The Forest and Landscape Restoration Mechanism

Finance

BACKGROUND

Implementation of Forest and Landscape Restoration (FLR) on the ground faces a number of barriers. In addition to unclear tenure rights, lack of implementation capacity and continued incentives for unsustainable land uses, some of the chief barriers are insufficient awareness of financing opportunities and investors’ lack of understanding of FLR, and therefore their lack of appetite in investing (problem of risk of appetite ).

To achieve the ambitious international FLR targets, significant investment is required, amounting to between USD 35 billion and USD 49 billion per year. There are diverse financing and market-based sources to raise these funds, among them: development cooperation resources, climate finance, non-governmental organizations (NGOs) resources, State budgets, environmental funds, crowdfunding and private sector investments. With governments facing more and more funding shortages and development cooperation having limited growth margins, long-term financing solutions may increasingly rely on the private sector and on instruments enabling self-sustained financing such as environmental funds.

Optimal restoration outcomes (environmental, social and economic) are more likely to be achieved when these diverse mechanisms are applied in a coordinate approach throughout the restoration process. The development of innovative ‘blended finance’ mechanisms, integrating a package of financing mechanisms through a supportive enabling environment, can enable multiple issues to be addressed and the diverse needs of local actors to be met. A diverse spectrum of FLR investment can also maximise the leverage of finance and adoption of practices at scale across the landscape, while reducing the investment risk for individual investors.

The Forest and Landscape Restoration Mechanism (FLRM) has been working with in-country partners to provide diverse support for in-country partner financing needs and develop innovative financing mechanisms to sustainably fund the implementation of restoration activities on the ground.

CAPACITY BUILDING

The FLRM team provides training for projects at national, regional and global level on green finance and bankable projects development, ecosystem services valuation, incentives, use of financial and market-based mechanisms to fund FLR activities, and coordination of different funding sources. Training also aims to illustrate the diversity of finance available for FLR activities and build capacity for project partners to integrate this knowledge in project design and implementation.

It also supports a Community of Practice (CoP) for Local Finance for Forest and Landscape Restoration. This online forum aims to facilitate the exchange of experiences between members, and build capacity and a network to enable practitioners to finance the implementation of FLR on the ground at landscape level.

The CoP provides a forum to share publications, case studies and experiences, hold discussions and highlight key events. As part of the CoP on Finance, FAO FLRM is working with the WWF Landscape Finance Lab to deliver a series of webinars on key finance topics requested by CoP members. Through a practitioners’ lens, speakers share examples and knowledge on topics such as valuation of ecosystem services, incentives and payments for ecosystem services (PES), blended finance, finance for local impact, and development of bankable projects.

To expand its reach, the FLR team is developing on three e-learning courses on FLR and finance: Finance and FLR, Local finance mechansims, and Developing bankable projects. It is also collaborating with ELTI to allow more participants / partners to access a course on FLR including modules on Financing Instruments.

DEVELOPMENT OF FINANCIAL PLANS FOR FLR IMPLEMENTATION

The team provides support to develop project financial plans and access to diverse funding sources. Financial plans are linked to FLR/ROAM plans at community, project or national level. They aim to map existing funding, and identify additional investment requirements throughout the restoration process and opportunities to develop bankable projects or value chains. Work includes supporting cross-sectoral dialogues, technical guidance and the adaptation of existing National Forest Funds, banking or financing systems to enable investments specifically to access funds for FLR activities on the ground. It also includes inbuilding long-term sustainable financing such as PES, value chain development and bankable projects. (e.g. Burkina Faso, Cambodia, China, Democratic Republic of Congo, Fiji, Kenya, Pakistan, Niger, Philippines, Sao Tome e Principe, Central African Republic and Vanuatu).

Key elements within financial plans for FLR implementation supported by FAO FLRM finance team include:

  • Value chain development to enable the sustainability of investments in restoration and to in-build mechanisms that increase the value of restored and sustainably managed land and forest. FLRM facilitates the mapping, analysis and valuation of existing value chains to identify potential business models and private sector partners, enhance and connect existing or develop new markets to bring greater economic benefits to communities. For example, development of cashew nuts value chain in Cambodia, Chilgoza pine nuts in Pakistan, Moringa in Niger and Karité in Burkina-Faso. (e.g. Burkina Faso, Cambodia, Guinea, Kenya, Morocco, Niger, Pakistan etc.).
  • Market-based mechanisms such as Payments for Ecosystem Services (PES) are useful funding schemes to provide incentives for FLR implementation on the ground. The team supports country partners to scope the feasibility of these mechanisms on the ground, identify key institutional partners, community willingness to accept and willingness to pay for ecosystem services provided, and develop road maps to support pilots and policy integration. (e.g. Cambodia, Myanmar, Pakistan, Regional Asia Pacific, Global).
  • FLRM supports the operationalisation of National Forest Funds (NFF) through assessment of capacity and feasibility, and development of roadmaps to develop and enable NFFs to channel finance for FLR activities. (e.g. Lebanon, Uganda, Democratic Republic of Congo, Sao Tome e Principe and Madagascar).
  • Building the enabling environment that makes landscapes “ready for investment” in FLR is critical. Development of integrated financing strategies and mechanisms that blend different funding sources (public, private, development agency, civil society) to invest in FLR. The team also supports country partners to develop these innovative blended financial initiatives or Public-Private-Partnerships to fund FLRM projects. This includes developing capacities of stakeholders, clarifying costs and benefits of FLR, establishing marketplaces and developing risk mitigation measures. (e.g. Cambodia, Kenya, Burkina Faso, Niger and Central Africa Republic).

CLIMATE FUNDS

The team supports partners to access climate funds available to specifically finance restoration activities, including the Green Climate Fund (GCF), Landscape Degradation Neutrality (LDN) fund. This includes the development of proposals, capacity building on the role of these funds and how to access them, and facilitation of the development of partnerships for project implementation.  

DEVELOPMENT OF BANKABLE PROJECTS

Bankable projects are essential to illustrate to investors that FLR projects can meet their investment criteria and risk return ratio. The FLRM supports country partners to develop bankable project proposals as part of their long-term restoration efforts through capacity building and identifying opportunities for business development.