Financing sustainable land use

A quarter of global emissions come from land use (agriculture, forestry and other land use). Besides storing carbon, tropical forests cover 7 per cent of the Earth but contain 50 per cent of global biodiversity, regulate water systems and support livelihoods of over a billion people. If we are to keep global temperature rise below 2°C, as set out in the Paris climate agreement, and limit species loss, we will have to save the remaining tropical forests.

The biggest driver is agriculture, which is responsible for between 70 per cent and 80 per cent of deforestation. Mining, infrastructure, charcoal production and timber logging are other important drivers of deforestation and forest degradation. However, with 800 million people hungry today and with more mouths to feed the coming decades (world population is expected to increase to around 9 billion by 2050), food production will have to increase by 60 per cent from current levels. Without a change in (financing) agricultural production, the world will witness a significant further reduction of (tropical) forests.

These seemingly conflicting issues – eradicating food insecurity, hunger and poverty on one side and forest and ecosystem conservation on the other – come together in the Sustainable Development Goals. It is clear that without a different way to use land — both for production and to protect ecosystems — it will be difficult, if not impossible, to meet some of these Sustainable Development Goals. The solution will have to include restoring and making use of the more than 2 billion hectares of degraded land and increasing agricultural production on existing land to stimulate rural economic development and reduce pressure to convert more forests.

Most of the funding pledged to combat deforestation and forest degradation to date as part of REDD+ has come from public sources: around $11 billion (cumulative). There is, however, a large gap between the amount of funding required to tackle deforestation and restore degraded land and the amounts available. While there is a need to scale up public funding to reduce tropical deforestation, private sector commitments to tackle deforestation and private finance will be critical to half forest loss by 2020 and to end forest loss completely by 2030 as stated in the New York Declaration on Forests, and for countries to meet their national climate objectives as stated in Nationally Determined Contributions.

UN Environment believes that a diversified approach that includes both international and domestic public and private capital is needed to move towards low-carbon economic growth capable of achieving the Sustainable Development Goals.

International public funding: predictable and long-term funding for REDD+

Countries that reduce emissions from deforestation and forest degradation or stimulate conservation, sustainable management of forests and enhancement of forest carbon stocks (REDD+) can be rewarded for doing so through ‘payments for results’ as part of the Paris climate agreement.

To date, the UN-REDD Programme has been working with more than 60 partner countries on “REDD+ readiness”, basically requirements that partner countries have to comply with in order to be eligible for results-based finance. A growing number of countries are now finalizing these requirements and are gearing towards implementation. UN Environment together with the UN Development Programme (UNDP) and the UN Food and Agriculture Organization (FAO) will work intensively with a number of countries to achieve concrete and verifiable emission reductions in the coming years as part of UN-REDD.

When countries or jurisdictions within a country achieve verifiable emission reductions, there are various options to get access to results-based finance including through multilateral funds such as the Green Climate Fund (GCF) and the Forest Carbon Partnership Facility (FCPF) as well as bilateral partnerships such as Norway’s International Climate and Forest Initiative (NICFI).

However, it is important to note the difference between the availability and demand for land-use related climate funding. This was in the order of $5.8 billion in 2012/2013, whereas the International Resource Panel of UN Environment estimated in 2014 that around $30 billion in annual funding is needed to support developing countries to significantly reduce deforestation. It is crucial for governments to step up the provision of long-term and predictable financial support to less developed nations to ensure they will achieve their Nationally Determined Contributions under the Paris climate agreement through results-based payment agreements.

Domestic public funding: alignment needed between agriculture and conservation objectives

The magnitude of agricultural subsidies often vastly outweighs funding for forest conservation. Brazil and Indonesia together provided over $40 billion in subsidies to palm oil, timber, soy, and biofuel sectors between 2009 and 2012, which is more than a 100x the E346 million these countries received through REDD+ to reduce emissions from deforestation and forest degradation, stimulate conservation and sustainable forest management, and enhance forest carbon stocks.

Stepping up international climate funding for REDD+ may not deliver the intended outcomes – reducing deforestation and forest degradation – unless parallel efforts focus on bringing coherence to fiscal incentive frameworks to align sustainable economic growth with food production and reduced deforestation.

Governments can take efforts to coordinate analysis and action between relevant ministries, including Finance, Planning, Economic Affairs, Agriculture and Environment, to reform the estimated $200 billion in conventional agricultural subsidies to require farmers to obtain sustainability certifications for soy, palm oil, timber, etc., and stimulate yield increase on existing land or use degraded land. In that way agricultural fiscal reform does not have to be at the expense of jobs or value added generated by the agricultural sector.

UN Environment is committed to work with partner countries to better align agricultural fiscal reform with international REDD+ funding to slow, halt and reverse deforestation while stimulating rural economic growth the coming years.

Decoupling deforestation from the private sector and finance

The magnitude of private finance invested in the production of commodities that drive most deforestation around the globe is huge: in the order of $1.7 trillion. Annual trade in soft commodities related to palm oil, beef, soy, leather and timber is around $137 billion, around half of which originates in illegally cleared land. A “greening” of (the financing of) agricultural production whereby forest protection and/or rehabilitation is intrinsically embedded in loans and investments schemes is necessary to decouple deforestation from our economic and financial system. With more than $1.7 trillion in loans and securities (bonds, equities) put into conventional agriculture, it will be a significant but not impossible challenge to achieve this.

In 2015, for example, the amount of capital committed to renewable energy production was $286 billion, double the total amount invested in coal, oil and gas combined. A similar evolution is needed to bring deforestation out of financing land use (whether agriculture, mining, infrastructure, etc.) that decouples greenhouse gas emissions and deforestation from agriculture and other productive activities.

At the forefront of increasing efficiency in the agricultural sector are certification programmes and initiatives that decouple production from forest impact through corporate “zero deforestation” and “zero net deforestation” commitments. Zero deforestation means no forest areas are cleared or converted, while zero net deforestation allows for the clearance or conversion of forests in one area as long as an equal area is replanted elsewhere. Initiatives such as the Sustainable Trade Initiative (IDH), Tropical Forest Alliance 2020 (TFA2020) have stimulated many companies to adopt zero (net) deforestation policies, but overall, it appears that progress is too slow to achieve the 2020 target for zero net deforestation that many (upstream) consumer goods companies have committed themselves to. A recent analysis found that 25 per cent of Consumer Goods Forum members had internalized policies and procedures requiring suppliers to provide them with products that did not lead to net forest loss. But this also means that 75 per cent have not done this. In addition, only 5 per cent of agribusiness firms that are not Consumer Goods Forum members have put such zero net deforestation policies in place.

To address the challenge UN Environment welcomes and stimulates more agribusinesses and other private sector companies to set “zero (net) deforestation”targets, for example as stated by the Board of Directors of the Consumer Goods Forum. To accelerate the drive towards financing zero net deforestation agriculture, UN Environment is also leading and supporting a number of facilities, including the Tropical Landscapes Finance Facility and the Production, Protection and Inclusion Fund. These facilities aim to unlock and direct private finance and investment in sustainable agricultural production through concessional loan agreement that intrinsically embed landscape restoration and/or forest protection (on and off concession).