A Better Deal—Incentivising wise land use with the Tropical Landscape Finance Facility

The private and public sectors got together in Jakarta this week to launch the commercially innovative Tropical Landscapes Finance Facility (TLFF). This enterprising initiative, exceeding USD 1.1 billion of investments, will provide long-term finance (10-15 years) to projects and entities that ensure green growth and positive benefits to rural livelihoods. The projects will focus exclusively on renewable energy and remunerative landscape transformations, with a worthy gender parity philosophy.

With strong support from the Indonesian Government, the TLFF consists of a billion dollar Loan Fund with liquidity provided by BNP Paribas and others, and managed by Hong Kong-based ADM Capital. From our new offices in Jakarta, ICRAF – The World Agroforestry Centre (with UNEP support) provides the Secretariat to the TLFF.

The Loan Fund will be supported with a USD100 million Grant Fund to ensure affordable loans to projects and reduced risks to investors. Commercial returns to responsible investors are expected with premium off-taker contracts for electricity, agricultural/forestry products, and environmental services.

Given the cross-sectoral nature of the TLFF it was especially encouraging to have such strong national commitment to the TLFF. At the launch event hosted by H.E. Darmin Nasution, Coordinating Minister for Economic Affairs, there was also strong endorsement expressed by Dr Siti Nurbaya Bakar, Minister of Environment and Forestry; Dr Sofyan Djalil Minister of Spatial and Agrarian Planning; and other agencies.

Heterogeneous humid tropical landscape of Sumatra, Indonesia. Photo by Degi Harja Asmara

Heterogeneous humid tropical landscape of Sumatra, Indonesia. Photo By Degi Harja Asmara

Working alongside the Indonesian Government,  BNP Paribas, ADM Capital, UNEP, UN Women, ICRAF and others in the initiative, the TLFF will bring landscape transformations at scale. The portfolio of projects will ensure greater climate resilience by boosting smallholder revenues, reducing emissions from unwise land conversion, reversing land degradation and sourcing cleaner renewable energy. By targeting large scale transformations this will: (i) leverage policy reforms of the Indonesian Government and (ii) help build successful models to better combine commercial finance with development needs.

One of the world’s greatest conundrums is how two sectors which together: employ more than 50% of the world’s population; cover 67% of the earth’s land area; account for 75% of fresh water usage; and provide over 90% of human dietary supply – only account for 5.5% of the world’s GDP. Something is surely amiss for that is the case of agriculture and forestry, and it means that the world’s balance sheet is out of balance.

 

 

Several approaches have already been used to tackle this problem including full cost accounting, payment for environmental services and certification premiums. Granted, there have been isolated successes but no real systemic change. The TLFF seeks to amend this with a view that remunerative returns and sustainable development do not have to be trade-offs against one another. Accordingly, the creation of the TLFF with blended finance from private and public sources will catalyse more sustainable land use and offer more attractive risk-reward ratios.

The creation of the TLFF with blended finance from private and public sources will catalyse more sustainable land use.

By ignoring the negative externalities of natural and social capital, the private sector and the banking sector are depicted as making private profits at public expense. But in reality someone eventually has to pay. In essence we are just accumulating a raft of hidden costs that will emerge eventually as ecosystem collapse or social conflict. Recognising these realities this broad TLFF partnership of bankers, financiers, fund managers, UN Agencies, NGOs and the CGIAR have triggered a paradigm shift of “investing in development”. The powerful partnership consist of the launch partners listed above along with others including: Global Canopy Foundation, Initiative for Smallholder Finance, Marine Change, Green Initiatives for a Sustainable Tomorrow, Forest Carbon, RSPO, Kaltimex, and ADM Capital Foundation.

“This ground-breaking and innovative financial platform, a world’s first, can transform the lives and livelihoods of millions of Indonesians in rural areas that deserve it the most,” Dr Kuntoro Mangkusubroto, Chair of the Steering Committee of the TLFF, told the audience at the launch event hosted by the Indonesian Government.

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Tony Simons

Tony Simons

Tony Simons is the Director General of the World Agroforestry Centre (ICRAF). He has worked 27 years on issues at the tropical agriculture/forestry interface, within the private sector (Shell Forestry); academia (University of Oxford); official development assistance (ODA/DFID); and research (CGIAR). He holds degrees from Massey University and Cambridge University, and an Honorary Professorship in Tropical Forestry at the University of Copenhagen, and has published over 100 research papers. Tony is passionate about the transformative change that the private sector can bring to development.

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