The 36-billion-dollar question
It’s estimated that around USD 36 billion is needed annually to meet the Bonn Challenge target of restoring 350 million hectares of degraded and deforested lands around the world. But public financing for these kinds of initiatives is decreasing year by year, said Joyce Msuya, Deputy Director and Assistant Secretary General at the United Nations Environment Program (UNEP), at the recent Global Landscapes Forum in Nairobi.
So, attention is turning to the private sector, which sectorial actors say has funds a-plenty available for investment. As Msuya asked, how can we help to channel some of this money toward restoration?
CLEARING THE PATH
Many of the panelists in the Finance Plenary, of which Msuya was a part, navigate the space between public and private sector funds on a daily basis. Ladé Araba is the African regional representative for Convergence Finance, a global network for blended finance that helps facilitate private investment in developing countries through linking potential investors with viable projects and connecting donors with commercial investors to co-invest. In her address, she unpacked some of the bottlenecks for getting this finance flowing.
A key issue is the dearth of ‘bankable’ projects. “[Projects] need to be well-structured and commercially viable, beyond speaking to environmental sustainability,” said Araba. “We need to see that they can generate positive cash flow, and that the fundamentals make sense.”
As such, Araba advised project leaders to “always think about how to monetize the economic value of landscapes” and consider what revenue streams are available to create returns. Hans Loth, global lead of Rabobank’s one-billion-dollar fund for sustainable agriculture, agreed: “You need to create that yield; you need to make it effective for investors to step in and stay in, for it to become sustainable.”
Misalignment between investors and projects in terms of timescales, maturities, ticket sizes and risk-return profiles can also be a challenge. “When you’re talking about managing tropical forests or other landscapes,” said Araba, “typically you’re speaking about transactions that have long lead times, whereas investors tend to have short-term horizons.” As Loth added, these kinds of projects are “deemed risky for banks”, and require them to “put more skin in the game” and take bigger risks with lending than they would normally do.
In the African context, there are also challenges around unclear land rights, as well as limited collaboration between the public sector, government, private investors and civil society, added Araba.
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BUILDING COLLABORATIVE SOLUTIONS
The panelists agreed that blended structures offer hope to address some of the above issues. “In the first stage [of project development], it’s too risky to engage with private investors, so that’s where grants come in, to allow you to absorb some of that early risk, do the development work and actually have a project structure,” Araba described. “Then you’d be able to raise equity, once the transaction or the project is running and it has cash flows, and then you could potentially raise debt and go to institutional investors.”
Loth shared some of Rabobank’s proposals for making this process easier for farmers, such as providing access to technical assistance as well as financing tools such as soft loans to help de-risk projects in the early stages. Ulrich Apel, who is the Land Degradation Focal Area Coordinator at the Global Environment Facility (GEF), said his organization uses non-grant instruments to absorb and mitigate private-sector risks when investing in restoration and landscapes.
Araba spoke to the benefits of bringing capital and projects “to the same table” – at events like the GLF, for example. Loth cited his experience in Indonesia of bringing project representatives, local government, NGOs, corporates and donors together: “It creates a sense of urgency, that notion that you could walk away with a deal and get your project funded,” he said. “And it’s not actually too difficult.”
Satya Tripathi, Senior Advisor for the 2030 Agenda for Sustainable Development and newly appointed Assistant Secretary General at UNEP, highlighted the importance of bringing institutions along for the ride: “You don’t need government money,” he said. “But you do need solid government support.” Nigerian agriculturalist and farmer John Agboola added that supportive policies and institutions are key to building more sustainable agriculture, agrobusiness and agroforestry sectors across the African continent – and engaging more young people to work in them.
A REALISTIC SHOT
Overall, the speakers presented a hopeful picture of confronting challenges and leveraging the funding required to make major headway in landscape restoration, both on the African continent and across the globe. As Loth described, Rabobank’s USD 1 billion fund “is just to get it started. It’s not the end game, because we know we need a lot more than that…And with all your support, I’m sure we’ll get there.”
Tripath cited examples of UNEP’s blended finance programs in Indonesia and India, which have successfully leveraged financing at thousands of times the value of their own contributions. “We should do everything we can to excite and encourage people to invest their last penny in blended finance,” he urged. “There are donors in this room. Please see this for what it is. It changes lives, it changes livelihoods, it changes landscapes. So let’s find the resources to give this a realistic shot.”
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