sustainable land use finance opportunities for philanthropy

1

235 Montgomery St. 13th Floor

San Francisco, CA

94104, USA

climatepolicyinitiative.org

BRAZIL

CHINA

EUROPE

INDIA

INDONESIA

SOUTHERN AFRICA

UNITED STATES

Identifying strategic opportunities

for philanthropy to engage in

sustainable land use finance

March 2016 CLUA Retreat

Opportunities for philanthropy in land use finance 2

Purpose of this initiative

Identify the role foundations in CLUA could

play to support sustainable land use through

distinct, powerful, and accessible finance

levers, providing a framework for finance

interventions, and pinpointing potentially

promising interventions.


Identify gaps and barriers

Explain the rationale for philanthropic involvement and identify finance entry points

Elaborate a framework for philanthropic finance interventions in sustainable land use

Executive summary

2

3

4

5

1 Describe the sustainable land use context

Brainstorm “suitable for philanthropy” interventions, and potential criteria to prioritize interventions


1. Describe the “sustainable land use” context


How are current approaches helping us to avoid catastrophic climate change?

Context of sustainable land use challenge

HIGH-

CARBON

LAND USE

LOW-

CARBON

LAND USE

Transition to low-carbon sustainable land use system

Climate/land-use policy

Climate finance/ sustainable land-use finance

Climate and land-use policy alone can only partially lead to a complete transition. Finance is a powerful tool to unlock investments in

sustainable land-use.

1


What are finance interventions?

Finance interventions seek to redirect or open new flows of

investment into low-carbon, sustainable practices and/or

restrict investment from high-carbon, unsustainable practices.

1

Govt. of Brazil’s “ABC Plan” to incentivize rural farmers to

adopt less GHG-intensive practices with lines of credit

Foundations work to through policy advocacy groups to

promote the establishment of new low-carbon

agricultural credit lines

Foundations directly invest in commercial

financing vehicles

Althelia Ecosphere, which invests in Novo Campo

sustainable cattle ranching finance facility

Examples


Finance and policy overlaps

Policy interventions Finance interventions

REDD+

pay-for-

performance

Debt-for-nature

swaps

Stronger

regulation on

illegal logging

Low-carbon

agricultural

credit line Sustainability

labeling

Tax incentives

Forestry bonds

Sustainability

requirements for

financial market

ratings

1


Finance flows to agriculture and forestry –

only small percentage is climate-marked

Domestic private investment $168 billion p.a

Domestic public expenditure $38 - $225 billion p.a

FDI around $3 bn p.a

Public R&D $5 bn p.a

International ODA $14 bn p.a

• of which, climate marked $8 bn p.a • $2.1bn from multilateral DFI • $1.7 from national DFI, $3.5bn

from bilateral DFIs, donors and agencies

• $0.5bn from public climate funds Source: FAO 2012. The State of Food and Agriculture; OECD

2014. CRS database; Koohafkan, 2012; Buchner et al., 2014

Note: this figure is not to scale and is prepared using data from

various sources for different years, so should be used only to

understand the possible magnitude of overall investment and

public support which may themselves overlap.

1


2. Identify gaps and barriers


Why is there not more investment? 2

Three main types of barriers impede sustainable land use investment, encourage BAU behavior:

• Viability / cost gap: Sustainable land use may cost more or have insecure/insufficient returns

• Knowledge gap: Developers, investors and users do not understand the opportunities

• Risk gap: Investors perceive a range of risks in sustainable land use investments, and few risks are covered by existing risk instruments. Existing land use climate finance initiatives are met with multiple implementation challenges, slowing progress.


3. Rationale and entry points for philanthropy


Context

Population growth, growing middle class, growing demand for food & fuel; natural resources are under increasing pressure.

Gap

Poorly designed land-use policies & incentives, land tenure challenges; cost, knowledge and risk gaps, results in investment in BAU practices.

Need

Finance interventions needed to redirect finance away from brown to green and to catalyze new investments in sustainable land use.

Opportunity

Philanthropy can test innovative approaches, take risks, be nimble, and take a systemic, strategic approach; can catalyze other actors given broad network.

Time is now

There is growing private sector demand for sustainable finance interventions. Many opportunities to leverage existing work of other donors. Build off momentum from Paris.

Why land use? Why philanthropy? Why now? 3


4. A framework for philanthropic finance

interventions in sustainable land use


Philanthropic entry points: a framework

Entry points Type of activity

1. Knowledge building and

analysis

• Research/analysis

• Education to key stakeholders

• Diagnostics and trouble-shooting

• Investment guidance

2. Disseminating,

advocacy, raising

awareness

• Public campaigns

• Staffing policymakers

• Legal actions

• Advocacy

• Corporate activism

3. Community and

platform building

• Community building

• Platform building/voice amplifying

4. Direct investing & market

building

• Making direct investments

• Facilitating investment opportunities

4


Finance not a new focus for CLUA

• US$5m in finance-related grants from CLUA in 2015:

– 10 grants (62% total value) on disseminating/advocacy

– 7 grants (33% total value) focused on knowledge building

– 1 grant (5% total value) on direct investing/market-building • Packard’s PRIs not included here

4

Knowledge

building and

analysis

Disseminating,

advocacy,

raising

awareness

Direct

investing &

market

building

• Several CLUA grants already align with CPI’s suggested interventions

62%

33%

5%


5. Brainstorm “suitable for philanthropy”

interventions and potential screening criteria


Knowledge-building and analysis interventions

Candidate Interventions Example

1. Support improved disclosure and reporting of land

use finance by companies, investors, financial

institutions; help develop sustainability metrics

• UN PRI

• Ceres’ Investor Network on

Climate Risks

2. Support research and design of appropriate bond

instruments that could apply to different geographical

contexts, sectors, and actors

• Forest Resilience Bond by Blue

Forest Conservation with support

from Rockefeller, Packard, Fink

3. Fund training programs to improve investors’

understanding of commodity-specific risks, opportunities

• IFC Advisory Services

• Grow Africa

4. Support research to track brown and green land use

finance flows and improve transparency of financial

institutions’ and companies’ progress toward

sustainability commitments

• CPI’s Landscape of Public

Climate Finance in Indonesia

• Moore’s support for Global Forest

Watch’s Commodity Finance

5. Fund research to develop and analyze new business

models and identify appropriate policies and fiscal

incentives to support them

• Global Innovation Lab for

Climate Finance

• Moore/CLUA grant to NWF and

GLUE’s Zero Deforestation Cattle





• UN PRI


Climate Risks










• Grow Africa













Climate Finance







• UN PRI


Climate Risks










• Grow Africa













Climate Finance



5


Dissemination, advocacy, awareness-raising

interventions


6. Pay to embed experts within policymaking

organizations to provide advice on sustainable land

use policy, planning, and budgeting

• GIZ embeds REDD+ experts to sit

within government agencies in

Indonesia

7. Fund NGOs to advocate for changes in land use

finance policies, including agriculture subsidy reform

• ODI’s research on commodity

subsidies driving deforestation

8. Support advocacy for the creation of green credit

lines for smallholders (via local financial institutions)

• IDB Green Lines

• Brazil’s ABC Plan

9. Support public campaigns to increase % of

certified sustainable commodity imports

• Fern’s campaign against EU’s

import of forest-risk commodities

• Greenpeace’s campaign for

more stringent standards


6. Pay to embed experts within policymaking

organizations to provide advice on sustainable land

use policy, planning, and budgeting

• GIZ embeds REDD+ experts to sit

within government agencies in

Indonesia

7. Fund NGOs to advocate for changes in land use

finance policies, including agriculture subsidy reform

• ODI’s research on commodity

subsidies driving deforestation

8. Support advocacy for the creation of green credit

lines for smallholders (via local financial institutions)

• IDB Green Lines

• Brazil’s ABC Plan

9. Support public campaigns to increase % of

certified sustainable commodity imports

• Fern’s campaign against EU’s

import of forest-risk commodities

• Greenpeace’s campaign for

more stringent standards

5


Community- and platform-building interventions


10. Support the development of a project bundling

facility (aggregator) or matchmaking facility

• Dutch Development Coop

Matchmaking Facility

11. Fund an “impact angel investor network” to

address absence of venture-style equity in

sustainable land use

• Clearly Social Angels, a UK angel

investor network

• AngelList’s “Impact Investing

Angel Investors

12. Fund the creation of a platform to test new and

innovative financing instruments

• The Global Innovation Lab for

Climate Finance

• FiRe

13. Pay for extension services / technical assistance

facilities including linking smallholders to value chains

• Agricultural Supply Chain

Adaptation Facility (ASCAF)

• CWF to TuK, promoting

smallholders’ access to technical

and financial assistance










investor network


Angel Investors




Climate Finance

• FiRe

















investor network


Angel Investors




Climate Finance

• FiRe








5


Direct investing and market-building interventions


14. Take higher-risk positions in financing structures via a

range of instruments (e.g. first loss equity, subordinated

debt, guarantees)

• AgDevCo

• Root Capital

15. Fund pilots that test new business models payment

schemes for sustainable landscape management

• WFP’s Purchase for Progress

• Althelia Fund

• Livelihoods Fund

16. Fund early capitalization of climate risk indexed

insurance products for producers

• African Risk Capacity (ARC)

17. Facilitate early-stage ideas with at-scale investment

opportunities via an “accelerator”

• Climate Focus’ “accelerator”

proposal

• US-Africa Clean Energy

Financing Initiative

• Moore’s involvement with the

Novo Campo project in Brazil




debt, guarantees)

• AgDevCo

• Root Capital




• Althelia Fund








proposal








debt, guarantees)

• AgDevCo

• Root Capital




• Althelia Fund








proposal





5


Deep dive: access to finance

Knowledge building &

analysis

Foundations can fund

training programs to improve

investors’ understanding of

commodity-specific risks,

opportunities

Foundations can support

advocacy for the creation of

green credit lines for

smallholders

Disseminating, advocacy,

awareness raising

interventions

Community- and platform

building interventions

Foundations can build an

“impact angel investor

network” to address absence

of venture style equity

Foundations can take high-

risk positions in financing

structures, aligning capital

with public & private investors

Direct investing and market

building interventions

5


Potential criteria to evaluate interventions

Impact:

• Direct and indirect emissions reduction potential

• Potential volume of additional investment mobilized

(transformational)

Actionability and complementarity:

• How crowded is the space?

– Are other (philanthropic or non-philanthropic) actors working

on this? Are current actions effective?

• Is it feasible?

– To what extent does the intervention rely upon external

actors or decisions in order to be implemented?

• What is the likelihood of success?

– Is it likely to meet its intended goals?

5

BRAZIL

CHINA

EUROPE

INDIA

INDONESIA

UNITED STATES

235 Montgomery St. 13th Floor

San Francisco, CA

94104, USA

climatepolicyinitiative.org

Thank you!


Appendix


The role of land use in climate change

Land use generates 17-25% of

global GHG emissions

Indonesia and Brazil

contributed 44% and 29% of

global LULUCF GHG emissions

(2012) Source: WRI, 2015, CAIT database

+

= Nearly 75% of global LULUCF emissions

Agriculture is the major driver of

deforestation

Mining, urban expansion & infrastructure are also key

drivers


Interviewees


The current sustainable land use finance

landscape remains patchy

Data source: Buchner et al., 2014

Less certain data: • Philanthropic grants to ‘envt

& animals’ in 2012: USD 1.6

bn • Estimated annual private

investment in selected certified timber and palm oil markets: USD 4.2 bn


Sustainable land use finance actors


These gaps are well-documented

Cost &

Viability

Knowledge

Mismatch between “quick results” needed by investors (plus liquidity, Basel III constraints for banks) and long-term horizon

needed for landscape projects

Transaction costs too high and scale of investment too low - small and scattered opportunities lack aggregation

Borrowers often need equity but have limited or no collateral

Weak legal frameworks e.g. on land tenure, governance issues and corruption

Lack of risk instruments for the sector

Risk

Lack of known bankable

projects

Lack of spatial information

Limited investors, project

promoters working on land use

Poor coordination between stakeholders (govt., businesses,

local communities)

Weak political support and institutional capacity

Lack of good planning/coordination on concessions, permits.

Local implementers lack capacity to respond to donor application and

reporting requirements

Lack of enforcement in land use

High start-up costs High monitoring costs

High vulnerability to climate risks


The role of philanthropy

Finance levers are underutilized by the land use

community

Can open pools of capital

Can be a catalyst to land use policy

Can help speed up innovation

Can motivate finance ministries

Financial Policy

Financial Sector

LEVERS

IMPACTS


Broader insights based on interviews

Philanthropy….

• Should not create new funds, but mainstream sustainability

objectives into existing financing and TA vehicles/institutions.

• Can support small scale activities with less visibility / immediate

results, ones which public donors may shy away from.

• Is a respected voice and can broker investment partnerships.

• Can leverage the South’s growing philanthropic community.

• Is uniquely positioned to finance private companies directly

where donors face constraints.

• In some cases, have a unique opportunity to support the

greening of the investment portfolio of their associated

asset management/investment arms/parent companies.

Philanthropy is uniquely suited to help address the world’s sustainable land use finance needs

33 33

About CPI

Climate Policy Initiative (CPI) works to improve the most

important energy and land use policies around the world, with

a particular focus on finance.

We work in places that provide the most potential for policy

impact, including Brazil, China, Europe, India, Indonesia, and

the United States. Our work helps nations grow while

addressing increasingly scarce resources and climate risk. This

is a complex challenge in which policy plays a crucial role.

www.climatepolicyinitiative.org

http://www.climatepolicyinitiative.org/

http://www.climatepolicyinitiative.org/

https://twitter.com/climatepolicy

https://www.linkedin.com/company/climate-policy-initiative/

https://www.facebook.com/ClimatePolicyInitiative

sustainable land use finance opportunities for philanthropy

Environment