Linking sustainable supply, inclusive business models and innovative finance

February 27, 2017

Pressures on forests and lands forests and lands are increasing as the world population and economies keep growing. Oil palm workers in Indonesia returning home. Photo: Icaro Cooke Vieira/CIFOR

By Pablo Pacheco, Team Leader – Value Chains, Finance, & Investments, Center for International Forestry Research (CIFOR), Coordinator of Flagship 3

Pressures on forests and lands are increasing as the world population and economies keep growing. This pressure also leads to better solutions from public and private actors to enhance sustainable supply mechanisms and integrate smallholders in supply chains. In this context, Flagship 3 Sustainable global value chains and investments for supporting forest conservation and equitable development embraces the challenge of researching and providing options of how value chains and investments can be made more sustainable and inclusive, and leverage the potential of finance for scaling up.

In 2017, Flagship 3 will identify knowledge gaps, distill best practices, produce methods and tools, convene stakeholder meetings, engage in business and multi-stakeholder platforms, support learning initiatives, and co-generate options of policies and practices to:

  • Improve the sustainability of forests, agricultural and tree-crops production in forest landscapes by identifying complementarities between public regulations on the one hand, and private standards and commitments on the other hand;
  • Inform businesses and service providers about business models that are more inclusive, gender-responsive, economically viable and environmentally sustainable;
  • Increase investment flows in forest and tree-crop sectors by helping develop innovative finance mechanisms to support smallholders and small- and medium-scale enterprises (SMEs).

The three groups of activities we embrace have interconnected goals and approaches. The first goal examines the policy and institutional environment shaping the governance of supply chains, with special emphasis on supply chain and territorial interventions.

Assessing the impacts of certification standards in cacao and coffee is part of the work on value chains.Photo: Icaro Cooke Vieira/CIFOR

The second goal focuses on business models in timber and tree-crop value chains that link corporations with smallholder farmers and small and medium enterprises (SMEs).

The third goal assesses how the financial sector influences the social and environmental performance of value chains and businesses, and how innovative finance provides opportunities for smallholders and SMEs.

Enhancing public and private arrangements for sustainable supply

Research under this theme will equip farmers, businesses and the public sector with knowledge of institutional arrangements and management systems to produce agricultural crops and manage forests in more integrated and sustainable ways—and in compliance with social and environmental standards.

We will focus our efforts on producing synthesis to engage in two international processes (e.g. FLEGT, zero deforestation) and to inform two regional/national policy dialogues on the public-private governance mechanisms that are needed to enhance sustainable supply in order to ease the pressures on forests. Our primary focus will be on timber in Central Africa and oil palm in Southeast Asia.

Timber is another key commodity in this research area. Photo: Tomas Munita/CIFOR

We will complete analysis on the governance of timber value chains (Cameroon, Zambia, Uganda) and of palm oil in Indonesia, and link analysis on the connections between global sustainability processes (e.g. FLEGT VPA, RSPO, ESPO) with national regulations and initiatives to enhance sustainable supply in the timber and oil palm sectors.

More complex policy regimes are emerging linking public regulations and private standards, yet there is need to connect them and build complementarities between them.

We are also supporting the development of monitoring tools and approaches to assess progress in performance of corporate commitments to sustainability with focus on oil palm, cacao and timber. We are also assessing the impacts of certification standards in cacao and coffee.

Supporting initiatives to foster the development of inclusive business models

Better knowledge is needed on how to build business options and fair partnerships that create opportunities for smallholder farmers who are increasingly involved in global value chains. This research also aims at safeguarding the rights of marginalized groups such as women and indigenous people.

We will advance work on inclusive business models by operationalizing a strategic partnership with the Dutch development organization SNV. This partnership is aimed at building and testing approaches and interventions that improve the effectiveness of inclusive business models across several SNV projects. In addition, we will support ongoing multi-stakeholder processes for strengthening capacities and policy environments for smallholders and SMEs in the timber and oil palm sectors in some select countries and landscapes.

Our main efforts will be on assessing the technical and economic performance of independent oil palm smallholders in West and Central Kalimantan, Indonesia and of outgrower schemes implemented in the oil palm and sugarcane sectors across some select countries (e.g. Brazil, Tanzania and Mozambique). This will yield some recommendations on building more inclusive models.

We are also working on developingapproaches to design project interventions that consider the specific needs of women and youth in more inclusive business models.

Engaging with responsible finance institutions and impact investors

We want to build bridges to connect responsible financial institutions and innovative financing mechanisms with smallholders and land users in forest landscapes. The goal here is to embrace more sustainable practices and inclusive business models under reduced financial and territorial risks, and to achieve greater social benefits for smallholders and SMEs accessing those financial resources.

Our work on finance and investments, with support from our partners (e.g. The Finance Alliance for Sustainable Trade, FAST), will engage key financial institutions and impact investment funds and managers to identify the demand for responsible finance and their challenges to undertake investments at scale especially in forest landscapes.

We will focus on identifying existing schemes and demand for responsible finance and impact investment, and their challenges. Besides that, we will advance studies on palm oil in Indonesia and cacao in Ghana related to innovative finance schemes to overcome barriers facing smallholders who want to take up more efficient and sustainable practices. This work has the potential to trigger transformational change.