16 November 2016

COP Blog: Tackling land degradation offers new opportunities for investors

It is estimated that two billion hectares of land are already degraded worldwide, and we continue to degrade another 12 million hectares of productive land every year.

According to an extensive study conducted in 2014 by the International Food Policy Research Institute (IFPRI), land degradation has already negatively affected 29% of global land area. Land degradation has severe economic, environmental and social impacts, particularly for the 2.6 billion people whose livelihoods depend on land use, while its impact on the climate will be felt by everybody.

Land degradation and climate change are closely interlinked; the land use sector represents almost 25% of total global greenhouse gas emissions, and soil is the second largest carbon sink after the ocean. Emissions resulting from land use change come primarily from deforestation, the conversion of other natural ecosystems (e.g., wetlands), and the loss of soil organic carbon. Most notably, the depletion of the soil organic carbon pool has transferred 78 Gt of carbon to the atmosphere . At the same time, climate change causes drought and desertification, leading to further land degradation. The negative effects of climate change will impact farmers and other land users, reducing incomes and food security.

However, emissions from land degradation can be significantly reduced. As the main causes of land degradation are linked to land use change and unsustainable agricultural practices such as farmland mismanagement or overgrazing, reversing these trends by promoting sustainable forestry and agriculture practices will be key to combating land degradation and associated emissions. Sustainable land management (SLM) strategies can include reforestation, sustainable forest plantations, agroforestry, crop production that ensures long-term soil health, and sustainable grazing management. These sustainable practices nearly always come with adaptation co-benefits, as more efficient use of resources and inputs ensure greater food security and builds community resilience.

So far, climate change mitigation has mainly focused on reducing fossil fuel use and increasing energy efficiency. While investment in low-carbon energy infrastructure is still essential, a more concerted effort in the land use sector is required. The adoption of more SLM and land restoration practices, until now largely untapped, would provide a rapid and cost-effective reduction in emissions. This would not only help reduce climate change, but also provide significant benefits to the rural poor and other vulnerable communities.

Tackling land degradation and moving to SLM practices on a global scale will require a large amount of investment, for example to purchase new tools and inputs, train farmers in new techniques, or implement agroforestry systems. Some funding comes from public sources, but there is not only a need but also an opportunity to engage private capital on a large scale. Private investors have traditionally avoided agriculture and other land use sectors, particularly in developing countries, as they are seen as too risky and complex. However, in many cases SLM practices and projects can offer attractive economic opportunities in the short to medium term, in addition to producing positive social and environmental impacts. Investments in sustainable agriculture and forestry are underpinned by rising global demand for food and fibre, and allow investors to diversify their portfolios and gain exposure to fast-growing emerging markets.

The growing opportunity for private investors in the sustainable land use sector comes from a recent convergence of public, private and NGO interests. There is strong political will from over 100 countries to address land degradation, with both relevant policies and increased public financial backing. A growing number of corporations are committing to sustainable land-use initiatives to make their supply chains more sustainable. Sustainable agriculture and related land use sectors are widely recognised as an important catalyst for development in many regions, so civil society and intergovernmental organisations are promoting sustainable land use, producing research and providing support.

One new funding source dedicated to tackling land degradation is the Land Degradation Neutrality (LDN) Fund Project. The Fund project, co-promoted by the United Nations Convention to Combat Desertification (UNCCD) and responsible investment firm Mirova, will be an innovative investment fund investing in profit-generating SLM and land restoration projects worldwide. Structured as a public-private partnership, it will be funded by public and private sources, increasing the amount of money invested in sustainable land use. The LDN Fund Project will provide flexible long-term financing for sustainable land use projects that reduce or reverse land degradation. These projects will have substantial climate change mitigation and adaptation benefits, and also improve local livelihoods and ecosystem services. The fund's activities are expected to have a positive demonstration effect, helping to develop the nascent sustainable land use investment market and ultimately attract capital from more mainstream investors.

James Rawles is an analyst at Mirova, a subsidiary of Natixis Asset Management

James Rawles