Land Use Finance Programme BRIEF #01
Financial institutions, including institutional investors, banks and impact investors, as well as companies across the agricultural value chain, all play a vital role in making the transition to more sustainable food and commodity supply chains. Financing deforestation-free commodity production, forest and landscape restoration and other forms of sustainable land use require a shift from business as usual towards best practices in the finance sector to ensure that land-use finance delivers positive environmental and social (E&S) impacts.
In order to achieve this, E&S risks associated with the projects financed or clients’ activities must be assessed and managed, and the E&S impacts that result from financing sustainable land use must be framed and demonstrated. However, managing E&S risks and demonstrating E&S impacts present challenges, such as navigating multiple guidelines and standards, avoiding the risk of displaced negative impacts outside of projects’ boundaries, designing key performance indicators (KPIs) that appropriately measure E&S impacts, and cost-effectively accessing data to measure these KPIs, to name but a few.
For finance institutions to take on these challenges, appropriately manage E&S risks and ensure that positive E&S impacts are achieved, best practices must be identified and shared among land-use finance stakeholders. Ultimately, the emergence of standardised E&S risk management procedures, and sets of E&S KPIs, should facilitate broader uptake of sustainable land-use finance practices and the evolution of a novel asset class of deforestation- free commodities.
