Financing strategies for integrated landscape management - S. Shames at PRISMA 2014
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Presentation at the International Forum on Landscape restoration, governance and climate change in El Salvador. Seth presents the in press results of a major study on the financing and investment landscape for sustainable agriculture and landscape management, including climate funds, carbon credits, green investment funds, institutional investors, multilateral lending agencies and more.
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Financing strategies for integrated landscape management - S. Shames at PRISMA 2014
- 1. Financing strategies for integrated landscape management Seth Shames EcoAgriculture Partners International Forum on Landscape restoration, governance and climate change San Salvador, El Salvador February 17-18, 2014
- 2. Elements of integrated landscape management 1. Shared or agreed management objectives encompass multiple benefits (the full range of goods and services needed) from the landscape. 2. Field, farm and forest practices are designed to contribute to multiple objectives including human wellbeing, food and fiber production, climate change mitigation, and conservation of biodiversity and ecosystem services. 3. Ecological, social, and economic interactions among different parts of the landscape are managed to realize positive synergies among interests and actors or to mitigate negative trade-offs. 4. Collaborative, community-engaged processes for dialogue, planning, negotiating and monitoring decisions are in place. 5. Markets and public policies are shaped to achieve the diverse set of landscape objectives and institutional requirements.
- 3. Climate-smart agricultural landscapes: Food, livelihoods, mitigation, resilience, ecosystems
- 4. Landscapes for People, Food and Nature Initiative
- 5. Value of ILM vs non-integrated alternatives Public and private benefits ● Efficiencies in public sector planning , inter-agency and spatial ● Diversified revenue streams provide economic resilience in the landscape ● Reducing supply chain risk ● Access to new markets including certified commodities and PES
- 6. ILM finance study objectives ● Identify mechanisms and strategies used by ILIs to access finance ● Identify mechanisms and strategies of financial institutions to finance and benefit from ILM ● Provide recommendations and mobilize dialogue with financing institutions to improve ILM finance
- 7. Asset investment and enabling investment Asset Investments Enabling Investments Finance for an activity that creates tangible value. Funding the generation of the incentive to invest. Mostly through loans and equity investments. Often by FIs with no expectation of financial reward.
- 8. Motivations of finance institutions
- 9. Scoping Finance Institutions and Financing Mechanisms for ILM > 200 Institutions; > 250 Mechanisms; Wide range of ILM investment
- 10. Finance institution case studies Investment fund managers Althelia, Moringa, Ecoenterprise fund, Commercial bank Rabobank National Bank Brazil Rural Credit Institutional investor TIAA CREF Company Bunge Environmental Markets, Nestle Multilateral public sector Global Environment Facility, WB BioCarbon Fund Bilateral public sector NORAD NICFI, USAID
- 11. Types of ILIs by dominant actor National government-led, large multi-lateral donors •Examples: Mt. Kenya East Pilot Project (now Upper Tana), Kenya; Gishwati watershed, Rwanda; Loess Plateau, China •Types of finance: Multi-lateral and bi-lateral funds, DFIs, domestic funds Regional initiatives and platforms •Examples: Lombok/British American Tobacco, Indonesia; Atlantic Forest Restoration PACT, Brazil •Types of finance: Multi-lateral, bi-lateral, banks, commodity roundtable investments, private foundations, labour and in-kind contributions, PES Traditional, local or community-led • Example: ASPROINCA, Colombia • Types of finance: Labour and in-kind, private foundation, PES, government (national, regional or local) NGO-led, civil society organizations Private sector-led (smallscale farmers to agribusiness, forestry, mining) •Eamples: Namaqualand, South Africa; Bacia hidrográfica do Ribeirão do Boi, Brazil •Types of finance: Private foundation, Multi-lateral, domestic development banks, government, community contributions, PES, labour and in-kind • Examples: Guyaki Yerba Mate; Sustainable Cattle in Practice - pilot phase, Brazilian Round Table on Sustainable Livestock • Types of finance: Supply chain investments, private foundations, in-kind, PES
- 12. Landscape initiative case studies ● Atlantic Rainforest, Brazil, Espírito Santo Regional platform: Atlantic Forest PACT ● Lake Naivasha, Kenya Government-led: Imarisha Naivasha ● Namaqualand, South Africa Conservation International
- 13. Scoping results: Mapping the flow of ILM finance
- 14. Examples of public and private finance mechanisms for ILM
- 15. Challenges of scale: time horizon, investment size, risk appetite
- 16. ILM enabling investment challenges and innovations ● Public sector institutions are siloed ● ILI start-up and coordination is underfunded ● Enabling investment is not sufficiently reducing risk for private investors
- 17. Recommendations ● Increase investment in enabling conditions for ILM ● Continue to clarify and communicate the ILM business case ● Reduce risk for private sector investment with public policy ● Reduce risk for private sector investment with innovative financial mechanisms ● Develop partnerships between financial institutions and landscape stakeholder groups ● Integrate sectoral planning at the landscape scale for green growth and climate change investments
Editor's Notes
- Intro to ILMReason for finance studyMethodsFindingsimplications
- This is our framework and the way we define landsacpe
- Intro framework continued:Climate-smart landscapes: ILM principles still apply, but with a focus on climate adaptation or mitigation
- Working groups-this is the work of the LPFN finance Working GroupFirst step in this WG is to take stock of what is now being done, pull together information
- Efficiencies in public sector planning – inter-related objectives, not working at cross-purposesWe know that there is value to public and private actors for supporting ILMThese are reasons why public and private finance institutions would want to finance ILMThe rationale is that we still need to know more about how ILI’s access finance and how finance institutions are beginning to finance ILIsIncidently, we also did a business study called ‘reducing risk’ that went into some detail for private businesses
- Describe that we looked at this from two different perspectives, and we were very broad
- For the finance institution analysis we focused on both kinds of investmentAsset Investment-an investment that aims to create more tangible value, thus creating private assets. Enabling Investment-Funding for the generation of the incentive to invest money for a particular activity. Stakeholder engagement and cooperation Appropriate legal and regulatory framework Knowledge and capacity to plan and manage on a landscape scaleIncentive mechanisms
- Why do actors engage in ILM?Finance is diverse, and there are different actors. These differences need to be understood upfront to identify where the gaps are for ILM finance how they can be filled. Public, private and public-private partnerships
- 18 interviewsAll kinds of ILM investments including: sustainable ag, climate adaptation and mitigation, water
- Different leading actor had potentially different finance characteristics
- Scoping assessment of ILIs, 29 ILI’s linking:Agriculture, Forestry,Water,Urban expansion,Transportation,Rural business development,Electricity and power,Livelihoods
- We tried to do a mapping of all of these things-give exampleExample-public funds go to the biocarbon fund (WB), offset instrument, goes to adaptation/mitigation, revenue back to WB in form of credits; and revenue back to farmers in form of increased yieldsRevenue streams were financial as well as social and environmental returns
- See some things you’d expectPublic does asset and enabling; private doesn’t really do enablingPublic does adaptation; private doesn’t do adaptationrelative strengths of focus on financing different ILM components per sector and focus of investment. Relatively high concentration on carbon mitigation, adaptation and sustainable ag (agro-ecology or agro-forestry) Less on watershed services, biodiversity and more nascent blended instruments are This is going to be refined
- Even with all of these innovations we see a clear pattern of a gap that is not being filled which is critical to ILMTime horizon: Investors want quick results Risk appetite: Some investments are still too riskyInvestment size: Mismatch between finance institutions and size of investment opportunities Even with this—landscape is even more complicated because private investors have to deal with other stakeholder and higher transactions costsThese challengesall lead to difficulties of scaling up ILMDepicts the challenge for raising the requisite scales of capital to finance high risk, low volume ILM projects, often in frontier markets. SMEs may be too big for local finance but too small for international finance sourcesLending policies of banks want short-term with low-risk, want to minimize administrative costs through economies of scalelack of funds and liquidity in ‘frontier markets’
- Confirmed hypothesis-Public sector institutions are sectoralysiloedREDD+ is in forestry ministries, particularly limits them making case to finance ministries, Innovation: Atlantic forest comes from water fees and enviro mitigation; naivasha from water funds –the convenor groups to support stakeholders to access multiple sources of funds and steer funds from grants to more tangible things into stakeholder dialogue-start-up underfundedlike in private, public funding time cycles don’t synch well, Innovation: some public sector funds are covering this e.g. CEPF has specifically invested in stakeholder planning and coordination in first 5 years; strong leadership is critical to steering funds and keeping vision-enabling investment to reduce risk:Innovation: risk guarantees, first-loss protection e.g ISFL Partnership for market readiness,
- Increase investment in enabling conditions for ILMpublic-sector needs to recognize the strong ROI of ILM investments in terms of public goods during startup phase, first 5 to 10 years.Private sector should be more bought in and sometimes they will have to take the lead.Continue to clarify and communicate the ILM business caseprivate sector needs proven business models, but ILM does provide real value and risk reduction and new business opportunities need better methods of valuing returns over time to ILM investment.Will need to see success from their peersReduce risk for private sector investment with public policymore risk guarntees such as first loss when there is a limited track record can enhance credit worthinessReduce risk for private sector investment with innovative financial mechanisms -Landscape fund uses long-term bonds and risk guarntees and aggregates lots of farmers-WB biocarbon fund is going regional for climate-smart forestry and ag-mixing carbon incentives and technical assistance, going towards landscape though perhaps not yet there-catalytic funds-SAGOTDevelop partnerships between financial institutions and landscape stakeholder groupsThe Atlantic forest PACT in Brazil has cultivated a partnership between their stakeholder platform and Brazilian National Development Bank (BNDES). The BNDES oversees a range of public funds deployed as credit and loans to landholders in the Atlantic forest including climate funds, the Amazon Fund, Mata Atlântica Fund, ABC Plan credit lines, and rural credit programs, however, BNDES does not have an explicit mandate to oversee integrated finance in the Atlantic forest. There is a leadership and finance institution gap, which could be addressed through a partnership between the PACT and key banks to oversee an integrated and blended finance program for the region.Integrate sectoral planning at the landscape scale for green growth and climate change investments Green economy and climate change investments should happen at landscape scalePublic finance mechanisms such as the GEF and IFAD have made progress in enabling countries to receive funding for multi-focal projects that target landscape scale challenges and mainstream climate risk into sector specific funders (see case studies). In the design of the GCF, these efforts should be used as models of the potential to supplement sector specific funds with climate finance as a means of catalysing ILM.Althelia, Moringa, BEM and BioCarbon Fund cases, although carbon credits and REDD+ were initial entry points to projects, it quickly became clear that REDD+ enabling conditions were not sufficient, need revenue fiversification