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Financing Strategies for Integrated Landscape Investment
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Financing Strategies for Integrated Landscape Investment


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How do landscape initiatives find the financial support they need to get started, maintain operations, and improve outcomes? Who is investing in landscape management now, and what are the barriers to …

How do landscape initiatives find the financial support they need to get started, maintain operations, and improve outcomes? Who is investing in landscape management now, and what are the barriers to increased investment in the future? This presentation presents the findings of a major research project we undertook to determine the answers to these main questions.
By Seth Shames, Margot Hill Clarvis and Gabrielle Kissinger

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  • Starting was to understand the different motivations and expectation (in terms of expected returns) of a range of public and private investors.
    Governments and not for profit organisations such as foundations, NGOS, and charities, tend to grant or lend funds with the intention of generating social and environmental returns.
    While, expectations of financial return are of greater significance than social and environmental for investors, such as institutional investors, asset managers, and financial lenders such as private sector banks. DFIs tend to sit somewhere in the middle, depending on the organisation.
  • Through the scoping phased, we reviewed about 200 institutions and more that 250 mechanisms that allowed us to capture the range of sources, intermediaries, instruments, entry points and revenue streams for ILM finance across the public and private sector.

  • This is a high level synthesis of the general trends as identified within the database. The different boxes show the array of financial mechanisms used across the range of ILM entry points (represented by different colors). The color of the box corresponds to the primary ILM entry point. The text at the corner of each quadrant details the different financial instruments typically utilised for each quadrant.

    Public sector finance (mainly through grants, subsidies and credit) can enable landscape actors to collaborate on projects that integrate multiple landscape objectives. Private sector investment (loans, equity, credits) and partnership models for ILM ranged from those that channel finance into whole landscapes to those that are supporting and coordinating landscape objectives.

    Few funds were identified that were structured to integrate and coordinate financing for ILM within one composite financial mechanism, and often private investors supported the integration and coordination component as part of their own costs.
  • A range of 15 case studies (8 full cases) and less detailed case examples were used to explore the major opportunities and challenges of ILM finance. The relative size of the bubbled depict the relative amounts of capital available.
    The cases showed two main modalities of ILM finance
    1) A specific allocation of finance for integrated landscape management practices (e.g. enabling funds for integrative planning at a catchment level through GEF multi-focal projects; investments for improved sustainable land use at landscape scale, 100,000 through WB BioCarbon Fund – generating carbon credits at the landscape level; brokering and capacity building for integrating finance for SLM through the Global Mechanism of the UNCCD).
    2) Investment positioned as either REDD, agriculture, conservation or sustainable land use finance for projects or businesses, but these land based investments have explicit revenue streams and risk mitigation instruments and procedures that have generate positive environmental and social returns at the landscape scale.
    For example: Althelia or Moringa – investing in agro-forestry projects and companies with positive social and environmental impacts at the landscape level. Nestle/Bunge/Rabo take a supply chain approach to manage risks, improve security of supply, improve productivity and resilience; EcoEnterprises investment in companies in conservation areas with positive social and environmental returns.
  • Market opportunities:
    Rising demand for sustainable and certified commodities.
    Increasing investment value of arable and fertile land (due to annual loss of productive areas).
    Potential new markets for payments for ecosystem services beyond voluntary and regulated carbon markets (CCB Standard, Gold Standard, Rainforest Alliance, FSC FORces, reciprocal water arrangements).
    Holistic and diversified risk management:
    Environmental and social risk awareness, monitoring and long term management.
    Better response to context specific risks and creation of efficiencies from ecological management.
    Strengthened business model through diversified revenue streams beyond just carbon or land and single commodity values.
    Regulatory conditions:
    Shifting global and national legal and market conditions.
    Growing interest in and regulatory requirements for green growth.
  • 1) Funding to address enabling environment challenges (i.e. landscape level MRV, policies, land rights, lack of integration, land use practices) at a landscape or jurisdictional level (GEF, NICFI). The GEF is also trying to improve the predictability of finance for landscape scale strategies through institutional processes that better enable countries to design more integrated projects and access multiple sources of finance across individual convention objectives (GEF). Others are taking development more formal partnership arrangements with a mix of enabling and asset investments from different parties – but built around returns from carbon credits (regulated or voluntary markets) or without the expectation of financial returns (e.g. WB ISFL, BEM) . Reduced transaction costs and increased synergies between social and environmental impact at the landscape level by implementing projects at a greater scale (WB BioCF).
    2) Investments in SMEs that increase social and environmental resilience in areas rich in cultural and biological diversity, often working in partnership with community and government leadership. EcoEnterprises generates returns through the capital value appreciation of portfolio companies at exit and short/medium term cash flows.
    Private Equity Funds, such as Moringa and Agro-ecological, invest a range of risk capital in Portfolio Companies to generate long term capital gain from sustainable, resilient and replicable agroforestry or sustainable agricultural practices. Returns are generated through the capital value appreciation of Portfolio Companies at exit, as well as short/medium term cash flows from the projects (i.e. revenues from ERs/PES payments, reduction in costs from sustainable land use practices/reduction of expensive inputs; diversification of revenue streams – i.e. regeneration of land/biomass energy; planting new crops for export/higher value certified crops etc).
    3) Investments in projects where returns generated through carbon credits (e.g. McQuarrie BioCarbon, Livelihoods Fund; what the Munden Project is trying to achieve), and tend to be high risk due to market, political and governance uncertainty. Also, partnership approaches for integration, coordination and connecting to landscape actors (from 100s -1000s small-holders, local and regional governments, on the ground NGOs) to finance activities to improve risk management along sustainable and secure supply chains (Nestle, Livelihoods Fund).
    Investments in both SMEs and projects aim to diversify revenue streams away from mono-culture approaches or unsustainable land management practices to more community led ventures that diversify stakeholder income (promising more than carbon returns), enhance ecological functioning, and lead to on and off site conservation and environmental benefits.
    Asset investments often require a clear exit potential (via industrial groups or forestry and agricultural funds or other financial buyers) or a long-term purchase agreements for real assets and PES (i.e. AMCs from off-takers).
  • Either see small scale (e.g. Althelia/Moringa) or less coordinated (EcoEnterprises) impact funds OR larger scale single entry point funds (i.e. carbon in Livelihoods Fund, WB ISFL – 100,000 ha scale). Direct our thinking towards the options to construct something in between that is designed in a way to attract larger scales of commercial capital.
    Options could be to conceptualise the design components for – landscape fund, bonds, PPPs, etc. - What would more comprehensive and coordinated landscape finance look like? Landscape Fund , Landscape Bonds, PPPs, Risk mechanisms for ILM
    How to overcome challenges for constructing a potential ‘Landscape Fund’? Lack of investible companies within specific regions/sectors; Challenges of coordination and integration; Lack of understanding for these alternative business cases in emerging and frontier markets.
  • Transcript

    • 1. Financial Strategies for Integrated Landscape Investment Seth Shames, EcoAgriculture Partners Margot Hill Clarvis, Earth Security Initiative Gabrielle Kissinger, Lexeme Consulting Launch – April 30, 2014 –Washington, D.C.
    • 2. Financing Needs for ILM: Asset Investment • Agriculture practices that contribute to multiple landscape objectives • Farm conservation or production • Restoration or protection of natural assets • Environmentally and socially responsible enterprises • Large-scale green infrastructure
    • 3. Financing Needs for ILM: Enabling Investment • Stakeholder engagement and cooperation • Appropriate legal and regulatory framework • Knowledge and capacity to plan and manage on a landscape scale • Incentive mechanisms
    • 4. Landscape analysis: Research questions 1. What is the current state of practice for landscape initiatives in accessing finance and achieving outcomes? 2. How does the integrated management that is characteristic of landscape initiatives relate to how these initiatives are financed? How are integrated outcomes achieved with disparate sources of funds? How is this integration coordinated? 3. Landscape initiative themselves are not static practices, but rather are dynamic, continually responding to community, market, policy and risk factors. What does the future of landscape initiative portend for how finance institutions and mechanisms can best respond to those needs? 4. How can the experiences of these landscape initiatives help and guide other initiatives in their approach?
    • 5. Global scoping assessment: 29 initiatives ● Full range of entry points (biodiversity/conservation, production, livelihoods), range of institutional and agroecological contexts, stakeholder engagement ● Institutional planning/coordination key ● ILI leadership and governance critical, finance siloed Three in-depth case studies ● Criteria: meets ILI definition, maturity, range of entry points (production, REDD+, livelihoods, etc.), adequate information to assess Synthesis report summarizing results Landscape analysis: Methodology
    • 6. ILI leadership and governance strongly correlated with finance sources and patterns
    • 7. Landscape analysis: Case studies Atlantic Forest, Brazil Biome scale: Atlantic Forest Restoration PACT • Restore 15 million hectares by 2050 • Sectors: forestry, agriculture, urban water • 250 registered signatories (members) – stakeholder platform, civil society-led • 170 restoration initiatives • Federal, state, multi-lateral and private investment authorized through legislation and coordinated across actors • Cadastre Ambiente Rural/Rural Environmental Registry (CAR) • Link between access to rural credit and improved land management State scale: Espírito Santo • Applying PACT principles at state scale • Government-led, Reflorestar programme
    • 8. Landscape analysis: Case studies Atlantic Forest, Brazil Espírito Santo Atlantic Forest biome
    • 9. Atlantic forest: finance innovation
    • 10. Succulent Karoo Ecosystem Programme, Namaqualand, South Africa Landscape analysis: Case studies • NGO-led stakeholder platform, now housed within a parastatal biome scale and in Namaqualand • Sectors: Biodiversity, agricultural production (livestock), mining • Critical Ecosystem Partnership Fund • Global Environmental Facility (GEF) • SKEPPIES small-grants facility • Investment in building scientific basis of information on risks and management options • Challenge of moving mining sector investment from CSR to operations (and legal compliance)
    • 11. SKEP: Namaqualand: finance innovation
    • 12. Imarisha Naivasha, Kenya Landscape analysis: Case studies • Government-led stakeholder platform and public-private partnership, with very strong private sector leadership • Sectors: Floriculture, municipal water, small-holder agriculture, forestry, wildlife, pastoralism, fisheries, tourism, geothermal energy • IFC performance standards triggered over landscape-level water risks
    • 13. Imarisha Naivasha: finance innovation
    • 14. Imarisha Naivasha: finance sources
    • 15. • Though an ILM approach, most investment is water-focused • This sector-based focus has limited the ability for integrated management solutions– need finance to enable that • Investment favors response to risk– how to have continuity for long- term solutions?  Investor motivations and ‘skin in the game’ • Payments for Ecosystem Services: • Industry views as a tax • Fairness concerns • How to scale from >1000 smallholders to 250,000? • Strategic coordination of all sources of finance to serve integrated outcomes is needed—e.g. PES, REDD+, access to credit and low- interest loans, strategic infrastructure investments, improving value- addition of agricultural products, and improved market access Imarisha Naivasha: Finance challenges
    • 16. • Cross-cutting needs (climate change, livelihoods, etc) can be emphasized as priorities to attract finance that supports integrated solutions • A per-stem charge on flowers passing through the Dutch wholesale flower market • Motivation for actors in the landscape to focus their investments in compatible management practices (PES) Imarisha Naivasha: finance opportunities
    • 17. Integrated landscape investment pathway
    • 18. Tracking innovation in ILM Finance Tracking Innovation ● Identify types of mechanisms and institutions. ● Enabling Investment ● Asset Investment ● Map public and private innovation. ● Case Studies ● Case Examples Scaling Opportunities ● Understand barriers to and opportunities for financing ILM. ● Why, how? ● Roadmap for public finance institutions to work with private investors. ● Aggregation & Coordination ● Risk Profile of ILM ● ILM Business Case
    • 19. Framing ILM Finance Institutional investors Impact investors Development finance institutions Governments Non-Profit Organisations, Charitable Foundations Social / Environmental Return Financial Return
    • 20. Scoping ILM Finance  200 Institutions  > 250 Mechanisms  Range of interfaces with ILM components
    • 21. Scoping ILM Finance
    • 22. ILM Case Studies and Examples - Global Environment Facility - World Bank BioCarbon Fund - NICFI / NORAD - EcoEnterprises Fund - Moringa - Althelia - Bunge Environmental Markets - Agricultural Lending & Investment - SAB Miller - Global Mechanism UNCCD - Verified Carbon Standard’s Jurisdictional and Nested REDD+ (JNR) - ForestRE - CGIAR Landscape Fund - Grasslands, LLC
    • 23. Why is ILM being financed? • Sustainable & certified commodities. • Investment value of arable & fertile land. • Potential new PES markets. Market Opportunities • Environmental & social risk awareness, monitoring, management. • Strengthened business model, diversified revenue streams. Holistic & Diversified Risk Management • Shifting global & national legal and market conditions. • Green growth, green credit lines. Regulatory Conditions
    • 24. How is ILM finance structured? Investments Enabling Environment / Landscape (Stakeholder coordination; institutional alignment; technical & skills, infrastructure). Portfolio of Companies (SMEs in conservation areas with ESG impact) Portfolio of Projects with landscape effects (purchase agreements, intermediaries) Returns Emission reductions PES payments Reduction of costs & land regeneration Capital value appreciation of companies at exit Long term capital gain from resilient and replicable agro-forestry projects Short & medium term cash flows from projects Diversified revenue streams (biomass, certified crops)
    • 25. Conclusions ● Tendency for small scale funds; un-coordinated funds; large scale single entry point funds; limited mix of funding for coordination. ● What would more comprehensive and coordinated landscape finance look like? ● How to overcome challenges for constructing a potential ‘Landscape Fund’?
    • 26. Asset Investment challenges • Time horizon • Investment size • Risk/return ratio
    • 27. Enabling Investment Challenges • Public sector silos • Underfunded ILI coordination • Incentives for asset investment
    • 28. Recommendations: Strengthening enabling investments • Clarify, quantify and communicate • Mobilize public and civil society • Coordinate investments at the landscape scale • Foster new partnerships
    • 29. Recommendations: Attract asset investors • Use public finance to reduce risk • Use REDD+ to catalyze asset investments • Bridge asset investments across landscapes • Employ investment standards and guidelines
    • 30. THANKS! Questions or comments?