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Sharing the risk of blue carbon investment in ‘era of SDGs’

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The public and private sectors must join forces to finance blue carbon, in order to reap social, environmental and economic returns from the ecosystems. 

The Blue Carbon Summit on July 16-17 in Jakarta, Indonesia, clarified the importance of learning and disseminating more about coastal ecosystems. During the event, one of the discussion forums honed in on these at-risk ecosystems, looking in particular at the payment mechanisms needed to keep blue carbon intact.

Financing blue carbon development addressed how to best use the available funding; no matter what kind of payments are on offer, the discussion explored why blue carbon should be accounted for among stakeholders.

Medrilzam, Director for Environmental Affairs at Indonesia’s National Development Planning Agency (Bappenas), highlighted the importance of incorporating blue carbon into efforts to achieve to the Sustainable Development Goals (SDGs), describing the current environment as “the era of SDGs”.

Watch: Financing blue carbon development

SDG 13 on climate action, he said, was the anchor for several other goals, including sustainable cities and communities; life below water; and life on land. Bappenas had never before included blue carbon as an aspect of discussions at national or regional levels, he explained, but is now factoring it in when measuring emission reductions, as Indonesia moves towards its targets of cutting greenhouse gas emissions (GHG) 26% by 2020 and 29% by 2030.

In particular, he highlighted Bappenas’ low carbon development plan, a new development platform aimed at sustaining economic and social growth through low GHG emissions and minimizing the exploitation of natural resources. However, he stressed the need to consider interlinkages, saying that blue carbon related to the economy or the population, and vice versa.

“We cannot just rely on government financing. We know we have limited capacity,” he said, adding that development agencies needed to be imaginative about dealing with emerging forms of innovative finance.

Felia Salim, from the Board of Directors at &Green Fund and Sail Ventures, explained that &Green Fund related to land use, but its model could be replicated for blue carbon by looking at the concept of blended finance.

Mangroves grow along the water’s edge in Sumatra, Indonesia. Photo by M. Edliadi/CIFOR

“We need to understand, when we talk about finance, that this is really about linking it to the market,” she said. “We are trying to correct the market forces.”

In terms of blended finance, Salim suggested that the conventional financial sector may not yet fully understand how to mitigate risks related to blue carbon, and therefore has a low appetite for them. Thus, it is all about “absorbing some of the risks that cannot be absorbed by the conventional financial sector.”

“This is the blended part. It’s really sharing the risk,” she said. “Basically the public fund is taking up a portion of the risk — that’s the basic principle of blended finance.”

According to Salim, climate risk and strategy must be incorporated into planning, and such strategies should not only account for economic return, but also environmental returns such as the number of hectares of forest that have been conserved, and social inclusion factors such as jobs created or improvements for smallholder suppliers.

“If you don’t involve stakeholders in the area, it won’t be sustainable,” she stressed, adding that companies which had seriously implemented environmental, social and governance (ESG) risk into their strategies have shown to be performing better as a result.

“The social and environmental returns make economic sense,” she said, “because what you want is […] business that is sustainable, that lasts,” reiterating that &Green Fund is trying to finance a gap that the conventional financial sector cannot absorb.

Read also: Failure to manage blue carbon ecosystems could break the internet 

Mangroves and sandbanks protect the shore in Sumatra, Indonesia. Photo by M. Edliadi/CIFOR

Ecotourism is another route to preserving nature while also providing incomes, as outlined by Bustar Maitar, Director of Kurabesi Nusantara Indonesia, a social enterprise offering liveaboard diving tours in eastern Indonesia.

Despite hundreds of comparable boats operating in the archipelago, Maitar said only 12 were Indonesian owned, representing a big growth opportunity for Indonesian investment.

Continuing the investment conversation, Fitrian Adriansyah, chairman of the executive board of IDH (Sustainable Trade Initiative) Indonesia, discussed how IDH invests in collaboration with the private sector.

“We believe sustainable production and trade can transform markets for the benefit of people and the planet,” he said. There is a need to promote greater understanding between the public and private sectors, he added, which “cannot be done if we cannot bridge the gap in terms of understanding the risk when it comes to investment in blue carbon.”

IDH, which invests in commodities, including aquaculture and mangroves, purports to seek impact rather than financial return. Responding to concerns that aquaculture is seen as an “enemy” of blue carbon efforts, Adriansyah said IDH’s criteria in selecting investment opportunities comprised improved productivity; protecting remaining forests; and the inclusion of villagers, smallholders or the community.

Finally, Muhammad Senang Semibiring, a Senior Advisor to the Indonesian Biodiversity Foundation (KEHATI), outlined private financing through a community-based coastal carbon corridor initiative. KEHATI, the first and largest biodiversity conservation trust fund in Indonesia, was begun 25 years ago and makes use of public-private partnerships toward the achievement of SDG 17.

By investing in natural solutions, many elements of coastal areas can be protected. There can be economic benefits in doing so, including for the lives of community members. In identifying the challenges facing the financing of blue carbon initiatives, stakeholders can assess these returns and – as evidenced by the discussions at the Blue Carbon Summit – achieve social and economic benefits as well as environmental advantages.

Read also: Seagrass meadows: Underutilized and over-damaged carbon sinks

By Hannah Maddison-Harris, FTA Communications and Editorial Coordinator. 

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  • Sharing the risk of blue carbon investment in 'era of SDGs'

Sharing the risk of blue carbon investment in ‘era of SDGs’

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FTA COMMUNICATIONS TEAM

The public and private sectors must join forces to finance blue carbon, in order to reap social, environmental and economic returns from the ecosystems. 

The Blue Carbon Summit on July 16-17 in Jakarta, Indonesia, clarified the importance of learning and disseminating more about coastal ecosystems. During the event, one of the discussion forums honed in on these at-risk ecosystems, looking in particular at the payment mechanisms needed to keep blue carbon intact.

Financing blue carbon development addressed how to best use the available funding; no matter what kind of payments are on offer, the discussion explored why blue carbon should be accounted for among stakeholders.

Medrilzam, Director for Environmental Affairs at Indonesia’s National Development Planning Agency (Bappenas), highlighted the importance of incorporating blue carbon into efforts to achieve to the Sustainable Development Goals (SDGs), describing the current environment as “the era of SDGs”.

Watch: Financing blue carbon development

SDG 13 on climate action, he said, was the anchor for several other goals, including sustainable cities and communities; life below water; and life on land. Bappenas had never before included blue carbon as an aspect of discussions at national or regional levels, he explained, but is now factoring it in when measuring emission reductions, as Indonesia moves towards its targets of cutting greenhouse gas emissions (GHG) 26% by 2020 and 29% by 2030.

In particular, he highlighted Bappenas’ low carbon development plan, a new development platform aimed at sustaining economic and social growth through low GHG emissions and minimizing the exploitation of natural resources. However, he stressed the need to consider interlinkages, saying that blue carbon related to the economy or the population, and vice versa.

“We cannot just rely on government financing. We know we have limited capacity,” he said, adding that development agencies needed to be imaginative about dealing with emerging forms of innovative finance.

Felia Salim, from the Board of Directors at &Green Fund and Sail Ventures, explained that &Green Fund related to land use, but its model could be replicated for blue carbon by looking at the concept of blended finance.

Mangroves grow along the water’s edge in Sumatra, Indonesia. Photo by M. Edliadi/CIFOR

“We need to understand, when we talk about finance, that this is really about linking it to the market,” she said. “We are trying to correct the market forces.”

In terms of blended finance, Salim suggested that the conventional financial sector may not yet fully understand how to mitigate risks related to blue carbon, and therefore has a low appetite for them. Thus, it is all about “absorbing some of the risks that cannot be absorbed by the conventional financial sector.”

“This is the blended part. It’s really sharing the risk,” she said. “Basically the public fund is taking up a portion of the risk — that’s the basic principle of blended finance.”

According to Salim, climate risk and strategy must be incorporated into planning, and such strategies should not only account for economic return, but also environmental returns such as the number of hectares of forest that have been conserved, and social inclusion factors such as jobs created or improvements for smallholder suppliers.

“If you don’t involve stakeholders in the area, it won’t be sustainable,” she stressed, adding that companies which had seriously implemented environmental, social and governance (ESG) risk into their strategies have shown to be performing better as a result.

“The social and environmental returns make economic sense,” she said, “because what you want is […] business that is sustainable, that lasts,” reiterating that &Green Fund is trying to finance a gap that the conventional financial sector cannot absorb.

Read also: Failure to manage blue carbon ecosystems could break the internet 

Mangroves and sandbanks protect the shore in Sumatra, Indonesia. Photo by M. Edliadi/CIFOR

Ecotourism is another route to preserving nature while also providing incomes, as outlined by Bustar Maitar, Director of Kurabesi Nusantara Indonesia, a social enterprise offering liveaboard diving tours in eastern Indonesia.

Despite hundreds of comparable boats operating in the archipelago, Maitar said only 12 were Indonesian owned, representing a big growth opportunity for Indonesian investment.

Continuing the investment conversation, Fitrian Adriansyah, chairman of the executive board of IDH (Sustainable Trade Initiative) Indonesia, discussed how IDH invests in collaboration with the private sector.

“We believe sustainable production and trade can transform markets for the benefit of people and the planet,” he said. There is a need to promote greater understanding between the public and private sectors, he added, which “cannot be done if we cannot bridge the gap in terms of understanding the risk when it comes to investment in blue carbon.”

IDH, which invests in commodities, including aquaculture and mangroves, purports to seek impact rather than financial return. Responding to concerns that aquaculture is seen as an “enemy” of blue carbon efforts, Adriansyah said IDH’s criteria in selecting investment opportunities comprised improved productivity; protecting remaining forests; and the inclusion of villagers, smallholders or the community.

Finally, Muhammad Senang Semibiring, a Senior Advisor to the Indonesian Biodiversity Foundation (KEHATI), outlined private financing through a community-based coastal carbon corridor initiative. KEHATI, the first and largest biodiversity conservation trust fund in Indonesia, was begun 25 years ago and makes use of public-private partnerships toward the achievement of SDG 17.

By investing in natural solutions, many elements of coastal areas can be protected. There can be economic benefits in doing so, including for the lives of community members. In identifying the challenges facing the financing of blue carbon initiatives, stakeholders can assess these returns and – as evidenced by the discussions at the Blue Carbon Summit – achieve social and economic benefits as well as environmental advantages.

Read also: Seagrass meadows: Underutilized and over-damaged carbon sinks

By Hannah Maddison-Harris, FTA Communications and Editorial Coordinator. 

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  • The potential of REDD+ to finance forestry sector in Vietnam

The potential of REDD+ to finance forestry sector in Vietnam

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  • Despite the great potential REDD+ shows for generating and contributing finance to support forestry in Vietnam, a reduction in both funds and funder commitment to REDD+, challenges in meeting funder requirements, and the significant finance required to implement the national REDD+ program in Vietnam, all imply that in reality REDD+’s contribution as a major financial source for the forestry sector is limited.
  • Although the government has identified various public and private funding sources to cover the different phases of REDD+, the international public sector remains the primary funding source; limited contributions come from the private sector and state.
  • To date the spending of REDD+ finance has been uncoordinated and fragmented, due to a lack of clarity on what Vietnam’s REDD+ priorities are.
  • Effective and efficient implementation of REDD+ activities in Vietnam is being impeded by: limited and inaccurate data regarding REDD+ finance in Vietnam; an unclear definition of what REDD+ finance is; the absence of a national REDD+ financial tracking system; and limited technical capacity (within both government and civil society organizations) when it comes to monitoring REDD+ finance.
  • To increase the potential for REDD+ to financially contribute to forestry in Vietnam, the following is required: better coordination across sectors and amongst donors and government agencies; enhanced capacity building on the tracking and management of REDD+ finance; development and effective implementation of REDD+ policies and measures, so that the government can access result-based payments from different international funding sources.
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  • Financing blue carbon development

Financing blue carbon development

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The increasing demand of the world population to protein source from marine ecosystems in the last few decades have triggered the fast-growing industry of fisheries and aquaculture in both marine and inland waters. Consequently, overfishing is inevitable and many fishing grounds in Indonesia are steadily depleting. Combination of improved fisheries, good aquaculture practices, modernized post-harvest storage and processing industries could lead to sustainable blue economy.

Originally published by CIFOR.

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  • A decade since the birth of REDD+, what does the program need to succeed?

A decade since the birth of REDD+, what does the program need to succeed?

A REDD+ benefit sharing site is pictured in Jambi, Indonesia. Photo by I. Cooke Vieira/CIFOR
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A REDD+ benefit sharing site is pictured in Jambi, Indonesia. Photo by I. Cooke Vieira/CIFOR

It is almost 10 years since the birth of REDD+, the UN-backed program to incentivize forest restoration and conservation in developing countries, as part of a worldwide effort to reduce emissions and increase carbon stocks.

The program, also tailored to contribute to national sustainable development, has been heralded as a powerful part of the solution to both poverty and climate change.

But at a session entitled “REDD+ money for Green Results: What REDD+ Needs to Succeed,” hosted by Center for International Forestry Research (CIFOR) and the CGIAR Research Program on Forests, Trees and Agroforestry (FTA) at the Global Landscapes Forum Investment Case Symposium in Washington, the debate ran fast and hot.

CGIAR Research Program on Forests, Trees and Agroforestry (FTA) research leader Christopher Martius, who is also CIFOR’s climate change team leader and panel moderator, set the stage for a discussion that would be both productive and critical as some delegates debated its efficacy and future potential.

Panelists acknowledged the extent of the challenges facing the voluntary climate change mitigation approach program, but also came forward with a range of useful propositions for helping achieve the emission reduction results so urgently needed.

Deforestation and forest degradation account for 11 percent of greenhouse gas (GHG) emissions, more than the entire global transportation sector and second only to the energy sector, according to data from the UN-REDD Programme, which works with developing countries in an advisory role to help implement REDD+ technical support services tailored to national circumstances and needs.

Watch: REDD+ money for green results? What REDD+ finance needs to succeed

REDD+: SMALL FISH IN A BIG POND?

Gabriel Labbate, regional coordinator of the Latin American and the Caribbean region for the Poverty-Environment Initiative (PEI) and the UN REDD program, estimated that around $400 million are dispersed for REDD+ per year, plus another $600 million in finance for other kinds of sustainable forest management.

“That looks like a decent number,” he said. “Until you take a look at what was on the other side of the fence”: the money that’s simultaneously going toward industries responsible for emitting carbon and causing deforestation. For example, in 2015 the oil industry alone was subsidized to the tune of about $5 trillion.

Asgeir Olafson, Global Topic Lead on Land Use and the Bioeconomy at Scandinavian consultancy firm COWI A/S, also picked up on the need to look at the bigger picture and all the actors involved in order to make a real difference: “REDD is only one stream of money, alongside a lot of other streams of money, going into deforestation areas,” he said.

Labbate argued further that carbon markets are not yet lucrative or established enough to incentivize changes in practice on a wider scale, and Kaspar Wansleben, managing director of the Forestry and Climate Change Fund (FCCF), agreed: “It’s not considered by investors to be serious, stable and predictable enough to give them the 15-year perspective that they need to make something like this work.”

Challenges aside, some impressive progress has already been made under REDD+, said Labbate. According to the Lima REDD+ Information Hub, a platform for countries to report avoided deforestation, about 6 gigatons of carbon emissions have already been avoided as a result of the program. “I think it is remarkable that in this environment we still get these types of results,” he concluded.

Read also: New study finds little private finance in REDD+ efforts, suggests blended finance as way forward

Session participants discuss REDD+ finance during the “What REDD+ finance needs to succeed” session at the GLF Investment Case Symposium 2018. Photo by Leigh Vogel/GLF

PUBLIC-PRIVATE PARTNERSHIPS

One keenly-debated issue was the role of the public sector in both developing and developed countries, in getting REDD+ to perform better. Olafson stated that we should “expect no solution from policymakers. They have too many other urgent things to do.”

“The scope, and the level of ambition, and the political capital to being involved with REDD+, I’m sorry to say, is simply not there.”

But Abbate urged caution about dismissing policymakers’ importance in REDD+ discussions: “Markets don’t work in a vacuum. They work better in London than in the DRC [Democratic Republic of Congo], because the institutions around them are different,” he argued. “And the strength of the institutions in a country is a political decision, made by policymakers.”

Olafson acknowledged that governments could, at least, play a useful role in helping unlocking private finance to fund REDD+ activities. “There is plenty of finance out there,” he said. “We need private finance to be involved, and governments to help with that.”

Ellysar Baroudy, Lead Carbon Finance Specialist at the World Bank (WB), described a large-scale project the Bank is involved with in Mozambique. The country received $3.6 million from the Forest Carbon Partnership Fund to establish an enabling environment for private finance, and the WB contributed $5 million to the cause.

Forest sector reform and technical assistance were key aspects of this process, as these aspects that are difficult for private investors to fund. “Countries need time to get sorted and put in place a foundation first,” said Baroudy, “and then they can start to attract funding from a whole mosaic of different sources.”

But Dharsono Hartono, president director of PT Rimba Makmur Utama, an Indonesian based company developing a 108,255 hectare peatland forest REDD+ project in Central Kalimantan, opined that in the Indonesian context, too much money has already been poured into creating enabling conditions, and too little into the task at hand. As a result, he said, “in the last 10 years, deforestation hasn’t decreased.”

In the Indonesian context, the government will start getting involved only once the private sector takes the lead and starts making sales, Hartono continued. “So this is a lesson for us going forward: it’s not just about the typical donor countries working together, we need full collaboration between the private sector, donors, civil society and communities.”

This includes making sure that incentives are truly worthwhile for communities on the frontiers of deforestation, urged Wansleben: “We need to provide systems and build models that allow local communities to generate incomes and livelihoods from the first resources that come through, which are able to at least compete with other, more damaging kinds of land use.”

Olafson shared Hartono’s sense of urgency about getting started, rather than waiting for perfect knowledge and conditions. “We should dare to test 70 percent solutions,” he said.

Baroudy added that the “high bar” for sustainability expected of the land-use sector has gotten in the way of being able to pay for results early in the piece. “Let’s not expect the land-use sector to have to be the gold, platinum and everything else in terms of what you can do, because the more we wait, the more deforestation is happening,” she said.

Read also: Blend, bond and blockchain: The financial landscape is changing to fit the planet’s needs

BEYOND CARBON

Several panelists pointed out the progress the program has enabled beyond the realms of carbon finance. In Indonesia, said Hartono, “REDD+ changed the way the private sector does business. We started seeing that communities should be part of the equation.” Wansleben added that REDD+ has pushed emphasis on to creating better monitoring systems, which can then also be used for other projects.

In the bigger picture, the program has helped precipitate a shift from the development paradigm of the 1990s, said Labbate. At that time, the prevailing view was that countries should pay for their own development. In his opinion, REDD+ has helped cement a new approach that takes into account globalization, international inequality and historical contributions to environmental degradation and climate change, and calls on wealthier countries and individuals to contribute to poorer areas’ development in more sustainable ways.

Hartono remained hopeful that the best for REDD+ is yet to come. “The tipping point is almost here,” he said. “People understand carbon much more now than ten years ago; we are in a very exciting time.”

Baroudy was similarly hopeful. “I don’t give up,” she said. “I am totally an optimist in this space. I think it behooves on us all to really push the barriers and keep going, and to me there’s just no other option than to make it happen.”

By Monica Evans, originally published at GLF’s Landscape News

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  • Blend, bond and blockchain: The financial landscape is changing to fit the planet's needs

Blend, bond and blockchain: The financial landscape is changing to fit the planet’s needs

A large cashew tree grows in Burkina Faso. Photo by O. Girard/CIFOR
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Upfront investment in REDD+ can be a burden for many countries in the short term, but in the long term can instill a sense of ownership, as seen in the case of Brazil. Photo by N. Palmer/CIAT

On a map of global landscapes, the most expansive ecosystem will not appear: finance.

It is the underlying rooted network channeling funds to the right places at the right times, or the superimposed atmosphere raining down fertilization where needed. However you view it, it is a constitutional source of life for its biological brethren, and enormously so.

Yet sustainable finance is also struggling to adapt to the rapidity of global development, forcing global research and dialogue to move quickly in figuring out how to keep it healthy and green. What existing mechanisms can we leverage, and what must we innovate? What financial infrastructure do we prune, replant, grow?

Such was the focus of the third annual Global Landscapes Forum Investment Case Symposium, in which the CGIAR Research Program on Forests, Trees and Agroforestry (FTA) participated, held on May 30, 2018, in Washington, DC, the US. Looking at the state of landscape investment this year, the event pulled certain topics forward as being important of late: blended finance, bonds and blockchains, with discussions on the three synthesized in this article. REDD+ finance was also a key topic at the summit.

Read also: New study finds little private finance in REDD+ efforts, suggests blended finance as way forward

BLENDED FINANCE

Thirty years ago, China’s Loess Plateau had reached a desperate state of soil erosion and land degradation. After centuries of unsustainable grazing and agricultural practices, an area the size of France that had once fed nearly a quarter of the country’s population had floods and crop failure as its norms, keeping millions in poverty with no way out.

The World Bank stepped in, and with the help of some US$500 million of public investment matched with about the same from the private sector, the landscape transformed. Incomes doubled, agricultural output shot up, and the dusty dry landscape gave way to fertile terraces — all in just 15 years.

“I’ve seen with my own eyes that it’s absolutely, entirely possible to transform a completely degraded landscape in a very poor environment with no capacity to do anything,” said Juergen Voegele, Senior Director of the World Bank Food and Agriculture Global Practice and member of the Loess project team.

He was describing a successful scenario of blended finance, which the Organisation for Economic Co-operation and Development defines as “the strategic use of development finance for the mobilization of additional commercial finance towards the Sustainable Development Goals in developing countries.” In other words, public or philanthropic capital is put up first to attract further investment from the private sector.

It is irrefutable that public money alone cannot fund the work imperative to achieving major restoration projects like the Paris AgreementBonn Challenge and AFR100. But despite growing pressure for the private sector to step up to the plate and chip into such efforts, its role in landscapes is — and should be — limited. Not every climate change effort should be made into a business opportunity, or prioritize financial logic and returns.

“To really start moving the billions, we need to collaborate effectively, and know our role within the ecosystem,” said Jennifer Pryce, President and CEO of non-profit social impact investment firm Calvert Impact Capital. Investing assets, she said, does not solve situations that need legal or diplomatic help.

Logs are seen on a riverbank. Photo by K. Evans/CIFOR

This is reflected in the World Bank’s Maximizing Finance for Development (MFD) concept, which urges development banks and other public funders to pool their capital to help developing countries build policy framework and capacity, cement high standards and reduce as many risks as possible for environmental projects. Once these bones are in place, the private sector can — and will be more apt to — step in and flesh out efforts.

Laura Tuck, the World Bank’s Vice President of Sustainable Development, elaborated on how this manifested in Vietnam’s Mekong Delta, where more than half of the country’s mangroves were cleared for shrimp ponds. After the Bank helped the government mandate 50 percent of shrimp ponds to have mangroves and take out a loan for restoration, the ecosystems were revitalized, and private companies flocked in for the ease with which they could harvest organic, premium-quality shrimp.

The appeal of blended finance is not exclusive to developing countries. Private landowners and businesses has begun investing more in the US forest estate — the world’s fourth largest — following a 10-year government commitment of federal funding for community-driven projects in 23 different landscapes, to combat the country’s growing spread of wildfire and insect disease.

“That’s that model of long-term anchoring of commitment to a landscape with defined outcomes, supported by the community, that enabled others to say that this is worth leveraging the federal dollar to get additional work done,” said US Forest Service Deputy Chief Leslie AC Weldon.

Read also: Making landscape finance more inclusive

BONDS

With a background in molecular biology and plant breeding, Howard Yana-Shapiro, the Silicon Valley-based Chief Agricultural Officer at Mars, Inc., is a self-proclaimed “gene jockey”. Within the last eight months, he has witnessed big data advance to a point where extraordinarily complex heterozygous genomes can be annotated with ease.

If big data can do it for genes, it can do it for landscape finance, he believes. “I can’t imagine that for the things we’re talking about mixing — bonds, instruments — that you couldn’t write a 3,000-line algorithm that would give you all the answers to all the complexity you’d want to know about which particular finance facility works best in which places.”

Bonds, as he said, are one of the primary mechanisms pushing forward in the landscape arena, serving as a way to refinance and finance projects by channeling capital into an investment that then generates revenue and gets repaid.

Dr. Christine Negra, principal at Versant Vision and advisor to the Climate Bonds Initiative (CBI), the foremost organization focused on advancing the bond market, said the ‘bond universe’ is still in its early days, with different forms popping up left and right. Asia’s first corporate sustainability bond was issued in Indonesia in FebruaryGlobal green bond issuance reached US$155.5 billion in 2017, and climate-aligned bonds — which include green certified bonds and non-certified bonds geared toward the low-carbon economy — currently value US$895 billion.

So far, the Forests Bond launched by the International Finance Corporation (IFC) is at the front of the pack, having received substantial acclaim. A five-year ‘green coupon bond’, it gives investors the choice of taking a 152 million bond in cash or in forestry carbon credits — which can be used to offset emissions or sold on the carbon market — purchased from a 200,000-hectare REDD+ conservancy project in Kenya.

Vikram Widge, IFC’s Global Head of Climate Finance and Policy, said that replicating this bond form in commodity sectors such as coffee, cocoa and oil palm could help build market infrastructure and provide alternative livelihoods to impoverished communities — 90 percent of which rely on forest resources — while we wait for the roughly US$300 billion needed to significantly slow deforestation rates.

A large cashew tree grows in Burkina Faso. Photo by O. Girard/CIFOR

CBI is the main hand behind setting global bond standards and sector-specific criteria, to ensure the ‘green credibility’ of bonds — as well as issue a litmus test for the market. “Putting criteria out there is a way to build it and see if they come, to see the demand for certified bonds,” said Negra.

Yana-Shapiro, on the other hand, warned of having too many tick boxes, and said bond measurement should hone in on five criteria only: productivity, profitability, environmental stewardship, good government and solid management, and social inclusion.

He posed the challenge of how to make the landscape sector worth more than Apple, which is soon to break worth of US$1 trillion. “I would suggest to you that it is not an abstract idea. We are looking at things today that are equally complex in a genome as in a landscape, and we’re able to put that together… to facts and not fiction.”

Read also: Good investments in agriculture and forestry can benefit smallholders and landscapes

BLOCKCHAINS 

Landscape finance would not be properly of the times without a disrupter trying to challenge its ways. Blockchains appear to be filling this role, emerging as a viable alternative to the traditional financial system infrastructure in certain situations.

Since Bitcoin emerged in 2008, not coincidentally alongside the global financial crisis and breakdown of trust in financial institutions, cryptocurrency has grown to account for some 400 billion in capital. This capital is distributed through blockchain networks, which Katherine Foster, Advisor on blockchains to the World Bank, defined as “decentralized, distributed, public (more or less) digital ledgers used to record data transactions across many computers.”

With the safety belt of cryptography, information is shared and stored across a chain of devices in a way “considered immutable and unchangeable.” Chains can be public or contained to a private group of users, and uploaded data can include everything from photos to e-signatures and legal certifications.

Because these are peer-to-peer networks that leave out centralized banks, institutions and other middlemen, blockchains can significantly lower transactional costs, both formal and informal. Vice President for US Business Development at blockchain software company ChromaWay Todd Miller said to think of all the money one can save by keeping one’s own records rather than hiring Goldman Sachs: “It’s not black magic here. It’s a distributed database not controlled by anyone.

And for that reason, “It’s up there with drones for how sexy it is for a lot of organizations,” he said.

Blockchain technology also has two defining features of every disruptor worth entertaining: it opens up new opportunities and makes life easier. In its role as a global contractual database time-stamped, date-stamped and signed, blockchain technology could stretch the horizon of capital acquisition, allowing people to borrow or invest without stepping foot in a bank.

By storing similar information on physical assets like commodity crops, it can also help supply chains be more efficient, transparent and safe. For instance, it could help Ethiopian coffee smallholders certify their beans as fair-trade; track the beans as they move through a supply chain, documenting every value added along the way; and ultimately show consumers the origins of their morning cup.

Already, in the famously iniquitous diamond industry, blockchain technology has proven enormously effective in reducing corruption and conflict.

The biggest challenge blockchains face, however, is quality data to insert into their networks. World Bank Land Administration Specialist Aanchal Anand said she often hears institutions say, “I want to be blockchain ready by 2020.” But this raises the question of whether or not they have data in digital form. If a government’s records are written on paper with coffee stains and tears, blockchains cannot help, she said. To get meta about it, data about data going into blockchains is needed to confirm accuracy.

There also needs to be a level of comfort with the technology, which Anand says comes from on-chain trust (knowing that transactions are validated) and off-chain trust (being able to call or email someone if and when something goes wrong).

Nevertheless, in comparison to Wells Fargo, for example, when consumers were oblivious to the grand misuse of their information, blockchains offer a new alternative with enormous positive potential. “We need to evaluate blockchains not compared to a perfect world,” said Miller, “but to the world we’re in today.”

By Gabrielle Lipton, originally published at CIFOR’s Forests News


This research forms part of the CGIAR Research Program on Forests, Trees and Agroforestry, which is supported by CGIAR Fund Donors.

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  • New study finds little private finance in REDD+ efforts, suggests blended finance as way forward

New study finds little private finance in REDD+ efforts, suggests blended finance as way forward

Products dry in the sun in Jambi, Indonesia, as part of a REDD+ safeguards and benefit sharing project. Photo by I. Cooke Vieira/CIFOR
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People and produce are transported in the port of Huicungo, Peru. Photo by M. del Aguila Guerrero/CIFOR

The average annual financing for REDD+ of US$323 million might sound like a lot on its own, but compared to the US$41 billion spent on agricultural subsidies and biofuel, it is just a drop in the bucket.

This is one of many findings elucidated in a forthcoming study on funding for reduced emissions from deforestation and forest degradation (REDD+).

The study was led by the international consulting group COWI, along with the Öko-Institut and scientists from the CGIAR Research Program on Forests, Trees and Agroforestry’s (FTA) lead center, the Center for the International Forestry Research (CIFOR).

The team studied REDD+ funding from 2008 to 2015 to see where it went and how it was spent. A preview was given at Does money go to trees?: Assessing finance flows to maximize the impact of REDD+, an official side event at the recent Bonn Climate Change Conference.

FOLLOW THE MONEY

CIFOR team leader Christopher Martius, who is the leader of FTA’s research theme on climate change adaptation and mitigation, presented some of the study’s findings, starting with the fact that there are two types of funding related to REDD+: indirect funding, which is dedicated to deforestation efforts at large; and direct funding, which goes solely to REDD+ efforts.

The study found that donors commit and disperse much more indirect than direct funding, as the former covers a wider set of issues and tools. Indirect funding also came from a diverse mix of sources – grants, official flows, loans and equity investments – while 99% of direct funding came from official development assistant (ODA) grants. Viewed as aid rather than profit-producing investment, these grants do not make REDD+ attractive from the business world’s point of view.

REDD+ projects go through three stages: readiness, implementation and payment for results. Funding is still needed for the first two stages to get to the third.

“Support for readiness is going down,” said Martius. “People want to go to payments. But we are not there yet.”

Many developing countries with high emissions reduction potential but low capacity not only rely on funding for readiness and implementation, but also need support that is tailored to their needs, and that balances effectiveness and equity.

What’s more, funding is not everything. It also requires functional systems in place to ensure proper governance, accountability and transparency.

The study found it difficult to determine how much private finance REDD+ efforts receive. Despite growing private sector responsibility and recent commitments to reduce deforestation and improve transparency, the scale and flow types are still opaque.

Martius, however, said that fixating on fund flows and their size alone can distract from looking instead for larger ‘triggers for transformational change’. He instead stressed the importance of mainstreaming climate objectives across financial sectors.

“We need to integrate participation, development and climate objectives for conflict-free, lasting results,” he said.

Read more: Unlocking private finance for climate and sustainable development

Products dry in the sun in Jambi, Indonesia, as part of a REDD+ safeguards and benefit sharing project. Photo by I. Cooke Vieira/CIFOR

IN THE BLEND

Rather than relying on funds from single revenue streams, countries can – and should, the scientists said – look to diversify their capital sources, in what is known as blended finance.

Peter Minang, a principal scientist at the World Agroforestry Centre (ICRAF) and the leader of FTA’s research theme on landscape dynamics, spoke about how this has manifested in Cameroon. In a performance-based payment experiment where donors are funding community forest enterprises, data is showing positive results for emissions reductions and other benefits such as job creation and capacity building.

However, legal compliance costs such as environmental impact assessments added up, costing thousands of dollars – a large toll for small enterprises to pay.

Minang said that it can often take five years for investors to see returns, and this affects how – and what – they decide to finance. “It is possible to get to Phase 3 [results-based payments], but REDD+ finance flows are insufficient, so it has to be blended.”

Teferu Mengistu, National Forest Sector Development Program Coordinator in the Ethiopian Ministry of Environment, Forest and Climate Change, agreed, saying that Ethiopia receives most of its funding from bilateral pledges and commitments.

“Ethiopia is going through phase two [implementation] in the REDD+ process, but there is still a gap between demand and supply for REDD+ finance,” he said.

Read more: Collecting gender-disaggregated data, and what to do with it 

A CONTINENT BEHIND

Asger Strange Olesen, the Global Topic Lead on Land Use and the Bioeconomy at COWI, concluded the session by returning to the research’s analysis of how much funding different global regions received from 2008 to 2015. Africa, he found, received less funding overall – and specifically in key areas, such as drivers and risks; Measurement, Reporting and Verification (MRV) capacity; and forest governance – than the Americas, Asia or Oceania. Governance and safeguards were among the only areas reasonably well-financed.

“Decision-makers see REDD+ as one tool out of many,” Olesen said. “Deforestation is probably one of the hardest problems to tackle in a consumer-based democracy.”

On the ground in Africa, the Network of Indigenous Peoples and Local Communities for Sustainable Management of Forest Ecosystems of Central Africa (REPALEAC) champions a traditional approach to forest management, representing 230 organizations in eight countries.

“Elders have the knowledge, but now they are translating it to the younger generation,” said the organization’s spokesperson, Hindou Oumarou Ibrahim.

This has attracted US$750,000 from the Forest Carbon Partnership Facility capacity-building program, but three of the REPALEAC’s countries – Chad, Burundi and Rwanda – are not FCPC members and therefore remain uncovered. This could become a large problem, so REPALEAC is working to have these countries included in the program.

“We need equity for global impact and protection of the indigenous peoples and local communities of our subregions,” she said.

Ibrahim’s point – and one that underpinned the event as a whole – was that REDD+ not only needs more funding, but also proper processes and procedures to ensure money arrives where it’s supposed to, and supports sufficient participation and equity among local stakeholders.

“There is much to work on, before we will see more green results with REDD+ money,” summarized Martius after the event concluded.

By Christi Hang, originally published at CIFOR’s Forests News

For more information on this topic, please contact Christopher Martius at [email protected].


The forthcoming research mentioned in this article is part of CIFOR’s Global Comparative Study on REDD+

This research forms part of the CGIAR Research Program on Forests, Trees and Agroforestry, which is supported by CGIAR Fund Donors.

This research was supported by the Norwegian Agency for Development Cooperation (Norad), the European Union (EU), the International Climate Initiative (IKI) of the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB), and COWI.

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  • Making landscape finance more inclusive

Making landscape finance more inclusive

A dwelling sits in the middle of an oil palm plantations in East Kalimantan, Indonesia. Photo by N. Sujana/CIFOR
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A dwelling sits in the middle of an oil palm plantation in East Kalimantan, Indonesia. Photo by N. Sujana/CIFOR

A new initiative aims to share issues and best practice for increasing inclusive, responsible finance that promotes sustainable landscape restoration and management. 

To this end, the CGIAR Research Program on Forests, Trees and Agroforestry (FTA), along with two of its strategic partner institutions, Tropenbos International (TBI) and the Center for International Forestry Research (CIFOR), are launching a new article series and online platform on inclusive finance.

Forests and farmland, land use and landscapes are the basis of much of the global economy. And they are even more important to those who live in them and live off them. But ever-increasing levels of external investment are making huge impacts — positive and negative.

So to shift the balance in favor of beneficial outcomes, global attention is now focusing on sustainable business models that include more responsible finance, and that is inclusive of men, women and youth in local communities and indigenous peoples.

This complex topic needs to be addressed urgently, and strategically. Different actors and sectors hold pieces of the puzzle, but many are not automatically connected to each other or to wider networks. The overriding question is “How can investing in sustainable land use and land management be made more inclusive of smallholder and community needs while remaining attractive to investors?”

Whether public or private – governments, corporates, banks, smallholders, communities, NGOs – all see the need for common understanding and collaboration, and there are many valuable and innovative experiences and insights that others would do well to learn from.

But broad debate appears constrained by a lack of mutually respected platforms for presenting and discussing key issues leading to shared strategies and sustainable solutions at the scales needed, available to all.

The past few years have seen a number of high-level discussion forums, and the relevant players are learning from international to grassroots levels. A new online initiative on foreststreesagroforestry.org and tropenbos.org will contribute to sharing innovative thinking and joint learning, facilitating and strengthening networks and bridge-building between actors beyond the usual sectoral boundaries.

Beginning in June 2018, it will comprise a six-month series of interviews with thought-leaders in different sectors. Along with parallel reviews and studies, these interviews will guide the development of a global online consultation on inclusive landscape finance in early 2019.

Key individuals will be invited to contribute to the article series, but the platform is also open to receiving contributions from those involved in inclusive finance, in one of the four main sectors: public, finance, corporate and community. For more information, download the flyer for this initiative.

Read more: 

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  • Climate financing in Indonesia: Finance for REDD+ & forest conservation

Climate financing in Indonesia: Finance for REDD+ & forest conservation

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Assessing REDD+ readiness to maximize climate finance impact

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