Last Saturday, 30 November 2019, in the prestigious European Convention Center in Luxembourg, an outstanding and diverse panel discussed innovative mechanisms and initiatives to upscale sustainable finance.

Carole Dieschbourg, Minister for the Environment, Climate and Sustainable Development of Luxembourg, in her opening speech of the overall GLF event made clear the expected outcomes of this day:

“It is not an investment if it destroys the planet!”

Her inspiring speech paved the way to an incredible Saturday of exchanges around the topic of sustainable finance.

A diverse panel

FTA organized a session bringing together seven people with different backgrounds, representing different actor groups in the finance flow: from investors to community, smallholders or SME. The event was live-streamed and is now available to replay.

“Our work provides social benefits to over 15,000 people” – Maria Teresita Chincilla Miranda, ACOFOP

“Eventually we created a fund […] It is now financing 13 different projects.”  – Elmer Francisco Méndez Hernández

The session was opened by the FTA Director, Vincent Gitz, who reminded that FTA has made innovating finance for sustainable landscapes one of its key operational priorities. Vincent underlined how the finance sector is actively seeking for initiatives that are green, bankable, responsible and inclusive. There is an urgency for these investments to take place and for concrete actions to go in the right way, he added. He suggested 3 mutually re-inforcing pathways necessary for the transition towards sustainable finance: (i) economic growth in the productive tropical landscape, (ii) together with care for the environment and climate issues, (iii) integrating social dimension inclusiveness especially for smallholders, women, SMEs and indigenous communities.

ACOFOP/FORESCOM who manages a total annual turnover of 8-10 million from over 500 thousand hectares of FSC certified sustainable forest management in the Mayan Biosphere Reserve in Guatemala. A success story exemplified through the convincing words of María Teresita Chinchilla Miranda and Elmer Francisco Méndez Hernández (senior advisor and CEO respectively), after which, the moderator Gerhard Mulder from Oxylus Climate Advisors, was able to elicit point of views and suggestions from all the panelists in a lively and deep debate.

Pauline Nantongo – Director of Ecotrust in Uganda, Edit Kiss – Director of Development and Portfolio Management of Althelia Funds, Juan Carlos Gonzalez Aybar of the Carbon Neutrality Business of Total SA, Hans Loth – Global Head UN Environment Partnership of Rabobank, Veronica Galmez of the Forest and Climate Team of the Green Climate Fund highlighted that innovation might introduce risk for investors that need to be quantified in order to be managed. Inclusiveness in financial endeavors was a major focus of the session – starting from ACOFOP’s example, but also looking at the panel itself.

“This panel is a dream come true!” – Gerhard Mulder, moderator of the session

Gaps, risk and innovation

All panelists agreed on the importance of public funds to help reduce the risk of agriculture and forest investments in the tropics. Risk assessment and management was seen as one of the major challenges for upscaling access to finance, especially because in the agri-food sector risks are complex, need to be better understood and quantified in order to devise risk mitigation strategies and relevant financial tools.  “Understanding the different causes of deforestation is far from easy,” said Veronica Galmez.

The discussion highlighted a leitmotiv of the day: the huge gap between local financial needs and the international supply of finance. There is so much money available, but we have not found yet an efficient way to actually get that to the majority of agricultural and forestry practitioners. NGOs such as Ecotrust are good examples of possible pathways, but they are globally still few and even less investors have the patience or are prepared to take the risk to work with such organizations. As a result, both the farmers and SME working with Ecotrust and the communities organized through ACOFOP still rely mainly on public funds to strengthen their economic activities.

Hans Loth, representative of Rabobank indicated that even initiatives such as Ecotrust and ACOFOP are still relatively small and more aggregation is required, preferably involving local banks or other formal local financial infrastructures. For banks to change behavior, invest in such endeavors, for sustainable finance to upscale efficiently, strong internal leadership that drives willingness to innovate and go beyond traditional banking is required. Such innovations could then be proposed to investors and clients, with track record, documentation and assessed risk. Regulatory frameworks can also hinder innovative approaches, as they limit the options investors have to allocate funds.

“If you really want to scale up […] you really need to change the regulatory framework of banking.” – Hans Loth, Rabobank

Althelia is an example of such leadership and willingness to tackle innovation. Created in 2013 to make use of the opportunities around mitigation in the forest sector, it now invests not just in low carbon activities but also in increasing local capacities and market conditions for sustainable production.

“The idea was to innovate also on the investment side – how to deploy capital, because currently existing tools are not suitable for these types of projects.” – Edit Kiss, Althelia

As climate change is inevitable and touches everyone, innovation has to come from every sector. Juan Carlos Gonzalez Aybar strongly defended this position by illustrating the new business area of Total SA – the Carbon Neutrality Business. Interestingly, it operates also in the same landscape of Uganda as Ecotrust offering opportunities to invest together in sustainable, climate smart agriculture and forest conservation. Total, he said, as well as many other private companies, adheres to the Paris agreement and strive to find ways to comply with those targets, integrating them into their business models. Nature Based Solutions were agreed by the panelists as one way to move forward in emission reduction.

“Emissions come mainly from energy […] so a lot of the mitigation effort should come from that sector.” – Juan Carlos Gonzalez Aybar, Total

Pauline Nantongo shared a compelling story of how the NGO Ecotrust has been able to raise funding to support both productive activities and ecosystem services in a landscape heavily affected by the production of agro-commodities (sugar cane) and oil and gas exploitation.

“We work with local communities and we develop a community vision of how they would like to see their landscapes.” – Pauline Nantongo, EcoTrust

In conclusion: there are no bad people here

The interaction with the audience highlighted how some of the actors in the financial and energy sectors are now perceived as the “bad guys” from the general public. “There is always room for improvement,” said the moderator, indicating that we really need to change the way we enter into dialogue. People entered this global dialogue because we are all are seeking change. This fueled even more the discussion on how to renovate and innovate in a green and sustainable way, echoing the words of Minister Dieschbourg. It is clear that proper investments will need to generate value, without depleting the biggest capital we have: the Earth. Traceability, certifications, monitoring, etc. are all mechanisms that need to be in place for concrete sustainable finance.

Having all these different actors sitting together in the same room was an exceptional event itself – hearing them talk was moving. “These connections are fundamental, ” stressed Gerhard. “There is a need for strong grassroot organisations such as EcoTrust and ACOFOP to identify opportunities and projects that benefit the landscape.” The session confirmed the enormous value of having strong local network and relationships, building on the trust of these local stakeholders. But this alone falls short. In order to scale up significantly, investors like Rabobank and Althelia are absolutely necessary to bridge the gap and connect them to sources of funding. Funding could flow through organizations such as FORESCOM or local banks or cooperatives. Finally, organizations such as GCF could provide a range of financial instruments that are fit-for-purpose for the local context.

The debate exemplified also that sustainable finance is a process, not an outcome or solution. The main questions are around how the process is organized and how to exploit the strengths of local institutions while empowering them.

“Numerous people work hard to make change, globally, but deforestation, inequality are still present. Landscape finance is still not impacting at scale.” With these words Gerhard Mulder remarked that doing better is not synonymous of doing the necessary, so he asked the panel to put in their words what would be the activity that – if they could implement – would be fundamental for change. The dream they would like to see come true. These were the answers:

• De-risk smallholder investments – where I come from smallholders own 80% of the land and the agriculture – so we need innovations that remove, mitigate or reduce this perceived risk and allow them to access these financing sources. Pauline Nantongo
• We have shown that we can set up profitable businesses, I would like to see banks acknowledging this and working with us. Maria Teresita Chinchilla Miranda, ACOFOP
• We need to access funds much faster – frankly, we cannot wait 3 years to launch a fund. Edit Kiss, Althelia
• De-risking, which is something we are already doing, and how this could upscale to a multi-stakeholder level, more and quicker. Hans Loth, Rabobank
• Keep some acceptance to risk – as de-risking will not arrive soon – and maintain all these actors on the table discussing together, seeking change together. Juan Carlos Gonzalez Aybar, Total
• We are running out of time, so we need to figure out how to include and embed all this ambition at all the different scales in making our decisions. So we need ambition and speed of change. Veronica Galmez, Green Climate Fund
• Keep on focusing on the well-being of our communities. Elmer Francisco Méndez Hernández, FORESCOM

eDialogue – extended until 15th December!

The discussion also veered on the important study from FTA and Tropenbos International, currently in draft – being analyzed by a community of experts online through an eDialogue. The study identifies until now three innovative instruments that offer opportunities to unlock finance for SMEs, smallholders and communities while also addressing investors’ issues (e.g. rate of returns, risks, measurable impacts, etc.):

1. Blended finance;
2. Green bonds; and
3. Crowdfunding.

These mechanisms build on existing financial instruments, so the innovation is fundamentally in their capacity to identify and facilitate new objectives, rules and regulations. All these financial instruments can increase accessibility with more flexibility in expectations, thus liberating liquidity. However, they generally require an intermediary to facilitate fund acquisition, management and distribution. One-size-fits-all solutions are unlikely to work, nor will quick fixes. In the past, initiatives that have proven successful in integrating inclusive approaches were typically long term (>10 years) and initially supported by public funds, with commercial finance attracted later, so this needs to be taken into consideration when planning new projects with the identified sets of financial tools. Lessons learned from the past should be part of the strategic planning of today’s finance for sustainable landscapes. The main findings have also been summarized in a White Paper.

 

Given the success of this GLF Session, to allow participants and panelists to continue sharing their views, FTA, CIFOR and Tropenbos International have agreed to extend one last time the deadline for commenting the paper in the eDialogue until the 15^th of December 2019.

Don’t miss the opportunity to join this debate!

 

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By Bas Louman, Tropenbos International and Fabio Ricci, CIFOR/Bioversity.

This article was produced by Tropenbos International and the CGIAR Research Program on Forests, Trees and Agroforestry (FTA). FTA is the world’s largest research for development program to enhance the role of forests, trees and agroforestry in sustainable development and food security and to address climate change. CIFOR leads FTA in partnership with Bioversity International, CATIE, CIRAD, INBAR, ICRAF and TBI. FTA’s work is supported by the CGIAR Trust Fund.