Deforestation in agricultural commodity supply chains is often fuelled 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 underwritings in companies involved in the production and procurement of major agricultural commodities, financial institutions have huge sway and the ability to influence a large 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 that 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 in order to enhance cooperation between the financial industry, governments, producers and supply-chain partners including farmers. This cross-sector exchange is crucial in the design of scalable financing 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 commodity supply chains.
Amount of new investments, designed by the IFC each year, to stimulate adoption of innovative agricultural practices and models that steer clear of deforestation.
Number of international banks and financial institutions trained by UN Environment Finance Initiative on risk management and zero-deforestation lending policies.
Number of small-scale oil palm farmers given access to micro-grants in order to purchase inputs that allow them to maximize yields after being trained in Good Agricultural Practices (GAPs)
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 that, for example, stimulate the productive use of degraded land for plantation expansion 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 our focal commodity supply chains, the Partnership first needs to prove the ‘zero-deforestation’ business case.
The Partnership’s priority efforts to improve commercial transactions include:
- Defining a business case for investment into the scaling of sustainability standards in Brazil’s soy and Paraguay’s beef sectors, through research, projection analysis and stakeholder consultation.
- 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 in order to purchase inputs that allow farmers to maximize yields after being trained in Good Agricultural Practices (GAPs).
- Developing a longer-term investment product that addresses the financial needs of replanting high-yielding oil palm, particularly for independent farmers for whom no such financial opportunities currently exist.
- Developing a model that incentivizes the use of degraded land for plantation expansion, which rewards companies for developing less ecologically valuable areas and dissuades them from cultivating highly forested land.
- 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 national palm oil standard (ISPO) into existing sustainability assessments.
Recognizing Deforestation as an Investment 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 finance 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 that 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 private financial institutions to invest in sustainable agricultural activities at scale are not adequate.
Private sector finance will, however, be 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 recently announced Partnership for Forest Protection and Sustainable Agriculture between Rabobank and UN Environment.
The Good Growth Partnership is working to capitalize on this growing momentum with the goal of mobilizing large-scale private finance in coordination with public finance to ultimately enable sustainable production and sourcing in our focal commodity supply chains.
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 that 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.