Last month a group consisting of BNP Paribas, ADM Capital, UN Environment (UNEP) and other partners announced the Tropical Landscapes Finance Facility (TLFF) in Jakarta to support the Government of Indonesia by bringing long-term finance to projects and companies that stimulate green growth and improve rural livelihoods. This facility and the role of UN Environment signify a change in direction in three important ways.
First, by setting up such a facility UN Environment (UNEP) is showing that it can provide proactive support to help channel public and private finance to expand rural renewable energy production, reduce deforestation and restore degraded land. The organisation has to date played a pivotal role to help member states address environmental problems since its inception in 1972. Over the course, it has become known for its convening role, creation of conventions and multilateral environmental agreements and for building its member states' capacity to tackle environmental issues. However, UN Environment has been much less known for building partnerships with private sectors. That may be about to change. There is a growing opportunity to foster strategic partnerships, such as the one created with BNP Paribas and ADM Capital in the context of the TLFF. Other programmes within UN Environment are also building various collaborations with mining companies, consumer good companies and other sectors. The underlying motivation is that the private sector represents about 70 per cent of the global economy. Addressing environmental problems without systematically involving the private entities is likely to be less effective in tackling issues ranging from climate change to water scarcity, marine litter, deforestation, etc.
A second change in direction is the way conservation could be financed in the future. There are various estimates about the current size of conservation finance. One number put forward by WWF, McKinsey and Credit Suisse puts it at around USD 52 billion annually, mostly in the form government and private philanthropic funding. That is, however, a considerable gap with the amount of funding needed to stop degradation of ecosystems and loss of biodiversity, roughly estimated at USD 300-400 billion annually. Biodiversity loss cannot be stopped unless governments and businesses significantly scale up their efforts, including the level of finance. While part of this will have to come from governments, they will not be able to cover the funding gap. Private finance will have to be a critical part of the solution, scaling up from the current level of around USD 10 billion to the required USD 200-300 billion. That means looking at conservation from a different angle than conventional views. This includes identifying attractive risk-adjusted returns for sustainable investments in land use that combine enhanced production of agricultural commodities with stricter protection measures for example. This week, IFC announced a new 'forest' bond of USD 152 million whereby the coupon can either be paid in cash or in carbon credits from a large forest project in Kenya managed by Wildlife Works. The bond was developed in collaboration with BHP Billiton and Conservation International. If investors prefer coupon payments in cash, BHP Billiton will buy the carbon credits up to USD 12 million, effectively guaranteeing a steady sale of carbon credits for Wildlife Works every year.
The third change in direction is the considerable potential of the bond market to raise private finance with conservation-related (co)benefits. S&P Global recently presented a new Green Bond Evaluator to assess the environmental impacts of projects financed through the bond's proceedings. However, from a land-use perspective, out of the USD 700 billion in 'green' bonds issued to date whereby the proceeds are used to tackle climate change, less than 1% is in the agricultural and forestry domain according to the Climate Bonds Initiative. Most of the capital raised is invested in sustainable transport, renewable energy and energy efficiency. I do believe, though, that there is significant scope to use the bond market to unlock private finance for sustainable land use. Although the Tropical Landscapes Finance Facility in Indonesia is at a very early stage, it provides an example how bonds will be used to bring institutional investors into the financing of rural renewable energy projects and sustainable agricultural intensification coupled with forest protection measures. This market is currently nascent, but may grow substantially in the coming years.
The bottom line is that a business-as-usual scenario for landscape management does not work! We cannot achieve the climate objectives, restore degraded land and protect biodiversity and at the same time increase agricultural production and reduce food insecurity by continuing the way we have managed land to date. The change in direction exemplifies UN Environment's role to seek a balance between these seemingly different objectives in order to contribute in a realistic and pragmatic way to the Sustainable Development Goals.
This post is part of a series produced by The Huffington Post, in conjunction with the U.N.'s 22nd Conference of the Parties (COP22) in Morocco (Nov. 7-18), aka the climate-change conference. The series will put a spotlight on climate-change issues and the conference itself. To view the entire series, visit here.