AFOLU LEDS Finance MappingAsia LEDS Forum 2014
John Costenbader, Climate Focus Yogyakarta, 10 November 2014
• Definition: Finance without repayment
• Suitable for: Initial research, feasibility studies, capacity building, social and environmental purposes.
• Cost: Expensive to providers
• Example:
– Government to non-profit organizations
– Donors to forest conservation projects
1.1 Grant
• Definition: Up-front finance with agreement from the borrower to repay with interest– Lender of loan is usually a single financial institution
• Suitable for: Asset investments, such as enterprises engaging in production of agricultural or forest products
• Cost: Main cost is payment of interest• Example: Vietnam Five Million Hectares
Reforestation Program included concessional loans to entities investing in production forests
1.2(a) Debt - Loan
• Definition: Up-front finance with agreement to repay at a future date with periodic interest payments
– Bonds dispersed across multiple investors & borrowers can raise larger amounts than via other forms of debt
• Suitable for: Asset investments, such as enterprises engaging in production of agricultural or forest products
• Cost: Main cost is payment of interest
• Example: A recent bond by Swedish forest products company SCA is linked to certified forests, & includes a commitment to increase forest cover by 1% annually
1.2(b) Debt - Bond
• Definition: Provision of capital by an investor in return for shares in ownership and a share of profits (‘dividends’)
• Suitable for: Asset investments, such as enterprises engaging in production of agricultural or forest products
• Cost: Riskier to investors
– Dividends are not guaranteed
– In the event of bankruptcy, equity investor has the last claim
• Example: The Reforestation on Degraded Lands in Northwest Guangxi, China project is co-financed by $17.8 million equity from local government, a forestry development company and participating farmers
1.3 Equity
• Definition: Instruments aimed at reducing finance risks– Public-private funds
– Insurance and risk guarantees
• Example: Overseas Private Investment Corporation (OPIC) provided $900,000 political risk insurance for the OddarMeanchey REDD project in Cambodia
1.4 Risk mitigation instruments
Private Sector Finance
• Voluntary sustainability initiatives
• Carbon markets
• Green bonds
International Public Finance
• Bilateral finance
• Multilateral finance
Domestic Finance
• General budget
• Earmarked taxes, levies
• Extractive industry revenues
• Green bonds
AFOLU LEDS
AFOLU LEDS Finance Map
• Bilateral programs have pledged most funding regionally to Asia-Pacific (46%)
– Just 7% of allocated bilateral finance went to AFOLU sector
• Disparity in range of fund allocation: Norway & UK Climate Funds have most financing still available, followed by Australia Forest Carbon Initiative
– Over 88% of REDD+ finance from public sector, of which bilateral programs are largest source with 56% of all finance pledged since 2006
2.1 Bilateral Funding
• FCPF Readiness Fund (16%), UN-REDD (10%), and Pilot Program for Climate Resilience (8%) had largest percentage of total approved multilateral finance going to AFOLU sectors in LEAF countries.
• Slow REDD+ disbursement: Multilateral development banks have disbursed little finance to actual projects.
2.2 Multilateral Funding
• Land set-asides
– Ex: Wilmar HCS & HCV forest protection (25,860 ha)
• Reforestation/ecosystem restoration
– Ex: Danone replanted 5,500 ha mangroves in Sundarbans
• Sustainable agriculture practices
– Ex: PepsiCo direct seeded 4,000 ha rice in India (saved 7B litres water & 70% GHG reduction)
• Sustainable supply chains
– Ex: Unilever sourcing sustainable tea & 100% cert. palm oil
3.1(a) VSIs: Forest & Land Use Practices
• Investment in REDD+/conservation projects– Ex: Microsoft investment in Oddar Meanchey & Rimba Raya
• Education/research grants for sustainable ag. – Ex: Cargill $225,000 to 1st sustainable oil palm teaching farm
collaboration w/ Institut Pertanian Bogor in Indonesia
• Capital investment in sustainable operations– Ex: Unilever $130M investment in Sei Mangke, Indonesia
sustainable palm oil processing plant
3.1(b) VSIs: Sustainable Investments
• Clean Development Mechanism (CDM) CDM projects in agriculture and A/R valued at USD 30 million in SE Asia from 2009-13.
3.2 Carbon Markets
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10
12
14
Malaysia India Philippines Vietnam Thailand Cambodia
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CDM in Southeast Asia (agr. + A/R)
• Voluntary MarketsIn 2012, voluntary forest carbon market valued at USD 10.7 million in SE Asia.
• Climate Bonds– USD 346 billion raised in 2013 for climate projects (largely
transport & energy; all AFOLU in North)
– relatively unknown in LEDS, especially in AFOLU sector– no commonly understood definition of activities funded (but
now certification standards)– not a new source of finance; only a debt instrument for
companies and governments to raise capital.
3.3 Climate Bonds
Bond holder
Typically pension funds or
large institutional investors
Bond issuer
Government or
company
Activity
Green development
/projects that address
climate change
Loan
Interest on
loan and
principal
Investment