Can finance save the forest?

Agriculture is currently the main driver of forest loss in the tropics. If current farming patterns continue, the future looks increasingly bleak for tropical forests. Food production will need to increase by approximately 70% between 2005 and 2050, according to the FAO. Assuming current patterns of land use and productivity continue, logic dictates that farming will use more land and the world’s tropical forest will disappear even faster.

There is an alternative. In many tropical regions, there is an opportunity for farming to become more efficient, effectively growing more on the same area of land. This may yield extra profits, but the switch will need investment, to train farmers in improved management practices or buy new tools and seeds. Farmers will also need strong incentives to change generations-old methods, especially in regions where farmers are poor and find it hard to take risks.

New briefing shows how financial instruments can address deforestation

Incentives to save the forest: Financial instruments to drive sustainable land use is a new briefing from Global Canopy Programme. It looks at how a wide variety of companies, governments and organisations are using financial instruments to create the right incentives and funding to reduce pressure on the forest. Improved farming methods must be linked to strong environmental safeguards and conservation measures, the briefing states, otherwise there is a risk that forest loss will actually increase.

The briefing explores several instruments that could help finance sustainable land use. For example:

• Adjusting loan conditions can create incentives to help farmers switch to more sustainable methods
• Several instruments can encourage investments in new areas by changing the risk profile. These include first loss and credit guarantee instruments.
• Commodity traders may be able to demand more sustainability through off-take agreements or other mechanisms.
• While grants are scarce, they are sometimes necessary to leverage greater funds by improving conditions for subsequent investors.
• Equity investment plays an important role in getting sustainable farming schemes off the ground.
• Emerging instruments such as green bonds may channel large sums of money into sustainable land use.

Many of these instruments clearly work. Governments and businesses used them to fuel the development of conventional agriculture throughout the 20th Century. However, using such instruments to promote greater sustainability is less common. The briefing builds on the expertise of the Unlocking Forest Finance project, led by Global Canopy Programme. Since 2013, UFF has built the investment case for sustainable land use in three regions in Amazonia. More information on the project, including methodologies, analysis and case studies, is available at www.financingsustainablelandscapes.org.