By Steven Swan, Environmental and Social Impact Coordinator, UNEP Land Use Finance Unit
Agriculture is the biggest driver of deforestation in the tropics – and together with forests and other forms of land use – is responsible for about a quarter of total global greenhouse gas emissions. How can we halt the annual loss of more than 7 million hectares of tropical forests to tackle climate change, while also ensuring growth in agricultural production to feed 9 billion people by 2050?
We need to find ways to balance the need to stimulate economic growth and scale up food production while achieving climate, biodiversity and ecosystem restoration targets. Public funding and government regulation alone will not be enough to reduce deforestation in developing countries, which account for most of the forest loss associated with the production of commodities such as beef, cocoa, palm oil, soy and rubber.
Over the past few years, a growing number of banks and impact fund managers have started to redirect private capital toward deforestation-free commodity production, the restoration of degraded land, and other forms of sustainable land use. Often public capital needs to be invested to enhance the credit quality of the underlying assets and projects, – which are frequently deemed risky and often untested investment opportunities – or to reduce the risk to private investors. These investments could include, for example, deforestation and conversion-free soy production in the Brazilian Cerrado, scaling up palm oil replanting on existing agricultural land in Indonesia, or transitioning from full-sun cocoa to agroforestry in West Africa.
The environmental and social impacts of sustainable land-use investments need to be clearly demonstrated in order to create investor confidence and attract different sources of concessional finance, such as governments and private foundations. An expanding ecosystem of sustainable land-use finance facilities, including the &Green Fund, AGRI3 Fund, Responsible Commodities Facility, and Tropical Landscapes Finance Facility, are working to deliver on private sector commitments on the Sustainable Development Goals. Each facility is independently developing frameworks and indicators to demonstrate these impacts.
Three critical success factors have emerged for the environmental and social impacts of sustainable land-use financing: additionality, cost and standardization. Industry and government perspectives will need to converge on these factors if deforestation-free, decarbonized and socially equitable food production is to go mainstream over the next decade.
Determining and ensuring additionality, beyond business as usual, remains a challenge for the finance industry; there is an inherent trade-off between optimizing industry inclusiveness and setting the highest possible rigor. Set the bar too high at this initial stage of industry engagement, and sustainable land-use financing becomes an exclusive niche market, rewarding only best-in-class producers to achieve even better environmental and social performance. Set the bar too low, and accusations of greenwashing could be indefensible.
A second challenge is identifying and internalizing the costs of impact monitoring into business models. The benefits of protecting natural habitats have been largely deemed a purely public good and, as such, have largely been covered by public funding thus far. Yet for private sector actors to achieve the desired impacts at scale, they will have to absorb the costs of managing environmental and social risks and demonstrating impacts into their business models.
Finally, to mainstream sustainable land use across the wider agriculture and finance sectors, pioneering actors need to standardize environmental and social risk management procedures, indicators and monitoring methods. This would reduce costs, attract investment and facilitate the global comparability of impact claims. If agriculture is to experience the required transformation, it will need to adopt universally accepted standards that find the sweet spot between rigor and cost, as well as between performance and inclusivity.
There is still a long way to go in terms of removing unsustainable land-use practices from the supply chains of the foods we eat – but thanks to the ground-breaking efforts of a number of pioneering facilities and funds, the sustainable land-use finance train is beginning to leave the station. Now, focus must shift to ensuring that broader, mainstream private and public financing sectors get on board in order to deliver drastically scaled-up sustainable commodity production.
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