Deforestation in agricultural commodity supply chains is often fueled 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 underwriting in companies involved in the production and procurement of major agricultural commodities, financial institutions have huge sway and the ability to influence a significant shift away from deforestation in the commodities sector and foster sustainable approaches to land use.
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 works closely with the international finance sector to develop tools, guidance and training which will help investors identify and then avoid supply chain risks associated with deforestation.
We also engage directly with commodity platforms to enhance cooperation between global finance actors, governments, producers and supply-chain partners including farmers. This cross-sector exchange is crucial in the design of scalable financial models that reduce deforestation and ultimately enable ‘good growth’.
Through the FOLUR K2A Global Platform we strengthen the capacity of financial institutions to take environment, social and governance risks into consideration in their investments and lending decisions, and to seize the opportunity to invest in nature-based solutions to climate change.
Our Goals at a Glance
Contact Dieter Fischer of the International Finance Corporation to learn more about how the
Good Growth Partnership is enabling sustainable transactions in commodity supply chains.
Amount of new investments, designed by the IFC each year, to stimulate the adoption of innovative agricultural practices and models that steer clear of deforestation.
Number of international banks and financial institutions trained on risk management and zero deforestation lending policies.
Number of small-scale oil palm farmers given access to micro-grants to purchase inputs that allow them to maximize yields after being trained in good agricultural practices.
Incentivizing Zero Deforestation Transactions
By working across sectors throughout key commodity supply chains, the Good Growth Partnership works to influence and improve policy that currently inhibits sustainable investment into commodity production. Additionally, the Partnership works to provide innovative financial instruments which, for example, encourage the productive use of degraded land for cultivation thereby taking pressure off forests.
Interventions need to prove the ‘zero deforestation’ business case in order to increase incentives and efficiency for responsible investment in the project’s focal commodity supply chains, and attract investment for the sustainable intensification of cattle ranching in Paraguay and sustainable soy production in Brazil, which is expected to reduce the need to open new areas of forest and savannah for grazing.
Efforts to incentivize sustainable transactions included:
- Developing a business case for investment into the enhancement of sustainability standards in the Paraguayan beef sector.
- Developing a business case for Indonesia’s oil palm smallholder plot intensification and rehabilitation. This included efforts in North Sumatra beginning with 1,000 small-scale farmers who were given access to finance to purchase inputs which allowed farmers to maximize yields after being trained in good agricultural practices (GAPs).
- Developing business cases to incentivize the use of degraded land for soy cultivation instead of clearing native vegetation.
- Providing a traceability system and a socioenvironmental risk screening tool to monitor soy suppliers’ environmental and social performance in Brazil, as a first step to facilitate preferential financing linked to the suppliers´ environmental and social scoring.
- Developing an online Geographical Information System to support sustainable finance decision-making in the Chaco region of Paraguay.
- Supporting the establishment of a social and environmental self-evaluation system for Paraguayan beef producers to promote greater alignment with sustainable markets and finance’s requirements.
Recognizing Deforestation as a Financial 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 funds 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 provides guidance and training to regulators and financial institutions that fund beef, palm oil and soy companies. The guidance includes approaches to identify, assess, manage and mitigate these risks and also to identify opportunities for shifting practices to more sustainable forms of land use.
Specific efforts included:
- Supporting the integration of Environmental, Social and Governance criteria in financial institutions decisions through policy reform.
- Hosting workshops and training opportunities to develop the capacity of banks and financial institutions to adequately assess and manage deforestation-related risks. This included developing tailored training programs for national financial institutions and regulators in Paraguay, Brazil and Indonesia as well as capacity strengthening for banks that operate globally.
- Developing a tool for financial institutions to identify and quantify the environmental, social, legal, commercial and market risks related to deforestation associated with investments in the production of palm oil in Indonesia.
- Developing and circulating guidance and capacity building for effective application of new investment regulation that targets supply chains.
Mobilizing Public-Private Finance
Currently, long-term incentives for financial institutions and companies to invest in sustainable agricultural activities at scale are not adequate. However, private sector finance is required given the strained state of many public budgets and the size of the agricultural ‘financing gap.’
Momentum has been growing in this area with the launch of financing partnerships such as the Tropical Landscape Finance Facility in Indonesia as well as the Agri3 Fund.
The Good Growth Partnership works to capitalize on this growing momentum, aiming to mobilize large-scale private finance in coordination with public finance. For instance, the GGP collaborated with the Integrated Finance for the Amazon, Cerrado and Chaco (IFACC) program to test proof of concept approaches on blended finance and integrate them into the capacity building efforts with financial institutions in Paraguay and Brazil.
Our priority efforts included:
- Conducting studies reviewing financial products and services offered by financial institutions that support sustainable land use and zero deforestation commodity production in Paraguay and Brazil.
- Working with governments to provide technical input on potential fiscal revisions such as tax reduction, incentives, grants and subsidies that support more sustainable commodity production. This included a study in Paraguay to review existing and potentially needed fiscal incentives to promote sustainable land use.