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the Netherlands - 29 November, 2019
Agriculture and forestry are central to the realization of the Sustainable Development Goals. Nearly 60% of food production is produced by smallholders. Small and medium-sized enterprises also play an important role along the value chain in facilitating the economic viability of smallholder agriculture and forestry activities. All of them need sophisticated financial mechanisms to shift towards more sustainable practices. Unfortunately, as of today, less than 3% of climate and conservation finance is assigned to agriculture and forestry, and only a small proportion of this actually reaches the smallholders. This is an issue and a growing concern, as they are by far the largest food producers of the world.
New forms of finance are creating opportunities for smallholder initiatives, but still struggle with considerable barriers. Investors find few viable projects while small businesses and associations often cannot access financial support. To help bridge this gap and mainstream inclusiveness and sustainability criteria in financial decision-making, two of the partners of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA), Tropenbos International and CIFOR, started a dialogue to identify the main challenges and what has been done to overcome them.
The dialogue began this year with a series of research interviews, where diverse stakeholders had the opportunity to explain their experiences in trying to making finance more sustainable and inclusive for smallholder farmers, foresters, producer organizations and associated businesses. Participants to the interviews discussed the benefits that inclusiveness can bring, focusing on key areas including gender, shared values, and the social license to operate (for example ensuring that Free, Prior, Informed Consent (FPIC) or similar procedures that have been implemented by investees).
Promising initiatives and financial instruments were discussed in a Digital Summit that followed shortly, which was complemented by a literature review. All these exercises identified specific barriers and discussed possible solutions to upscale innovative finance and render it more inclusive. The results of this ongoing dialogue were then summarized and developed into a draft document called: “Scaling of innovative finance for sustainable landscapes”. This document is now openly accessible on the GLFx platform – where a Community of Practice made up of experts and practitioners are taking part in an innovative eDialogue, sharing thoughts, case studies, references and replying to questions and issues raised by participants. The aim is to increase the shared knowledge, identifying gaps in the study, in order to enrich before publication and come to a more impactful document, one that can be useful to a wider range of stakeholders.
Sustainable and inclusive landscapes are those in which all stakeholders are engaged in the design, implementation and learning of/from actions that increase the sustainability of that landscape.
`Key strategies highlighted so far by this long-term dialogue and study are the need to facilitate increased collaboration between local groups (associations, NGOs, CSOs) and financial entities, and to create or strengthen local financial infrastructure ensuring good governance and equitable ownership. Successful examples include forest communities in Guatemala at a landscape scale and coffee producer organizations at national level in several Central American countries.
In its fourth year as the world’s most innovative forum on sustainable land-use finance, on the 30th November 2019 the GLF Investment Case Symposium will bring the brightest minds together to move this form of finance from niche to mainstream.
FTA, Tropenbos International and CIFOR have the privilege to organize a session at this Forum on “Innovating Finance to Overcome Current Barriers Towards Sustainable Landscapes”. Seven panelists representing different sections of the finance ‘value chain’ will discuss the strategies and the problems international funds have to reach smallholder farmers and why it is difficult to upscale these mechanisms. A debate on what steps are needed to bridge the funding gaps for scaling up inclusive and sustainable local agricultural and forestry operations.
The panel will capitalize on the electronic consultation and eDialogue now running on GLFx to discuss further how to upscale innovative finance. Success stories will be shared and the possibility of extending these paradigms to different landscapes will be a main output of the debate. The session will be live streamed, so if you cannot participate to the discussions directly in Luxembourg, you will be able to follow it and interact via chat and sli.do.
The outcomes from the session should help reach an agreement on which concrete steps can be proposed to financial institutions, fund managers, NGOs and civil society organizations in order to facilitate the access to climate- and SDG-related financial assets. The study will propose recommendations to be followed up with feasibility pilots, promoting full implementation across the value chain actors.
Most of the funds currently flowing into landscapes actually respond to the needs and visions of large companies and, whereas a growing proportion of them now considers social or environmental issues, real reductions in deforestation, forest degradation, poverty, hunger and inequity still lag behind. However, new innovative financial mechanisms are demonstrating to be extremely effective in unlocking funds for investments in a sustainable and inclusive way. Our study concentrates on these innovative methods – these have also been summarized in a White Paper.
Here below a useful recap of the current main findings of the study.
Primarily for financial returns (and impacts, if by a Development Finance Institution)
Primarily but not exclusively for sustainable development impacts
Seven main enabling factors were identified that can boost the uptake and impact of innovative finance for sustainable landscapes, and further seven influencing factors that can affect the extent to which investments achieve and maintain sustainability.
Enabling factors to stimulate access to financial services
Influencing factors to help achieve sustainability
Innovations in finance
Our study identified 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.).
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.
Here below is a short summary of the innovative instruments currently in our draft paper.
Blended finance – The strategic use of public or philanthropic capital to mobilize finance for development-related investments. Mixing development and commercial finance into specific funds creates opportunities to address issues of aggregation, network strengthening and technological innovation. Impacts are increased when accompanied by grassroots technical support from NGOs and CSOs that address local issues.
Green bonds – A debt obligation that links funding to climate or environmentally friendly investments. Proceeds can be used for a range of ‘green’ actions, and if the initial investment is ‘patient capital’, repayment is only needed when bonds mature. Require strong local institutions or intermediates that can issue bonds and manage the proceeds according to international standards.
Crowdfunding – The pooling of small amounts of capital from a large number of interested individuals and institutions. Suited to local scales, but needs investors with an affinity to the issues, locations or intended activities. Opportunities increase when umbrella groups and platforms in target landscapes and linked with developed countries groups, ensuring compliance with agreed sustainability criteria.
Integrated approaches – Needed to scale up finance for sustainable and inclusive landscapes, including combinations of financial structures, mechanisms, instruments, conditions and capacity by strengthening the capacities of those that influence the impacts of financed practices. Overseas development assistance can also help to address some conditions such as policy and regulatory frameworks, building skills and knowledge, and the infrastructure needed for mobile finance.
--------------------------------------------------------------------------By Nick Pasiecznik, Tropenbos International From a draft study of: Bas Louman,i Eveline Trines,i Michael Brady,ii Nick Pasieczniki, Vincent Gitz,ii Alexandre Meybeckii, Gerhard Mulderi, Laurent Fremyii. i Tropenbos International, Wageningen, The Netherlands; ii CIFOR, Bogor, Indonesia