Background
As the global urgency to address climate change and biodiversity loss becomes more pronounced, the planet’s natural ecosystems continue to disappear rapidly. In 2020 alone, the world lost 4.2 million hectares of primary forests and 12.5 million hectares of tree cover in the tropics.
Pressured to answer global demand for their goods, agri-commodity businesses continue to expand their land, thus worsening the already heightened deforestation crisis.
The agriculture sector is at a crossroads, with the potential to move from contributing to the deforestation and biodiversity loss problem to becoming responsible for its solution. By applying sustainable and inclusive practices, agri-commodity businesses have the unique opportunity to positively impact supply chains while they simultaneously combat climate change and safeguard biodiversity.
For those businesses that already recognize the need to adjust their approach, the challenge is to find the necessary capital and technical expertise to ensure a smooth transition to more sustainable practices.
Innovative Partnership
It is against this backdrop that IDH – The Sustainable Trade Initiative, working in close collaboration with the Norwegian Government through Norway’s International Climate and Forest Initiative (NICFI), developed &Green in 2017.
&Green is a private debt investment facility designed to delink commodity supply chains from deforestation in a manner that is both commercially viable and replicable as a model.
&Green recognizes the potential for agri-commodity businesses to access environmental and social returns, while also generating attractive financial returns. The fund’s primary focus is to protect tropical forests and peatlands susceptible to degradation and deforestation. To do so, it invests in active commodity sectors, such as beef (livestock), palm oil, soy and forestry (including rubber).
&Green has raised USD $180 million in committed capital from its six main contributors (NICFI, Unilever Group, the Global Environment Facility (GEF) through the United Nations Environment Programme (UNEP), FMO (the Dutch Entrepreneurial Development Bank), Mobilising Finance for Forests (MFF) and the Ford Foundation) in the form of grants, redeemable grants and loans.
&Green aims to reach USD $1 billion in assets under management over the next 10 years. To that end, &Green is now strategically using philanthropic and public capital to design innovative financial instruments that de-risk investments and leverage private capital from institutional investors.
Solution
&Green is specific in its focus as an investor, seeking out businesses directly and indirectly involved in the production of goods within the fund’s approved jurisdiction (tropical regions of Latin America, Africa and Southeast Asia). By first identifying businesses that strongly align with the fund’s central objectives of decoupling deforestation from key commodity supply chains, &Green can finance the transition of these supply chains from extractive to genuinely sustainable models that are adoptable, replicable and scalable.
There are three commitments that &Green requires from its prospective clients that simultaneously support their operational transformation and increase their attractiveness to future investors: a No Deforestation, No Peat and No Exploitation (NDPE) Policy; an Environmental and Social Action Plan (ESAP) and a Landscape Protection Plan.
The fund draws on its raised capital, expertise and partnerships to build an investment blueprint and mobilize private capital, helping its clients contribute to more inclusive supply chains, sustainable land use and commercial goals that drive transformational change on a global level.
&Green expects significant environmental returns from its clients’ projects, which it tracks over the entire investment period. To safeguard the outcomes of each project, &Green has developed a technical assistance (TA) budget that aids current and prospective clients in preparing their eligibility for an investment through the fund. These TA initiatives can operate in conjunction with the investment process, whereby clients must meet &Green’s environmental and social management system (ESMS) standards to qualify for financing.
&Green offers its clients affordable, long-term (5-15 year) credit facilities and guarantees ranging from USD $5 million to USD $ 30 million. &Green’s structuring and risk management expertise allows the fund to effectively manage and reduce the credit risk of its investors while providing attractive risk-adjusted returns. The fund is also capable of bearing greater short- and medium-term risks, allowing the credit to support lower cash flow needs during each project’s initial years. This helps offset some of the client’s upfront costs associated with the project’s environmental and social criteria requirements.
Expected Impact
To achieve its mission to protect the world’s tropical forests and continue to grow its portfolio of committed clients, &Green has put several measures in place:
- It has integrated a key performance indicator (KPI) framework into its investment process to track, report and confirm the progress of each project’s anticipated change targets.
- It assigns each client an ESAP that outlines distinct measures for on-the-ground execution, along with impact evaluation performance indicators.
- It refers to a Forest & Biodiversity Framework to guarantee a project’s adherence to the International Finance Corporation’s biodiversity-related Performance Standard 6 and other relevant certification standards where applicable. To ensure ongoing monitoring and verification, &Green relies on satellite data, client self-reporting, verification from local NGO partners and visits from Sail Ventures.
Sources
- &Green (n.d.). &Green Fund website.
- Butler, R. (2021). The year in rainforests 2021. Mongabay. 29 December 2021.
- Green Finance Institute (n.d.). &Green Fund.
- Sail Ventures (n.d.). Sail Ventures website.
- Interview with Michael Schlup (Head of Impact and ESG, Managing Director), Sail Ventures