Flagship 3: Sustainable landscapes and value chains

Scaling through responsible finance and investments

A team of workers takes a break before continuing to fertilize an oil palm plantation in Indonesia. Photo by I. Cooke Vieira/CIFOR

Finance service providers (FSPs), such as private banks, development finance institutions and institutional investors, could potentially play an important role in augmenting corporate social and environmental performance in forest and tree-crop value chains through the adoption of ESG criteria. However, more responsible FSPs do not necessarily lead to increased finance for smallholders.

One challenge is to identify mechanisms that both promote more widespread adoption of ESG among a greater number of FSPs and increase their capacity to effectively leverage their potential influence over corporate strategy and practice. Another challenge is to find more effective ways to link progress in responsible finance by FSPs with improvements in smallholder and SME access to finance for forest and agroforestry-related investments, which could also make a positive contribution to improved land use and enable restoration in forest landscapes. FTA’s work will examine ways to address these two challenges.

Current and planned key research activities on responsible finance are:
Analyzing the conditions and mechanisms that incentivize FSPs to more explicitly integrate ESG or similar criteria into their products in different institutional and economic contexts;
Assessing the impacts of ESG-conditional finance on the social and environmental performance of different types of corporate value chain actors across disparate socioecological contexts;
Identifying metrics and tools that enable FSPs to better screen prospective corporate clients and evaluate the social and environmental performance of their financial portfolios;
Analyzing innovative financial mechanisms implemented by FSPs to make financial goods and services more accessible to smallholders and SMEs in timber and tree-crop value chains.

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