Innovating finance to overcome current barriers towards sustainable landscapes
Agriculture and forestry are central to the implementation of the sustainable development goals (SDGs). Smallholders play an important role in this: nearly 60% of food production is produced by smallholders (<20 ha) many of whom are vulnerable to climate change. Small and Medium Enterprises (SMEs) have an important role to play in making smallholder agriculture and forestry economically viable. Smallholders and SMEs are, therefore, essential actors in any strategy that aims at sustainability and climate resilience in landscapes. They need finance to be able to shift towards more sustainable practices. At the same time, less than 3% of climate and conservation finance is assigned to agriculture and forestry and only a small proportion of ODA and climate finance reaches smallholders and SMEs.
Sustainable and inclusive landscapes are landscapes in which all stakeholders are engaged in the design and implementation of, and learning from, actions that increase the sustainability of that landscape. Finance flowing into such landscapes currently addresses mainly the needs for prime materials of large vertically integrated companies, including infrastructure for transport and processing plants. A growing proportion of these investments considers its social or environmental impacts on the landscape and people living in those landscapes, but in spite of that, the reduction in deforestation and forest degradation rates, as well as in poverty, hunger and inequity lag behind. Partially this is due to no or insufficient or only partial application of sustainability criteria in investment selection, partially and also to a lack of consideration of smallholder, SME and community (SSC) initiatives. New ways have been developed to unlock funds towards investments that efficiently and effectively contribute to sustainability and inclusiveness – innovative finance. Examples are blended finance and green bonds.
In spite of creating opportunities for reaching SSC initiatives, these new forms of finance still struggle with the same barriers as more conventional finance. Investors find few investible SSC projects, while SSC initiatives find it hard to access finance. In order to help narrow this financing gap, and mainstream inclusiveness and sustainability criteria in financial decision making, two of the partners of the CGIAR Research Program on Forests, Trees and Agroforestry (FTA), Tropenbos International and CIFOR, started a dialogue to identify the main barriers and seek examples of initiatives that overcame them.
This dialogue started with a set of interviews with key informants along the international flow of finance towards landscapes in low- and middle income countries. The results of these interviews were discussed in a digital summit with an investment manager, a representative of the forest governance and economics group of the FAO and an Ugandan NGO. During these interviews and discussions, a number of barriers, possible ways to overcome them and promising initiatives were described. A literature review complemented this information and resulted into a document which is currently being discussed by members of a community of practice set up for this purpose on the GLFx platform. In the panel discussion that FTA organizes at GLF Luxemburg (30 November 2019) we will build on this dialogue and propose some concrete steps that financial institutions, fund managers, NGOs and Civil Society Organizations can take in the short term to help to bridge the gap between SSC initiatives and available climate and SDG-related finance.