Local Finance Crucial in Fight Against Deforestation

In January, the World Economic Forum (WEF) event in Davos saw the usual wealth of corporate commitments coming to the fore. Among these announcements was the promise of a new $400m fund from the Norwegian government designed to kick-start investments that will help to protect five million hectares of forest and peatlands, an area the size of Costa Rica. With an initial commitment of $100m from Norway, a collaborative effort involving the Global Environment Facility, the UN Environment Programme, the Sustainable Trade Initiative (IDH) and a group of progressive-looking food companies and NGOs, will drum up support and cash between now and the end of this decade.

The money will largely be used to support the efforts of smallholder farmers as they work to boost their yields and productivity on land they already own – and thus avoiding the need to expand into virgin forest areas, of which 2.3 million square kilometres was lost between 2000 and 2012.

A similar approach is already being used by big food brands like Nestlé and Cargill, companies that are obviously keen to protect their long-term commodity supply and maintain their licence to operate.

Partnerships are key

Of course, the concept of fostering relations between different parties along a supply chain to make a difference is nothing new; the Tropical Forest Alliance 2020 (TFA2020) and others have been working on the creation of global public-private partnerships to scale-up deforestation-free supply chains for years now.

But the Norwegian fund – and the cash that is likely to flow as a result of its creation – offers an interesting and scalable incentive to governments in the Tropics, to ensure investments are made in the jurisdictions that actually protect forests and garner the greenhouse gas emission reductions that result.

For a country like Brazil, which has pledged to restore 12 million hectares of forest and 20 million hectares of “sustainable intensification” of agriculture as part of its Paris Climate Agreement commitment, the new fund will help to “develop scalable models,” according to Roberto Jaguaribe, president of the Brazilian Trade and Investment Promotion Agency.

It is in the ability to use finance at a very local level that is seen by a growing number of experts as a crucial next step in effectively getting to grips with supply chain emissions and wider environmental and social impacts – from tree loss to the empowerment of women farmers. According to Norway’s environment minister, saving the world’s forests will demand the securing of private sector funds and making sure indigenous communities are more involved in how their local biodiversity is being protected. New understanding of business opportunities in tropical landscapes means the impact of the Norway fund on climate, biodiversity and economic opportunity could be “truly transformational,” according to World Resource Institute president Andrew Steer.

Money where your mouth is

Unilever was the first company to back the Norway fund with an investment of $25 million over the next five years. Its ‘produce and protect’ strategy has seen the consumer goods giant sign a Memorandum of Understanding with local and national governments in Indonesia, designed to source more commodities at a village level and create much better relationships on-the-ground. This will mean Unilever investing in farmer training and educational workshops that will ultimately improve productivity and incomes, in exchange for farmers getting behind the global fight against deforestation.

Of course, for such an approach to gain real traction, other companies will have to follow Unilever’s lead; after all, many of the world’s biggest food companies source from similar regions. Marks & Spencer, Carrefour, Metro, Mars and Nestlé have all made public commitments to support the Norwegian Fund. Now they must put their money where their mouth is.

The production of palm oil, beef, soy and paper from the Tropics – much of which has been catastrophic for the world’s forests – is worth $180 billion a year, according to WEF and TFA2020. And by transforming these sectors into truly environmentally and economically sustainable entities, an investment opportunity worth some $200 billion a year would be created.

It is a significant economic opportunity and one that the finance sector is being urged to embrace by continuing to develop models for deforestation-free finance. You only have to look at the impact a recent Greenpeace campaign had on the reputation of HSBC to appreciate the risk attached to banks failing to take action. The campaign group mobilised thousands of people to demand the bank stop financing deforestation by making loans to palm oil companies thought to be responsible for logging Indonesian rainforests. It worked. Less than a month later, HSBC issued a new policy for deforestation-free palm oil financing.

New opportunities

The last few years have seen a rapid rise in the number of corporate commitments to take action to halt global deforestation and address serious supply chain issues by private sector companies, particularly in the consumer sector. With the finance sector increasingly playing a bigger role to help reduce risk and offer greater access to cheaper capital to farmers, large and small, the much-needed closing of the gap between retailers and smallholder farmers can start to happen – a shift that will not come at the expense of economic prosperity, but will instead generate new investment opportunities and help to build more sustainable and resilient land use everywhere.