The three tales of six billion dollars

In an August 2016 Forest Trends report, entitled “The Geography of REDD+ Finance”, Michael Wolosin and his co-authors, discuss the spatial distribution of REDD+ finance and its relation to forest cover, forest loss and emissions patterns at both the national and subnational levels. They examined nearly US$ 6 billion in REDD+ finance commitments between 2009 and 2016, spanning ten different countries in Latin America, Africa and Asia Pacific. They find that the funds are successfully targeting countries and provinces with high levels of deforestation and associated carbon emissions. Based on their findings they conclude that “more finance is needed to counter uneven distribution at the subnational level”, and that “REDD+ finance alone will be insufficient to overcome the economic and political forces driving deforestation; broader changes are needed as well, including domestic policy incentives and reforms, and greater participation and investments by private sector actors to drive more sustainable agricultural commodity production.”

Due a variety of reasons and incentives, including the New York Declaration on Forests announced last year during the UN Climate Summit, close to 400 companies active in palm oil, timber, soy and cattle industries have made ‘zero net deforestation’ pledges. This is likely to be a considerable driver in financing the so-called Phase 2 of REDD+ on implementation in the coming years.

The UN-REDD Programme is now working with a growing number of partner countries to identify how the private sector can be part of the solution. Examples include assessing the potential for investments to increase efficiency in the forest product sector in Kenya to increase supply of timber products, dialogues with the private sector in Costa Rica, Panama and other countries to finance REDD+ related activities through environmental compensation for development projects, creating domestic carbon markets as financing options to fund REDD+ policies and measures, and fiscal and non-fiscal incentives.

In an 8 September 2016 news item on Mongabay, the figure of US$ 6 billion reappears. The article reports on the new Forests and Finance database by a coalition of NGOs that shows that between 2010 and 2015, banks in China pumped over US$6 billion into Southeast Asian companies with high forest footprints, mainly in the palm oil, rubber and pulp and paper sectors. In total, banks in Asia, Europe and the US made over US$ 50 billion of finance available to companies in these sectors in Southeast Asia. Finance here includes share and bond issuances, corporate loans and revolving credit facilities. That’s a staggering figure in itself, considering that currently the database covers only 50 selected forest-risk sector companies in Southeast Asia over a five-year period. Imagine what the figure would look like, if all regions, companies and more commodities were covered.

The database also includes an assessment of banks’ social and environmental policies, and whether banks are signatories to the main international covenants related to forest and land issues. Many banks clearly lack adequate safeguards to prevent their money from being used to damage the environment. Out of a maximum policy score of 30, eight banks score 0 and seven banks score below 10, and only three banks (Rabobank, ABN Amro and Credit Suisse) score above 20.

Not all investments will necessarily lead to deforestation. Pessimists will probably see no reason for hope, even if the Paris Agreement will be signed by all Parties and more funds will be pledged and made available for REDD+. Optimists on the other hand will point out that things are improving and that discussions with policy makers at the highest level and large corporations are slowly yielding results. The Tropical Forest Alliance 2020 (TFA2020) notes that to move towards deforestation-free production by 2020 will require up to US$ 200 billion per year in finance and investment.

Grant facilities, de-risking instruments to lower the cost of capital to produce more sustainably as well as conducive policies by governments on land tenure, fiscal and trade policies are needed to speed up the greening of agricultural supply chains.

And here we come across the figure of US$ 6 billion for the third time.

Green bonds are another promising avenue when it comes to greening agricultural supply chains. The climate-aligned bond universe is now about USD 694 billion according to the Climate Bonds Initiative, of which US$ 118 billion in labelled green bonds. However, most of the money raised in the green bond market is meant to finance sustainable transportation, renewable energy production and energy efficiency investments. Some 147 Gigawatts of renewable energy came online in 2015, as much as Africa’s entire power generating capacity. Moreover, more than twice as much money was spent on renewables in 2015 (US$ 286 billion) than on coal and gas-fired power generation (US$ 130 billion)! Less than 1% - or about US$ 6.2 billion – is issued by companies active in agriculture and forestry. That said, the potential to use debt markets to significantly scale up private finance in sustainable landscape management is certainly there.

About the authors:

Thomas Enters Regional Technical Advisor for Asia and the Pacific, UN Environment

Ivo Mulder REDD+ Economics Advisor,

UN Environment

260 views0 comments