Written by Lisa Genasci, CEO, ADMCF
For some years, ADMCF, in partnership with ADM Capital, has been looking at ways to drive private sector finance into a development agenda where there are also clear environmental outcomes.
This has meant looking at creating investible opportunities at scale that contribute meaningfully to a country’s economic growth and other targets while at the same time bringing environmental benefit such as lower carbon emissions and/or reduced deforestation.
We have focused our efforts on Indonesia, with one of the largest areas of intact forest globally and where an estimated 25% of the population still lives on $2 a day or less. Forested areas are severely threatened by conversion to agriculture and every year the haze from slash and burn fills the skies.
Why these areas? We saw that what is often missing for smallholders, who produce 40% of Indonesia’s palm oil, for example, is access to long-term capital for replanting, which would help them improve efficiency on their own 2-hectare plots rather than possibly illegally opening new land. We saw also the need for clear environmental parameters associated with the lending.
Companies also need access to long-term capital to develop renewables or sustainable agriculture projects, also with clear environmental and social safeguards. Commercial plantations on degraded land can help protect forests from encroachment. At the same time, rural communities need jobs and access to electricty for improved livelihoods.
Hoping to help address these challenges, in October 2016 we launched the Tropical Landscapes Finance Facility (“TLFF”) with BNP Paribas (“BNPP”), UN Environment (“UNEP”) and World Agroforestry Centre (“ICRAF”), and with the support of the government of Indonesia.
TLFF consists of a lending facility managed by ADM Capital/ADMCF with BNPP as structuring adviser and arranger. The blended finance design includes a grant fund, managed by UNEP and ICRAF, to provide technical assistance to projects, pipeline development as well as monitoring and evaluation support.
We see the objective of TLFF as providing long-term debt finance to projects and companies that stimulate green growth and improve rural livelihoods. To achieve this, with ADM Capital, we have built a pipeline of projects in two areas: Renewable energy for rural populations and sustainable agriculture.
On February 26th we finally completed our first transaction, a landmark USD95 million loan to an Indonesian JV between France’s Michelin and Indonesia’s Barito Pacific to help finance a sustainable natural rubber plantation in heavily degraded landscapes.
USAID has provided a partial credit guarantee for the transaction, which incorporates extensive social and environmental objectives and safeguards.
TLFF I PTE. LTD, a newly established special purpose company incorporated in Singapore will issue the long-dated Sustainability Bond to fund PT Royal Lestari Utama (“RLU”) for sustainable rubber in Jambi, Sumatra and East Kalimantan.
The project involves collaboration with WWF, which has worked with RLU to set aside remaining High Carbon Stock (“HCS”) and High Carbon Value (“HCV”) forest in the RLU concessions, as well as critical wildlife conservation and riparian areas.
In all, roughly half the 88,000 ha of concessions will be left for conservation and community livelihood programmes. In Jambi, the RLU concessions and two WWF ecosystem restoration concessions at either end will serve as a buffer zone to protect the threatened 143,000 ha Bukit Tigapuluh National Park against encroachment. The National Park, which contains unique biodiversity, is one of the last remaining places in Indonesia where elephants, tigers and orangutans exist together.
At maturity, the plantation is expected to provide approximately 16,000 fair-wage jobs and thus represent a critical source of employment for local communities.
A Community Partnership Programme under development will include additional livelihood support and training for smallholders living in the concessions.
Vigeo Eiris, the ESG research agency, has confirmed TLFF I as ’Sustainability Notes’ with positive contribution to sustainable development and aligned with the ICMA Sustainability Bond Guidelines, more information is available here.
Developing TLFF has been a long process and a collaborative effort, with ADMCF/ADM Capital in 2016 receiving a Design Funding Grant from Convergence Blended Finance (“Convergence”) to help build the lending platform and initial pipeline of projects.
Others are looking to provide grant funding to various aspects of the project, including potential support to a 9,700 ha Wildlife Conservation Area under development between RLU and WWF along the National Park border areas. This would allow transit of, in particular, the 150 remaining Sumatran elephants (four family groups) living in the southern parts of the forest and bordering concession areas.
The Green Climate Fund recently shortlisted the RLU project for a second tranche of funding (both loans and grants) in a private sector call for proposals.
We are excited to see RLU become a reality as a first example of how TLFF might help re-think finance to promote better development integrally linked to climate benefit and biodiversity conservation. We see this as just a beginning, with hopefully, many more examples of such projects to follow.