07 December 2015
The debt markets and public finance can be combined to help farmers embrace more sustainable practices, argues Rachel Mountain and Josh Gregory
The opening to COP21 was a memorable occasion, with heads of state in attendance, and a flurry of announcements for new initiatives and partnerships to alleviate the negative impacts caused by a changing climate.
At centre stage was the joint declaration by Germany, Norway and the UK to provide $5 billion in finance for forests and sustainable agriculture by 2020.
More announcements are expected over the coming week, with many developing countries requesting funding to help transition to more sustainable modes of development, including greening the forest and land-use sector.
The newly-announced $5 billion is a drop in the ocean
This sector contributes 10-15% of global greenhouse gas emissions, and finance to reform it could provide up to a third of the emission reductions we need by 2030 to ensure we stay below the 2°C mark.
Forests also provide key ecosystem services and are a source of income for many people. They help to cool the planet and provide water to millions of people.
But the newly-announced $5 billion is a drop in the ocean, considering that $135 billion of so-called forest risk commodities (soya, beef, palm oil, pulp and paper) is traded annually.
In order to bridge this gap, public finance (like the joint declaration mentioned above) should be targeted at supply chain initiatives which can leverage private investment over the longer term to ensure a transition to sustainable development.
Unlocking Forest Finance (UFF), managed by the Global Canopy Programme, has been working to understand the cost of this transition.
UFF has identified the supply chains which bring the most revenue and also cause the most deforestation in rural Brazil and Peru.
The idea behind UFF is simple: farmers are often willing to adopt more sustainable practices, but they face significant financial and educational barriers.
UFF aims to issue a green bond
On the one hand, farmers must pay high interest rates for loans because banks see them as risky (for example, they lack proper land rights, or crop yields are too variable).
On the other hand, farmers do not usually understand how to access loans, and need training to reform their agricultural processes to develop more sustainable crop yields.
So the solution is two-fold: more money and more education.
To fund loans, UFF aims to issue a green bond. This way, it can tap the estimated $78 trillion of capital in international debt markets, and growing interest in forest and land use bonds.
And then public money comes in.
Firstly, it funds financial products, such as guarantees, to de-risk financial flows at each level: from the bond issuer down to individual farmers.
Secondly, it funds technical assistance programmes for banks and farmers, to increase education and take-up of loans.
By reducing the costs of investment in sustainable supply chains, UFF will help to unlock trillions in private capital with targeted, efficient use of limited public funds.
The announcement of more finance in Paris is a promising start. UFF and similar initiatives show how these funds could enable a transition to green development in forest countries.
Rachel Mountain is head of communications at the Global Canopy Programme and Josh Gregory is project co-ordinator at Global Canopy Programme