AFOLU LEDS Finance Mapping Asia LEDS Forum John Costenbader, Climate Focus Yogyakarta, 10 November 2014

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1 AFOLU LEDS Finance Mapping Asia LEDS Forum 2014 John Costenbader, Climate Focus Yogyakarta, 10 November 2014

2 Outline 1. Key Financial Instruments 2. International Public Finance 3. Private Sector Finance

3 1. Key Financial Instruments

4 Grants Financial Instruments Loans Bonds Equity Risk Mitigation

5 1.1 Grant Definition: Finance without repayment Suitable for: Initial research, feasibility studies, capacity building, social and environmental purposes. Cost: Expensive to providers Example: Government to non-profit organizations Donors to forest conservation projects

6 1.2(a) Debt - Loan Definition: Up-front finance with agreement from the borrower to repay with interest Lender of loan is usually a single financial institution Suitable for: Asset investments, such as enterprises engaging in production of agricultural or forest products Cost: Main cost is payment of interest Example: Vietnam Five Million Hectares Reforestation Program provided concessional loans to entities investing in production forests

7 1.2(b) Debt - Bond Definition: Up-front finance with agreement to repay at a future date with periodic interest payments Bonds dispersed across multiple investors & borrowers can raise larger amounts than via other forms of debt Suitable for: Asset investments, such as enterprises engaging in production of agricultural or forest products Cost: Main cost is payment of interest Example: A recent bond by Swedish forest products company SCA is linked to certified forests, & includes a commitment to increase forest cover by 1% annually

8 1.3 Equity Definition: Provision of capital by an investor in return for shares in ownership and a share of profits ( dividends ) Suitable for: Asset investments, such as enterprises engaging in production of agricultural or forest products Cost: Riskier to investors Dividends are not guaranteed In the event of bankruptcy, equity investor has the last claim Example: The Reforestation on Degraded Lands in Northwest Guangxi, China project is co-financed by $17.8 million equity from local government, a forestry development company and participating farmers

9 1.4 Risk mitigation instruments Definition: Instruments aimed at reducing finance risks Public-private funds Insurance and risk guarantees Example: Overseas Private Investment Corporation (OPIC) provided $900,000 political risk insurance for the Oddar Meanchey REDD project in Cambodia

Bilateral finance Multilateral finance AFOLU LEDS Domestic Finance

10 AFOLU LEDS Finance Map Private Sector Finance Voluntary sustainability initiatives Carbon markets Green bonds International Public Finance Bilateral finance Multilateral finance AFOLU LEDS Domestic Finance General budget Earmarked taxes, levies Extractive industry revenues Green bonds

11 2. International Public Finance

12 2.1 Bilateral Funding Bilateral programs have pledged most funding regionally to Asia-Pacific (46%) Just 7% of allocated bilateral finance went to AFOLU sector Disparity in range of fund allocation: Norway & UK Climate Funds have most financing still available, followed by Australia Forest Carbon Initiative Over 88% of REDD+ finance from public sector, of which bilateral programs are largest source with 56% of all finance pledged since 2006

13 2.2 Multilateral Funding FCPF Readiness Fund (16%), UN-REDD (10%), and Pilot Program for Climate Resilience (8%) had largest percentage of total approved multilateral finance going to AFOLU sectors in LEAF countries. Slow REDD+ disbursement: Multilateral development banks have disbursed little finance to actual projects.

14 3. Private Sector

15 3.1 Voluntary Sustainability Initiatives

16 3.1(a) VSIs: Forest & Land Use Practices Land set-asides Ex: Wilmar HCS & HCV forest protection (25,860 ha) Reforestation/ecosystem restoration Ex: Danone replanted 5,500 ha mangroves in Sundarbans Sustainable agriculture practices Ex: PepsiCo direct seeded 4,000 ha rice in India (saved 7B litres water & 70% GHG reduction) Sustainable supply chains Ex: Unilever sourcing sustainable tea & 100% cert. palm oil

17 3.1(b) VSIs: Sustainable Investments Investment in REDD+/conservation projects Ex: Microsoft investment in Oddar Meanchey & Rimba Raya Education/research grants for sustainable ag. Ex: Cargill $225,000 to 1 st sustainable oil palm teaching farm collaboration w/ Institut Pertanian Bogor in Indonesia Capital investment in sustainable operations Ex: Unilever $130M investment in Sei Mangke, Indonesia sustainable palm oil processing plant

18 3.2 Carbon Markets Clean Development Mechanism (CDM) CDM projects in agriculture and A/R valued at USD 30 million in SE Asia from Value of investment (USD millions) CDM in Southeast Asia (agr. + A/R) Voluntary Markets In 2012, voluntary forest carbon market valued at USD 10.7 million in SE Asia. Malaysia India Philippines Vietnam Thailand Cambodia

19 3.3 Climate Bonds Climate Bonds USD 346 billion raised in 2013 for climate projects (largely transport & energy; all AFOLU in North) Bond holder Typically pension funds or large institutional investors Loan Interest on loan and principal Bond issuer Government or company Investment Activity Green development /projects that address climate change relatively unknown in LEDS, especially in AFOLU sector no commonly understood definition of activities funded (but now certification standards) not a new source of finance; only a debt instrument for companies and governments to raise capital.

20 Thank you John Costenbader

WORLD BANKGROUP CLIMATE CHANGE BioCarbon Fund Initiative for Sustainable Forest Landscape (ISFL) Forest Carbon Partnership Facility (FCPF)

WORLD BANKGROUP CLIMATE CHANGE BioCarbon Fund Initiative for Sustainable Forest Landscape (ISFL) Forest Carbon Partnership Facility (FCPF) Franka Braun, Carbon Finance Specialist, FCPF and BioCF Operations