The power of landscape thinking: how ‘landscape funds’ could solve global deforestation

By Josh Gregory, Global Canopy Program

The forested hills of Sierra del Divisor, Ucayali, Peru. Photo courtesy Diego Perez.
What is the future of forest protection? Photo courtesy Diego Perez, Peru.

Current methods to tackle deforestation aren’t working. The statement may be blunt but, with 6.6 million hectares of natural forest lost since 2010, it’s hard to dispute.

Understanding current methods of forest protection

The most common protection measure is command and control: governments restrict forest access and use by creating national parks or implementing forest management plans. Although it’s an effective way to preserve specific areas of land, it requires extensive government resources and can often disadvantage local land users.

Newer approaches aim to protect the forest by making sustainable land use profitable for forest owners and users. REDD+ is a notable example. But these initiatives are fraught with practical difficulties and, currently, largely depend on international grants.

Both these approaches focus on individual forest owners and users, and often displace deforestation to an unprotected area. Moreover, they have little effect on the drivers of deforestation, such as agricultural expansion along forest borders.

So what’s the alternative?

Addressing the needs of all forest stakeholders

The ‘landscape approach’ is different. It acknowledges that deforestation takes place in ‘landscapes’ with many functions, from hosting indigenous communities and supporting local farmers to conserving biodiversity.

If forest protection is to succeed, those involved must broaden their focus to all stakeholders in a particular forest landscape, and incentivise them towards more sustainable land uses.

The landscape approach requires significant funding, but it also has the potential to generate significant returns. This is a critical point because public funds are limited; to achieve real change in this area requires access to the large amounts of capital in private markets.

Introducing private funding

Environmental portfolios have become popular with private equity investment, and several funds are active in the sustainable land-use space. These funds take control of agribusinesses through equity and/or debt and establish close managerial cooperation to steer them towards more sustainable practices. Often the funds use co-investment from public sources to encourage participation by private investors.

Private equity investment is helping to develop sustainable practices and their contribution isn’t small; a fund called Phatisa, for example, has raised around US$250 million. But it’s difficult to scale up these hands-on, project-based interventions, and although the funds aim to consult with local stakeholders, they cannot directly access indigenous peoples and smallholders. As a result, they only achieve piecemeal change.

One possible solution is to combine the spending power of private investment with the development expertise of forest governance organisations. Two new initiatives seek to do just that: one is The Landscape Fund and the other Unlocking Forest Finance.

The Landscape Fund

The Landscape Fund (TLF) is an initiative of CIFOR and the Munden Project. According to its concept note, TLF will provide low interest, long-dated loans to producers in selected supply chains to fund sustainable agricultural practices.

By using existing finance providers and channels of credit, TLF will access smallholders and informal producers, broadening its scope of impact. To access private capital, TLF is designing a scalable software platform through which it will securitise its loan portfolio into debt instruments with an attractive risk/return profile.

However, TLF is still in the planning stages. Unlocking Forest Finance (UFF) has been active since 2014 and is well on the way to finalising its portfolio.

Unlocking Forest Finance

UFF, funded by the German government and managed by the Global Canopy Programme, works in three regions: the states of Mato Grosso and Acre in Brazil, and San Martin in Peru.

In each region it selects a portfolio of agricultural supply chains which, with the right input, could deliver sustained benefits on their landscape.

UFF identifies financial intermediaries to provide low-cost, easy-access loans to producers. To manage the risk of default, it prioritises supply chains with the potential to grow over the medium term. It is also funding organisations to train producers in sustainable methods and develop their financial understanding. Finally, to address a broad range of deforestation drivers, each portfolio includes separate investments in indigenous livelihoods and forest conservation.

Early next year, UFF will package the portfolios into liquid investments, probably in the form of a bond issue. There is already high demand for ‘green’ bonds from emerging economies such as Brazil and Peru. To further stimulate demand, less profitable aspects of the portfolio (for example capacity building and conservation) could be subsidised by public finance.

Is this the future of forest protection?

As the environmental community gears up for the UNFCCC’s Climate Change Negotiations (COP21) this December in Paris, we should keep TLF and UFF in mind. The projects take a holistic approach, supporting indigenous people and conservation as well as producers, and they have found a way to access international capital markets which could ultimately deliver the scale of finance necessary to drive transformational change.

What they achieve remains to be seen, but they should provide interesting and potentially important case studies of tackling deforestation in the early twenty-first century.

About the author

Josh Gregory is Project Coordinator at the Forest Finance Programme of the Global Canopy Program. He manages financial research and data analysis for the Unlocking Forest Finance project. His work involves collaborating with Brazilian and Peruvian partners, as well as liaising with development banks and the sustainable investment community. Josh previously worked as a research assistant at the Grantham Research Institute on Climate Change. Before that he spent five years as a corporate finance lawyer, focusing on environmental investments. Josh holds an MSc in Environmental Technology from Imperial College London and an MSc in Global Politics from the London School of Economics, specialising in the politics of deforestation.