basics have been covered and that this is where you’re entering in terms of your own investment, and this is what you can expect to see, I think the dialogue changes quite dramatically,” he said.

FROM UNICORNS TO DONKEYS: MAKING IT MAINSTREAM

What needs to happen to bring this work to scale? “As grant funders, we’ve been used to seeing small projects where you could see the results, but at the end of the day these projects are to a large degree one of a kind,” concluded Fonseca. “They’ve been called unicorns, and what we really need now is to make these unicorns into herds of donkeys and make them really boring: what the markets would call ‘vanilla’ type investments.”

To this end, he flagged a project that the GEF, the IUCN, the Nature Conservancy and other partners are involved in, which involves developing a series of blueprints to accelerate the development of a new asset class that the market can better understand.

“The big investors that we need to bring to the table want to invest in larger projects, in vehicles that they trust, and in order to do that you need these kinds of instruments and these kinds of players,” he explained.

A necessary part of that mainstreaming process is education, said Pohl, so that all actors and potential investors understand the true value of restoration, for themselves as well as the bigger picture.

“The landscape is so difficult to see properly,” she said. “Usually we only see the surface. It’s very difficult to engage with the relationships underneath: the conflicts and issues over land use, and the connections between all your activities.”

Kemper concurred, and acknowledged IUCN and World Resources Institute work developing the Restoration Opportunities Assessment Methodology (ROAM), which helps countries identify and analyze areas of potential for FLR.

“We can all piggyback on that kind of work,” she explained. To Kemper, the example highlights that as well as blended finance. We also need blended knowledge, in order to generate the kinds of outcomes that we need, at the rapid rates that we require them, she said.