By Florence Bernard
What often prevents public and/or private bodies to invest in sustainable land use practices is a lack of tangible information to decide between several options against comparable metrics, reliably inform expectations of risk and return, for informed investment decisions. Very little data, if any, is available on either the financial requirements or performance of various sustainable land use practices.
One of the key objectives for the ICRAF-led SECURED Landscapes (Sustaining Ecosystem and Carbon benefits by Unlocking Reversal of Emissions Drivers in landscapes) project, is to understand how public and private financial investors can be encouraged to provide capital for sustainable land use practices. TMP Systems – a finance and technology consultant focusing on asset management, economic development and climate change – provided technical guidance on this area with assistance from ICRAF.
TMP Systems has built financial models that help to determine whether certain sustainable agricultural practice projects being piloted by ICRAF are financially profitable, and how they compare with the practices currently in place. Using field data from the country projects, they found for instance that the suggested sustainable practice in Indonesia (replacing oil palm plantations with Jelutong latex tree) showed a profitable return which was more than coffee agroforestry system but less than oil palm system.
The sustainable practice suggested in Vietnam (intercropping of maize with Acacia Mangium and Melia Azeradach) did not show a profitable return, however it did significantly improve on the base case scenario (mono-cropping of maize, cassava and rice).
Another key finding from the TMP Systems study was that combining improved production practices with post-harvest value chain upgrades (such as in areas of storage, energy, transportation, training and collective aggregation, etc.) can provide optimal outcomes in terms both of sustainability and livelihoods. However much of the data that would usually be required to develop such financial model was not available so TMP Systems had to rely heavily on proxies for certain inputs. It follows that better data and more robust financial models are needed to provide accurate cost benefit analysis that meets the needs of investors.
Building on the analysis of existing routes to finance for sustainable land use practices, TMP Systems recommends that public and philanthropic money should be used to make sustainable land use practices investment ready. This means developing enabling conditions for production, access to market, and reporting. Then, in order to get to scale, aggregating smallholder loans and securitizing cash flows through intermediary organizations like ICRAF could be an attractive proposition to private financial investors.
To attract more public and private financial investors, there is need to make sustainable land use practices an understandable and attractive niche for investors, and to have more data that makes it easy to value assets and returns. While need for robust, reliable and comparable data is crucial, the cost of sending people out to collect data is astronomical and even more for projects like ICRAF’s at smallholder level. At the same time the reporting must be standardized and location specific. To address this challenge, TMP Systems is currently developing a Field Monitoring System that can combine self-reporting and a high level of automation. This promises to be a major improvement on current methods in terms of cost, efficiency, data quality and reliability, and adaptability to different local contexts and investor requirements.