Deforestation in agricultural commodity supply chains is often fueled by investment decisions largely uninformed about the environmental, social and economic impacts of unsustainable land conversion for agriculture.
With an estimated $1.7 trillion in investments, credit and underwriting in companies involved in the production and procurement of major agricultural commodities, financial institutions have huge sway and the ability to influence a significant shift away from deforestation in the commodities sector.
The Good Growth Solution
Our aim is to use finance as a tool to accelerate innovation and forest friendly commodities at the production end of the supply chain.
To achieve this, the Good Growth Partnership is working closely with the international finance sector to develop tools and guidance which will help investors identify and then avoid supply chain risks associated with deforestation.
We also engage directly with national commodity platforms facilitated by the Partnership’s Sustainable Production Project to enhance cooperation between global finance actors, governments, producers and supply-chain partners including farmers. This cross-sector exchange is crucial in the design of scalable financial models that reduce deforestation and ultimately enable ‘good growth’.
Our Goals at a Glance
Contact Jonathan Gheyssens of UN Environment to learn more about how the
Good Growth Partnership is enabling sustainable transactions in commodity supply chains.
Amount of new investments, designed by the IFC each year, to stimulate the adoption of innovative agricultural practices and models that steer clear of deforestation.
Number of international banks and financial institutions trained on risk management and zero deforestation lending policies.
Number of small-scale oil palm farmers given access to micro-grants to purchase inputs that allow them to maximize yields after being trained in good agricultural practices.
Incentivizing Zero Deforestation Transactions
By working across sectors throughout key commodity supply chains, the Good Growth Partnership expects to influence and improve policy that currently inhibits sustainable investment into commodity production. Additionally the Partnership is working to provide innovative financial instruments which, for example, encourage the productive use of degraded land for cultivation thereby taking pressure off forests.
Opportunities include attracting investment for the intensification of cattle ranching in Brazil and Paraguay, which in turn will reduce the need to open new areas of forest and savannah for grazing.
However, in order to increase incentives and efficiency for responsible investment in the project’s focal commodity supply chains, the Partnership first needs to prove the ‘zero deforestation’ business case.
Efforts to incentivize sustainable transactions include:
- Defining a business case for investment into the enhancement of sustainability standards in Brazilian soy and Paraguayan beef sectors.
- Proving a business case for Indonesia’s oil palm smallholder plot intensification and rehabilitation. This includes efforts in North Sumatra beginning with 1000 small-scale farmers who are given access to finance to purchase inputs which allow farmers to maximize yields after being trained in good agricultural practices (GAPs).
- Developing a long-term investment product which addresses the financial needs of replanting high-yielding oil palm, particularly for independent farmers for whom no such financial opportunities exist.
- Developing a model that incentivizes the use of degraded land for plantation expansion and rewards companies for developing less ecologically valuable areas.
- Updating the WWF business case for sustainable palm oil certification (RSPO) adoption. This will have a particular focus on long-term environmental impacts, quantifying the Indonesian small-scale farmer business case and assessing the potential for incorporating the Indonesia Sustainable Palm Oil system (ISPO) into existing sustainability assessments.
Recognizing Deforestation as a Financial Risk
Currently, the capital market often underestimates sustainability issues and does not adequately account for risks linked to deforestation. This results in a significant global misallocation of funds to activities that drive deforestation among other social and environmental problems.
To support the shift away from risky and unsustainable commodity supply chain investments, the Partnership is providing guidance and training to regulators and financial institutions that fund beef, palm oil and soy companies.
Specific efforts include:
- Hosting workshops and training opportunities to develop the capacity of banks and financial institutions to adequately assess and manage deforestation-related risks.
- Developing a series of models that allow risk managers within financial institutions to employ enhanced screening to their lending portfolios.
- Developing and circulating guidance, tools and capacity building for effective application of new investment regulation that targets supply chains.
- Assessing and promoting new products such as insurance which can incentivize the trade of sustainable commodities by requiring proof of compliance with environmental policies and regulations.
Mobilizing Public-Private Finance
Currently, long-term incentives for financial institutions and companies to invest in sustainable agricultural activities at scale are not adequate. However, private sector finance is required given the strained state of many public budgets and the size of the agricultural ‘financing gap.’
Momentum is growing in this area with the launch of financing partnerships such as the Tropical Landscape Finance Facility in Indonesia as well as the Partnership for Forest Protection and Sustainable Agriculture between Rabobank and UN Environment.
The Good Growth Partnership is working to capitalize on this growing momentum, aiming to mobilize large-scale private finance in coordination with public finance.
Our priority efforts include:
- Working with governments through national commodity platforms, facilitated by the Partnership’s Sustainable Production Project, to provide technical input on potential fiscal revisions such as tax reduction, incentives, grants and subsidies that support more sustainable commodity production. This includes aligning fiscal incentives and REDD+ to relevant development plans, to help governments reach global environment commitments in addition to economic growth targets.
- Identifying other potential sources of below market rate or grant-based financing which can be used to develop blended finance packages and accelerate the adoption of sustainable practices.
- Monitoring emerging areas such as the green bond market and the Sustainable Stock Exchange Initiative (SSE) to establish joint collaboration.