The Landscape Fund: a new way to invest in sustainable agriculture
Smallholder agriculture and forestry is constrained by the high risk embedded in current approaches to providing capital for longer-term investments in sustainable practices. Authors of the working paper Financing sustainable agriculture and mitigation turn these constraints into opportunities through the Landscape Fund - an initiative supported by the CGIAR Research Program on Climate Change, Agriculture, and Food Security (CCAFS).
The Landscape Fund is a networked financing approach that allows diversification of operational risks, target markets, customers, and home currencies. It seeks to match investors’ preferences for standardized financing schemes and trading in markets with opportunities made possibly by large numbers of buyers and sellers.
The Landscape Fund would drive sustainability at larger scales in two ways:
- It would use longer maturity credit for agriculture to create ongoing performance incentives such as lower interest payments and greater access to supplementary credit for expanded operations for producers.
- Support wide investment, building one large initiative out of many small ones.
The Landscape Fund differs from other financial approaches by adopting six key attributes:
- Diverse Portfolio — The Landscape Fund’s portfolio approach is quite novel. It aims to be diverse-enough to reduce risk and enhance predictability for investors. The differing size, location, and crop cycles of the various borrowers will be used to reduce the risk from any single project as well as to smooth the overall cash flows of the portfolio.
- True Sustainability — Sustainability will be a major factor in selecting projects for the portfolio. The Landscape Fund will specifically target projects that either currently utilize, or have a clear plan to establish, sustainability practices. General financial concepts, such as asset-backed securities, are indifferent to this consideration.
- Investment, Not Speculation — The Landscape Fund’s financial instruments are tailored for investment, implying a longer-term return perspective on the part of the funders, and thus enabling expanded access to credit. This differs from proposals for land-based carbon markets.
- Global Scope — The Landscape Fund will focus on global sustainability, both in the developed and developing world. Sustainable land use is a universal issue, and this global perspective enables the Landscape Fund to analyze a broad range of options in constructing a portfolio of projects.
- Technology — The Landscape Fund is proposing an approach that leverages technology in a new way. From a technology perspective, the Landscape Fund is based on a network of nodes: investors, borrowers and intermediaries. Technology enables the significant parallel communications required for network participants while also housing the algorithms needed to generate the securities we propose.
- Credit Markets — Finally, the Landscape Fund targets a large pool of money instead of relying on the creation of new and different asset classes. This is important, insofar as the size of credit markets needs to match the enormous scale of finance required for sustainable land use. Just the amount of securitized loans outstanding (US$15 trillion) is a narrow sliver of the credit.
The Landscape Fund approach will be tried out in a pilot phase developed under the leadership of the Center for International Forestry Research (CIFOR) and the Munden Project. The partnership also includes the Ateneo School of Government, CCAFS, Chatham House, and the World Agroforestry Centre (ICRAF).
Lini Wollenberg leads the work on Low-Emission Agriculture at CCAFS.