Three pillars for financing sustainable and resilient landscapes
Scalable and sustainable financing interventions to create positive social and environmental impacts.
Landscapes, and the interrelated connections of the ecosystems and people within them, are the foundation of our planet's natural resources and play a vital role in supporting the livelihoods of billions of people. However, the rapid pace of economic growth and climate change has led to the degradation of our landscapes, resulting in negative impacts on people and the planet. Achieving sustainable and inclusive landscapes is a key component in transforming our food systems, and access to finance to invest in these transformations is a critical element in achieving this goal.
Yet, accessing finance for building sustainable and resilient landscapes can be challenging, with several key barriers hindering progress. Firstly, the diversity of actors and needed investments within a landscape makes coordination difficult, and complicates the matching of financial institutions, their audiences and suitable financial products and services. Secondly, many of the smaller enterprises or community-based initiatives within a landscape may be excluded from traditional financing mechanisms due to limited collateral, high transaction costs, and financial illiteracy. Finally, a mismatch between perceived and actual risks can lead to high-interest rates and difficulty securing loans, while the benefits of simultaneous joint action by multiple actors within a landscape go unquantified and unrewarded.
Addressing these barriers requires innovative financing mechanisms, increased financial literacy, and building awareness among financial institutions of the potential benefits of investing in sustainable and resilient landscapes. At SNV, we address this not only at the individual farm, enterprise, and supply chain, but also holistically at a landscape scale to restore and sustain ecosystem integrity, boost agricultural productivity and sustainable rural development, and increase the resilience of our food systems.
Building on our long-term presence in areas where the need for financial access and networks among producers, enterprises and local actors is key. We work to strengthen the investment readiness of individuals and enterprises within the agri-food space, while simultaneously further mobilise sustainable financing for development by working with governments, financial institutions and the private sector. Through those partnerships, we can de-risk, reduce costs and blend finance to channel more investment to the enterprises and farmers for whom it will be most impactful.
Here are the three complementary pillars we incorporate into our projects to achieve this goal:
Providing non-financial services
These activities get participants ready for financial services and increase the likelihood of accessing more inclusive, better, or formal financial products. Building farmer groups or cooperatives and helping businesses to develop stronger investment plans: creating the skills and systems so that farmers and enterprises with a landscape can access formal finance in the future.
In East Africa, the CRAFT project has supported 56 small and medium enterprises (SMEs) and cooperatives working in staple crops to integrate climate risks into their business plans and operations, and scale the adoption of climate-smart agricultural practices by the farmers in their supply chains. By working with and supporting the growth and development of these enterprises, over 170,000 farmers have been trained in climate-smart agriculture, a scale that cannot be achieved through traditional delivery methods.
Facilitating access to finance
These activities provide initial access to either financial resources or other productive assets to the targeted communities such as farmers or MSMEs. For example in Vietnam, the Cafe-REDD+ project has supported coffee farmers to adopt agroforestry models, increasing both their economic and climate resilience. By providing an uplift in the farmer's productivity through provision of seedlings, the risk of the bank is greatly reduced, thereby opening access to finance and a virtuous cycle to the farmer and their family. The project also supports local enterprises and cooperatives to apply for other public grants, and helps these public agencies ensure that their grants are more catalytic.
Building partnerships and engagement
The third pillar involves working with partners who bring in market-based, scalable, and sustainable access to finance. These could be impact investors or international finance facilities, but they are just as likely to be local financial institutions, such as rural banks and microfinance providers, who are specialised at reaching these 'last-mile' enterprises and have sustained local presence and expertise within the landscapes and the communities.
The Dutch Fund for Climate and Development (DFCD) is an example of SNV collaborating with financial institutions at an international level, together with FMO the Dutch Development Bank and Climate Fund Managers. The DFCD mobilises private sector funding for climate adaptation, at scale, and through partnerships with financial institutions, where SNV provides development financing and technical assistance, and the financial institutions may provide debt or equity.
In reality, successful outcomes might require that a project delivers not one, but two or even three of these pillars. Both CRAFT and Café-REDD+ are also delivered in partnership with local banks, working with them to better tailor their products to localised needs, and using the projects’ infrastructure to more effectively reach their audience. The DFCD’s development financing window provides technical assistance and grant finance to strengthen the impact and improve the underlying profitability of the potential investees.
To identify and analyse the combination of activities required to enhance access to finance to the range of stakeholders within a particular landscape, SNV has been collaborating with the 1,000 Landscapes for 1 Billion people partnership. Alongside other partners, we have refined a tool for assessing a landscapes finance needs and opportunities which is being adopted by actors all over the world to refine their investment and finacing strategies to accelerate landscape projects.
Building sustainable and inclusive landscapes is a critical component in transforming our food systems, but this transformation requires access to finance by many types of stakeholders. By assessing needs and opportunities, and addressing these three pillars together, we can create scalable and sustainable financing interventions that not only provide financial returns but also create positive social and environmental impacts.
Written by: William Mcfarland, Agri-Food Technical Advisor