Lit Review: Why 'blended finance' could help transitions to sustainable landscapes: Lessons from the Unlocking Forest Finance project
This unusually practical, non-bullshit paper states some harsh but good-to-know lessons in conservation finance based on an actual case study. I’m looking at you, dream-eyed, self-proclaimed conservation activist with wildlife pictures on instagram.
Lesson1: The financial return from sustainable land use activities tends to be overestimated.
The assumption that there is a clear investment case for a transition to sustainable landscapes may be overly optimistic. The UFF project could not identify private sector funding sources that would accept a rate of return below those of traditional investments. The large majority of impact investors demand environmental and social returns as co-benefits without compromising financial returns.
Lesson 2: Land sparing is uncertain and requires safeguards to ensure positive environmental impacts
The experience of the UFF project is unable to confirm or refute the ‘land sparing’ hypothesis that agricultural intensification can reduce deforestation. During the project it became clear, however, that the premise of this hypothesis is insufficient to build a pro-environmental initiative. For one, the possibility of ‘rebound effects’ has to be kept in mind: Under more intensive agriculture, increased profitability and higher returns to land compared to alternative land uses may encourage the conversion of additional forest land into agriculture and lower market prices of agricultural products could lead to increasing demand for agricultural products, which in turn incentivizes further agricultural expansion (e.g.,Villoria et al., 2014).
Lesson 3: Ecosystem services valuation does not easily attract investors
The project had dedicated significant resources to land use model-ling and ecosystem service assessments and valuation, as they were initially expected to play a role both for estimating environmental impacts and for communication purposes. For Mato Grosso, the land use scenario modeling led to a thorough scientific analysis illustrating the dynamics under which certain market and policy conditions affect forest cover (Irribarem et al., 2018). Regional governments were interested in ecosystem service valuation as arguments for their sustainable development agenda. For investors, however, the modelling results turned out to be of limited relevance. [...] The majority of private international investors prefer to see a label from a trustworthy institution instead of complicated quantitative information on ecosystem services.
Lesson 6: The institutional setting is crucial for a transition (and lack of finance is not the only barrier)
For instance, the assumption that an agricultural sector would immediately invest into the uptake of sustainable land use activities once finance becomes available does not consider that each farm decides individually. Farm decisions are also often influenced by non-financial aspects such as traditions and habits, land titles, know-how about management options and technologies, the level of co-ordination and association among farmers, trust in institutions, risk attitudes, etc. (Chavez and Perz, 2012, Lastra-Bravo et al., 2015). To gain the scale envisioned by the project, the financial mechanism would need to channel money to producer association and/or cooperatives and to remote locations, involving high transaction costs and capacity of local finance provider to administer and govern.
I would say all of this is sound advice for people looking into conservation finance and sustainable land use, directly from the field. And yes, I skipped a few lessons in between that I thought were less interesting.
Rode, J., Pinzon, A., Stabile, M. C. C., Pirker, J., Bauch, S., Iribarrem, A. et Wittmer, H.. (2019). Why ‘blended finance’ could help transitions to sustainable landscapes: Lessons from the Unlocking Forest Finance project. Ecosystem services. Ecosystem Services. doi:10.1016/j.ecoser.2019.100917