Financing and the private sector

There is a growing interest on the part of businesses in tackling emissions related to deforestation and forest degradation.

UN-REDD work on financing and the private sector is focused on building the business case for more sustainable ways of producing soft commodities, especially by ‘decoupling’ production from deforestation, as well as identifying what kinds of policies and measures Governments can develop and embed, for instance in national REDD+ strategies. In 2019, UN-REDD contributed to a number of business cases at the country level and novel partnerships with impact investors, and provided support to countries in raising results-based payments:

  • Two UN-REDD partner countries that received support with business case analysis
    • Costa Rica (business case on livestock): A business case analysis was developed for the adoption of sustainable production practices in beef and dual-purpose farms in Costa Rica. The report is accompanied by an economic model to assess the potential economic and environmental performance of different practices. The model was developed to support both the Livestock Development Corporation, a non-State public actor, and the Ministry of Agriculture and Livestock to document the performance of the practices promoted under the national low-carbon development strategy, which includes the integration of trees into beef and dual-purpose farms.
    • Viet Nam (business case study on Robusta coffee): The analysis focused on assessing the economic viability of interventions that will support smallholder livelihood development in order to assess the potential for attracting investment capital for cultivation improvements. Intercropping was identified as a model that would generate immediate improvements in the coffee business, while also improving livelihoods for smallholders. However, positive returns cannot be realized until after the replanting phase, leading to an income gap. The size of the investment gap depends on the price of coffee and cost of conversion, and represents a significant barrier to conversion for poorer households. These initial findings and the analytical tool for assessing the economic impact of cultivation decisions on the smallholder over a 25-year period, were presented to Central Economic Committee and the Institute for Policy and Strategy for Agriculture and Rural Development in October 2019. Both the findings and the tool were well received and their potential for informing policymakers was raised by the Institute.
  • Best practice cases on public-private partnerships to promote increased investments in deforestation-free productive activities.
    • The Dutch Government and Rabobank announced anchor investments in the AGRI3 Fund, enabling it to become operational and act as a much-needed vehicle to “derisk” private finance for banks and (impact) investors looking to finance sustainable agriculture and/ or forestry activities. The fund has net-positive targets for the mitigation of greenhouse gas emissions from land use, as well as protecting and restoring forests. The engagement between the Dutch Government as public financier, as well as Rabobank and other AGRI3 consortium members, intensified in 2019, culminating in the launch at the annual meeting of the World Economic Forum in 2020. The fund will focus specifically on sub-Saharan Africa, Latin America and SouthEast Asia.
    • The &Green Fund, a blended finance impact investment fund focused on forest protection and tropical forest commodities, announced in 2019 that it was investing $23.75 million in sustainable, deforestation-free rubber production in Indonesia. The investment funds PT Royal Lestari Utama (RLU), an Indonesian joint venture of the French tire manufacturer Michelin and the Indonesian Barito Pacific Group. The &Green Fund will make the investment through the purchase of notes issued by the Tropical Landscapes Finance Facility. This deal is especially relevant given the lack of investor demand to buy long-dated bonds in the sustainable land-use domain given the limited track record and (perceived) high risks.
    • A new blended facility – called the “Responsible Commodities Facility” – was launched at the London Stock Exchange in July 2019, aimed at financing deforestation-free and conversion-free soy. Given the extensive clearing of Cerrado vegetation in Brazil, these kinds of novel partnerships between public and private entities can act as a model for others to follow suit. Once launched, the bond’s use of proceeds will be used to finance Brazilian farmers that adhere to the Brazilian Forest Code as well as prioritize the use of degraded land for soy production (as opposed to clearing more native vegetation).
    • A paper was presented at the Global Landscapes Forum in Luxembourg on 30 November 2019 about what is preventing successful pilot studies in deforestation-free commodities production from being scaled up.

This report is made possible through support from Denmark, Japan, Luxembourg, Norway, Spain, Switzerland and the European Union.