Summary of 3.5/Dialogue Session
Financing Soil and Land Rehabilitation
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Dialogue Session
3.5 Financing Soil
and Land Rehabilitation
22
Date
Wednesday, 22 April 2015
DS
Hosts:
BMZ – Federal Ministry for Economic Cooperation and Development (Germany)
GIZ – Deutsche Gesellschaft für Internationale Zusammenarbeit (Germany)
GM – The Global Mechanism of the United Nations Convention to Combat Desertification
Rapporteur:
Walter Engelberg, GIZ ([email protected])
Summary
Land and soil rehabilitation and sustainable land management (LSR/SLM) are gaining momentum globally. They are an important precondition to adress food insecurity, particularly in subSaharan Africa. At the center of climate smart agriculture and mitigation of GHG from agricultural land use, they will be essential for achieving Land Degradation Neutrality and the SDG.
The availability of public and private investment in land rehabilitation and sustainable land management (SLM) is a question of major concern for affected country parties of the UNCCD and it
is going to be of utmost importance for the post 2015 process. We’ve learned from the initiative
Economics of Land Degradation that the costs of inaction against the different forms of land
degradation are five times higher than the factual costs of action.
There is nevertheless not enough evidence on the overall benefits of SLM, particularly off-site.
For on-site benefits, we are restricted to some yield increase data, which can be converted in
monetary values, but far too little evidence on benefits for soil carbon, soil fertility, water holding capacity etc exists. Yet, off-site benefits (at landscape or watershed level) of different land
management practices are seldom properly assessed. They can be immense and in many cases
higher than the on-site benefits. Given the large investments already made and needed in the
near future, there is urgent need to be clear(er) about costs and overall benefits of different
land management practices.
In many countries, food security and long-term economic prospects are closely linked to
the productivity and health of the land resources, as prospects for non-agricultural employment and growth are meagre. Yet, particularly these countries suffer from the fact that to date,
insufficient and inefficient finance hampers the broad adoption of LSR/SLM at a scale and
magnitude necessary to feed todays and future generations.
Thus, this session took a closer look at the instruments available for public and private finance
of LSR/SLM. The current buzz words are: diversification of financial sources, emphasis on
domestic resource mobilization, inclusion of private investment and capitalizing on offsetmechanisms and carbon markets. Will these do the trick?
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What should be the role of different types of finance in addressing key drivers of soil degradation more effectively? What are the prospects for private investment into sustainable land management? How does the situation differ from middle-income to food insecure countries? Which
mechanisms, instruments and “non-traditional” sources of finance can show us the way
forward, and how far can they carry us? What is the role of ODA in a world of changing development finance architecture?
Three basic considerations stood at the beginning of the session:
1. The highest investments into LSR/SLM are coming from farmers themselves, most of
them small-scale family farmers.
2. Perverse incentives are currently much more important than forward-looking investments. Example from BRA and IDN: Domestic subsidies for fossil energy and other
fossil-based drivers of climate change are 126 times higher than the summed-up international investments into the preservation of forest landscapes (UNEP).
3. The blending of financial instruments and mechanisms is at the center of current innovations, whereby this blend needs to be adapted to opportunities and threats experienced
on the ground.
The UNCCD Global Mechanism (GM) assists countries to develop Integrated Investment Frameworks (IIF) and Integrated Financing Strategies (IFS), defining – under government ownership
and with stakeholder involvement – the opportunities and challenges of financing LSR/SLM
from domestic and external sources. IIF address the necessary reforms in the countries’ legal
and institutional frameworks such as decentralization and local development planning.
The GM reported on the scale and magnitude of ODA and domestic investments into LSR/SLM,
as they appear in the official reporting system PRAIS of UNCCD. Details can be found in the
presentations. The reported investment sum of around 135mio $US for two years shows
the immense gap between current flows and real needs. As compared to financial flows in
the context of UNFCCC, investments under UNCCD are marginal.
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Dialogue Session
With regard to land-locked least developed countries (LLDC), an experience from KfW (German Development Bank) was presented. Land rehabilitation may need a direct investment of
only 50€/ha, but enabling investments and preparatory and mobilizing costs are easily 7 to 10
times higher. Therefore, investments into LSR/SLM need to be designed long-term (<15 years)
and at large scale (<10mio€) to be cost efficient. Investments into LSR/SLM may achieve 2 – 3 %
internal rate of return once the start-off phase is done. This leads to the assumption that
private asset investment (even under current low-interest conditions) will not play a major
role in financing LSR/SLM in LLDC contexts as the Sahel countries.
Various forms of payments for environmental services (PES) have developed over the last
years, their majority in Latin America and addressing forest conservation, water and biodiversity. PES mechanisms have proven to have mobilizing effects but do rarely supply very substantial incentives. Conducive frame conditions such as secure land tenure and rule of law,
organized buyers of ecosystem services and environmentally conscious governments are
key factors to the applicability of PES-mechanisms. These preconditions seldomly apply
at lowest-income stages of development. Also, very few PES-mechanisms address agriculture, as considerable direct off-site externalities of soil management would be required “
for sale”.
As there is a great overlap between the goals and challenges in the sustainable land management and climate change fields, hopes are high that climate based financing mechanisms
will provide substantial support to sustainable land management. In fact, a number of funds
under UNFCCC also address sustainable land management. Similarly, both bilateral and multilateral funds provide opportunities to finance. But both fields suffer from the same challenges
trying to attract private finance, and both require the same solution! Verifiable monitoring of
real carbon mitigation or sequestration appears to be the major challenge. Certain opportunities may arise through cooperation with agribusiness corporations.
Two innovative concepts of financing mechanisms for land restoration and land degradation
neutrality were presented: the 20x20 Initiative and the LDN-Fund.
The 20x20 initiative of (so far) eight Latin-American governments and three regional entities
was launched at the UNFCCC’s COP20 in Lima. It is meant to generate private sector investment in land-restoration efforts. Monetization of societal benefits (avoided costs and economic benefits) from land restoration is expected to guide sound policies to remove barriers to private sector investment in land restoration. GEF and LAIF (Latin America Investment
Facility) funding will facilitate private investment by providing conditional loan and guarantee
funding in support of private equity. The aspirational goal is to secure investment in land restoration and support from bilateral and multilateral funding for 20 million ha by 2020.
The LDN-fund, currently conceptualized by the GM of UNCCD, is based on the insights that investments into land rehabilitation address the most pressing issues we face today and in future,
and that public funds alone have proven insufficient. It is assumed that bankable projects for
a transition to land degradation neutrality can deliver strong social and environmental
benefits and long-lasting positive impacts on soils and thus food security. In operational terms,
the LDN-fund follows a line of thinking similar to the 20x20 initiative and aims at upgrading
12 million ha highly degraded land per year. Recognizing and capturing the value of natural
capital is meant to guide the development of sound policies, including incentives for investment
in sustainable management practices. Land rehabilitation operators and land-use companies
committed to LDN would be linked-up to qualified institutional investors such as pension funds
and private foundations. A layered fund with different share classes and notes would accommodate the required level of protection for different investors in order to provide average market returns on portfolio yields. Operators would lease-out the land from owners, rehabilitate the
productive capacity, use it for a determined period of time (e.g. 20 years) and finally release it
to the owners or other concessionaries.
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From an open debate in the plenary the following discussion points can be reported:
The scope for integration of private impact and asset investment into financing strategies for
land rehabilitation grows with political stability and the reliability of institutions, as well as with
the availability of productive resources and market access. The more fragile, food-insecure
and resource-poor the context, the more financing will rely on traditional ODA or philanthropic sources.
Although the majority of the population is living on it, rain fed agriculture and pasture is
somewhat neglected in agricultural politics as well as in investments from development banks
and private investors.
Power-imbalances between local land-users and operators funded by innovative financing
mechanisms bring about a high risk to long- and short-term land use rights of the local population, i.e. small-holder farmers (expropriation, land-grab). Responsible governance of land
rights is an issue of utmost importance, and more attention should also be paid to local
financing schemes that provide access to small-holders.
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