Blue Finance

Blue Finance is a social enterprise investing in the management of marine protected areas (MPA). Through its investments, it aims to create local economic development opportunities for vulnerable coastal communities, while preserving pristine ocean ecosystems.

Good management of marine protected areas (e.g. biodiversity management, law enforcement) is critical to their effectiveness. However, over 60percent of MPAs report inadequate funding to provide even basic services. Blue Finance tackles this funding gap by unlocking money from impact investors, DFIs, philanthropies and de-risking partners to implement sustainable revenue mechanisms for the MPAs. Revenue streams are generated from innovative eco-tourism solutions, nature fees, sustainable fishery and blue carbon, which are pooled in a special purpose entity. This entity works with local governments and with local partners (NGOs and communities) to manage the MPA under a long-term collaborative management agreement.¹⁵⁹

A portfolio example of Blue Finance is the MPA “Arrecifes del Sureste” in the Dominican Republic, which covers 8,000 square kilometres and attracts over four million visitors annually. Blue Finance, partnering with local NGOs, signed a 10-year agreement with the government to co-manage the MPA. To finance the management, Blue Finance has structured a loan from impact investors blended with philanthropic grants. Through this investment, the MPA management is expected to create a marine spatial plan, improve and monitor the health of the MPA, ensure compliance and enforcement, engage local communities, support the MPA’s tourism industry and implement innovative revenue strategies to become financially self-sufficient.¹⁶⁰

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159 ‘Collaborative Management Approach’. n.d. Blue Finance. Accessed 25 September 2020. http://blue-finance.org/?page_id=2321.

160 ‘Dominican Republic: Designing, Financing And Implementing The Effective Management For One Of The Largest MPAs In The Caribbean’. n.d. Blue Finance. Accessed 25 September 2020. http://blue-finance.org/?p=1740.

STAKEHOLDERS:

n/A

Climate Trust Capital

Launched in 2016, Climate Trust Capital (CTC) is a private equity style fund investing in projects that generate carbon offset credits while providing market-rate returns. Through its investments, it aims to generate carbon credits that equate to sequestering 2 million tons of CO2 emissions over ten years.

CTC is a for-profit investment manager, a wholly-owned subsidiary of the Climate Trust (not-for-profit). CTC invests in early-stage, US-based carbon offset projects like grassland conservation, biogas plants and forestry. These projects are certified by the Climate Action Reserve, a carbon credit accreditor, ensuring that the generated carbon credits are transparent, monitored and verified.¹⁶¹ The fund’s revenues are generated from selling credits on the voluntary carbon markets and traded on the California cap-and-trade program, leveraging market-based incentives to turn a profit. Within its projects, it often partners with mission-aligned partners on the ground.

The fund was brought to existence through a $5.5 million programme-related grant from the David and Lucile Packard Foundation.¹⁶²

Since 2019, the fund has reached $40 million in carbon project funding commitments, and is fully invested in seven projects.¹⁶³ Examples of these projects include: a $2.2 million dollar investment in a 113,000-acre improved forest management project in Maine that was developed in accordance with the California Air Resources Board protocol for U.S. Forest Projects;¹⁶⁴ a $1.12 million investment into an anaerobic digester in a dairy farm that traps and destroys methane emitted from the farm’s manure lagoon;¹⁶⁵ and a $262,000 investment in a grassland conservation project, creating conservation easements that protect soil carbon from being released.¹⁶⁶

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161 Rachel Bass, Peter Murphy, and Hannah Dithrich. 2019. ‘Scaling Impact Investment in Forestry’. Global Impact Investing Network. https://thegiin.org/assets/GIIN_Scalingpercent20Impactpercent20Investmentpercent20inpercent20Forestry_webfile.pdf.

162 ‘Notable Achievements’. n.d. The Climate Trust. https://climatetrust.org/achievements/.

163 ‘Notable Achievements’. n.d. The Climate Trust. https://climatetrust.org/achievements/.

164 ‘St. John Forest Improved Forest Management’. n.d. The Climate Trust. https://climatetrust.org/case-studies/st-john-forest/.

165 ‘The Carlos Echeverria And Sons (Ce&S) Dairy Biogas’. n.d. The Climate Trust. https://climatetrust.org/case-studies/carlos-echeverria-and-sons-dairy/.

166 ‘Lightning Creek Ranch Avoided Grassland Conversion’. n.d. The Climate Trust. https://climatetrust.org/case-studies/eastern-oregon-grasslands-cooperative/.

STAKEHOLDERS:

Climate Trust; David and Lucile Packard Foundation

Forest Carbon Partnership Facility

The Forest Carbon Partnership Facility (FCPF) aims to mobilise investment in the reduction of emissions from deforestation and forest degradation; forest carbon conservation; sustainable forest management; and the enhancement of forest carbon stocks in developing countries, i.e. REDD+ activities. The FCPF works with 47 countries across Africa, Asia and Latin America to:

1. Support the design of REDD+ strategies; develop baseline emission levels; and measuring, reporting and verification systems through the FCPF Readiness Fund. Current funding from donors is $400 million

2. Deliver results-based payments through the FCPF Carbon Fund to countries that have implemented REDD+ strategies and have achieved verified emissions reductions (VERs) from forest and land use. Current funding from donors is $900 million. Private investors are also participating in one tranche of the fund and have committed to buying each VER at a floor price of $5 per unit. The fund is yet to generate VERs.

STAKEHOLDERS:

World Bank

Livelihoods Funds

The Livelihoods Funds are investment vehicles tackling environmental degradation while addressing rural poverty. The funds rely on the support of private companies committed to promoting sustainable development while reducing their carbon footprints or transforming their supply chains, as well as engagement with public organisations, NGOs and civil society to ensure maximum impact. The funds are advised by Livelihoods Ventures. Livelihoods currently operates two investment funds:

1. The Livelihoods Fund for Family Farming (L3F) finances large-scale sustainable agriculture projects that deliver positive environmental impacts across landscapes and improve livelihoods for local rural communities. The financial return for the fund is provided by results-based payments from private and public off-takers that commit to paying for the raw materials, public goods and environmental services generated. Launched in 2015, the fund is committed to investing €120 million over 10 years.

2. The Livelihoods Carbon Funds (LCF) finance carbon sequestration projects such as agroforestry, ecosystem restoration and rural energy projects with high social impact, including improved market resilience, higher incomes and better health for vulnerable rural communities. Fund investors receive carbon credits in exchange for their contribution, which they can also use to offset their unavoidable emissions.^167,168 The Livelihoods Carbon Fund #1 has invested €40 million in 9 projects across Africa, Asia and Latin America, planted 130 million trees – benefiting 1 million people – provided 120,000 households with efficient cookstoves and sequestered 10 million tons of CO2 over 20 years.¹⁶⁹ The Livelihoods Carbon Fund #2, launched in 2017, plans to invest €100 million in carbon sequestration projects, achieving 12 million tons of CO2 over 20 years.¹⁷⁰

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167 Anya Khalamayzer. 2018. ‘This $118 Million Mutual Fund Pays Companies in Carbon Credits’. Greenbiz. 3 January 2018. https://www.greenbiz.com/article/118-million-mutual-fund-pays-companies-carbon-credits.

168 ‘The Livelihoods Funds Strengthen Their Investments in Africa to Support Companies in Their Sustainability Journey and Responsible Sourcing Commitments’. 2019. 14 March 2019. [https: //ww w.danone.com/content/dam/danone-corp/medias/media-othernews- en/2018/corporatepressreleases/Thepercent20Livelihoodspercent20Fundspercent 20strengthenpercent20theirpercent 20investmentspercent 20inpercent20Africapercent20topercent 20supportpercent20companiespercent20inpercent 20theirpercent20sustainabilitypercent20journeypercent20andpercent20responsiblepercent 20sourcingpercent20commitments.pdf.]

169 ‘LCF- Livelihoods Carbon Funds’. n.d. Livelihoods Funds. https://livelihoods.eu/lcf/.

170 ‘LCF- Livelihoods Carbon Funds’. n.d. Livelihoods Funds. https://livelihoods.eu/lcf/.

STAKEHOLDERS:

Livelihoods Venture; Danone; Mars; Firmenich; Michelin; Hermes; Schneider Electric; SAP; Voyageurs du Monde; Groupe Caisse des Dépôts; La Poste; Crédit Agricole; Veolia

Reef Credits

The Great Barrier Reef is valued at AU$56 billion, contributing AU$6.4 billion to the national economy and supporting more than 64,000 jobs.

While climate change is the most significant threat to the Great Barrier Reef, poor water quality is the second-highest threat. Tackling climate change is a global challenge but on a local level, improving water quality is a clear positive action that advances towards improving the health of the Reef. This highlights the need for data-driven, measurable market-based products like Reef Credits to be available to investors.

A Reef Credit is a tradable unit that quantifies and values the work undertaken by farmers and graziers to improve water quality flowing onto the Great Barrier Reef.

The Reef Credits Scheme is the first water quality market of its kind in the world, and pays landholders for improved water quality resulting from on-farm actions, without compromising the productivity of their land.

The world’s first Reef Credits were issued in October 2020 and purchased by HSBC and the Queensland government. Over 3,000 Reef Credits were issued, preventing more than 3,000 kg of nitrogen from reaching the Great Barrier Reef.

For buyers, Reef Credits provide a measurable, audited water quality outcome tracked against internationally recognised targets and based on actual reduction in pollutants entering the reef.

For landowners, Reef Credits provide the opportunity to recognise, value and monetise the critical actions they undertake to provide cleaner water to the Great Barrier Reef. The scheme encourages investment from corporations and government that diversifies landholder income, integrates sustainable practices, reduces business risk and helps to future-proof their property for years to come.

There is a market opportunity of over 6 million credits by 2030, and this opens the door for more businesses to put the environment on the balance sheet and invest in the future of the Reef and rural Queensland as part of their Environmental, Social and Governance (ESG) strategies.

The unique partnership between GreenCollar and Greening Australia combines expertise in environmental markets – particularly Reef Credits – and large-scale ground delivery of wetland and gully repair to stop sediment and pollutions at source. This partnership aims to significantly scale up investment in the water quality, carbon and biodiversity of Reef catchments.

STAKEHOLDERS:

Greening Australia; GreenCollar; Queensland government; farmers and graziers; Great Barrier Reef Foundation; Australian Government

Sustainable Commodities Conservation Mechanism

Set up by Lestari Capital with the support of Partnerships for Forests, the Sustainable Commodities Conservation Mechanism (SCCM) aims to provide credible, transparent and efficient ways to finance conservation projects in South-East Asia. The SCCM connects private companies seeking to link specific sustainability goals (e.g. the RSPO’s sustainable palm oil certification) and associated high-value conservation projects in need of funding.¹⁷¹

Lestari Capital, via the SCCM, identifies and undertakes due diligence on third party projects in High Conservation Value (HCV) and High Carbon Stocks (HCS) landscapes, promoting the projects to private companies committed to financing environmental restoration for a minimum of 25 years. The SCCM provides fiduciary oversight and manages the long-term relationship between the two parties, ensuring benefits to local communities are distributes, and social and environmental safeguards and performance-based payments are met. The SCCM funds are managed via a Special Purpose Vehicle (SPV) located in Singapore, which disburses payments through a custodian bank.¹⁷²

For its first vehicle, the SCCM aims to mobilise $50 million of private investment by the end of 2020. Among the SCCM’s first users was Cargill which now finances the conservation of the Nanga Lauk Village Forest in Indonesia for 25 years. It includes 1,430 hectares – of which high-value peatlands cover 58percent, while the rest is covered by lakes. The area supports the livelihoods of 197 households.¹⁷³

To date, the SCCM has established a proof of concept for the sustainable palm oil grower sector and is currently expanding its support to a widening range of sustainability commitments and supply chain actors.¹⁷⁴ To that end, Lestari Capital has developed the Rimba Collective with a number of global companies for supporting over 500,000ha of conservation projects through private sector finance. This is a unique mechanism that integrates conservation support into the cost of goods, making conservation part of business as usual.

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171 ‘The Sustainable Commodities Conservation Mechanism’. n.d. Partnerships for Forests. https://partnershipsforforests.com/partnerships-projects/sustainable-commodities-conservation-mechanism/.

172 ‘SCCM - Connecting Markets to Conservation’. 2019. Lestari Capital. https://lestaricapital.com/wp-content/uploads/2019/11/Lestari-Brief-20191107.pdf.

173 ‘Launch of the Sustainable Commodities Conservation Mechanism – First Partner Cargill Commits to 25 Years of Conservation Finance through Innovative New Financial Mechanism’. 2018. Partnerships for Forests (blog). 16 October 2018. https://partnershipsforforests.com/2018/10/16/launch-of-the-sustainable-commodities-conservation-mechanism-first-partner-cargill-commits-to-25-years-of-conservation-finance-through-innovative-new-financial-mechanism/.

174 ‘The Sustainable Commodities Conservation Mechanism’. n.d. Partnerships for Forests. https://partnershipsforforests.com/partnerships-projects/sustainable-commodities-conservation-mechanism/.

STAKEHOLDERS:

Lestari Capital; Partnerships for Forests

Vietnam's Payment for Forest Ecosystem Services

In 2008, Vietnam was the first county in South-East Asia to pilot a national policy called the Payment for Forest Ecosystem Services (PFES) scheme, with the support of USAID. After two years, the scheme was launched nationwide through legislation¹⁷⁵ establishing the forest environment services that must be paid for by beneficiaries (e.g. hydropower plants, water utilities, industry, tourist service providers) to forest owners. Forest services include soil protection, maintenance of water sources, carbon sequestration, biodiversity conservation and the provision of spawning grounds, sources of feed and natural seeds.

To date, the majority of the buyers of PFES have been water supply companies and hydropower plants. Deforestation causes sediment runoff from loose soils, which impact the running of their operations. The payments from the sale of PFES contracts are distributed to ecosystem service providers (e.g. local communities/land users) via government agencies. Vietnam’s PFES differs to other “payment for ecosystem services” schemes in that payments are not linked to results, but rather the scheme compensates individuals for engaging in active forest conservation – independent of performance. The primary beneficiaries are the local communities with rights to the forest lands. Overall, 355,000 households are receiving PFES payments by managing 3.5 million hectares of forest (25percent of the total forest area in the country).¹⁷⁶

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175 ‘DECREE No. 99/2010/ND-CP OF SEPTEMBER 24, 2010: On the Policy on Payment for Forest Environment Services’. 2010. Vietnam Law and Legal Forum. 26 November 2010. https://vietnamlawmagazine.vn/decree-no-99-2010-nd-cp-of-september-24-2010-on-the-policy-on-payment-for-forest-environment-services-4739.html.

176 Assan Ng’ombe, and Julia Turner. 2019. ‘People, Health and Nature: A Sub-Saharan African Transformation Agenda’. London: Food and Land Use Coalition. https://www.foodandlandusecoalition.org/wp-content/uploads/2019/09/FOLU-SubSaharanAfrica_EnglishFullReport.pdf.

STAKEHOLDERS:

Vietnam Ministry of Agriculture and Rural Development; Winrock International; USAID

Water Funds

Water Funds use a “payments for ecosystem services” approach to incentivise watershed protection and reforestation. As of March 2020, The Nature Conservancy (TNC) had 29 water funds in operation across Asia and Latin America and another 30 under way in developing countries. The funds are currently financing more than 7 million acres of watersheds and securing drinking water for 50 million people.

The Upper Tana-Nairobi Water Fund was the first of its kind in Africa. 50percent of Nairobi's hydropower and 95percent of Nairobi’s residents depend on the Tana River for water. However, water quality is compromised due to high levels of sediment runoff driven by upstream land conversions of forestry and wetland areas to agriculture by rural communities. As a result, 60percent of Nairobi’s citizens do not have access to a stable water supply. The fund addresses the issue by providing payments to the communities around the Tana River who implement forestry and farming practices that reduce land conversion and soil erosion and improve the overall health of the river.^177,178

Investors in the fund include the Kenyan Electricity Generating Company (KenGen), Coca Cola and the Global Environment Facility. The International Fund for Agriculture (IFAD) is acting as the implementing agency.¹⁷⁹ The fund trains nearly 15,000 farmers in practices such as agroforestry, resilient agriculture, and riverbank buffer zone building. The training has resulted in improved crop yields, providing additional income for rural communities.¹⁸⁰ Research carried out for the fund showed that a $10 million investment in water fund-led conservation could return $21.5 million in economic benefits over 30 years.^181,182

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177 Assan Ng’ombe, and Julia Turner. 2019. ‘People, Health and Nature: A Sub-Saharan African Transformation Agenda’. London: Food and Land Use Coalition. https://www.foodandlandusecoalition.org/wp-content/uploads/2019/09/FOLU-SubSaharanAfrica_EnglishFullReport.pdf.

178 Assan Ng’ombe, and Julia Turner. 2019. ‘People, Health and Nature: A Sub-Saharan African Transformation Agenda’. London: Food and Land Use Coalition. https://www.foodandlandusecoalition.org/wp-content/uploads/2019/09/FOLU-SubSaharanAfrica_EnglishFullReport.pdf.

179 ‘The Upper Tana-Nairobi Water Fund’. n.d. The Nature Conservancy. https://www.nature.org/en-us/about-us/where-we-work/africa/stories-in-africa/nairobi-water-fund/.

180 Assan Ng’ombe, and Julia Turner. 2019. ‘People, Health and Nature: A Sub-Saharan African Transformation Agenda’. London: Food and Land Use Coalition. https://www.foodandlandusecoalition.org/wp-content/uploads/2019/09/FOLU-SubSaharanAfrica_EnglishFullReport.pdf.

181 ‘The Upper Tana-Nairobi Water Fund’. n.d. The Nature Conservancy. https://www.nature.org/en-us/about-us/where-we-work/africa/stories-in-africa/nairobi-water-fund/.

182 Assan Ng’ombe, and Julia Turner. 2019. ‘People, Health and Nature: A Sub-Saharan African Transformation Agenda’. London: Food and Land Use Coalition. https://www.foodandlandusecoalition.org/wp-content/uploads/2019/09/FOLU-SubSaharanAfrica_EnglishFullReport.pdf.

STAKEHOLDERS:

The Nature Conservancy; Natural Capital Project; FutureWater; GEF; IFAD; International Center for Tropical Agriculture; KenGen; Coca Cola