REDD+ finance: where next?

Marigold Norman, Forest Trends and Charlene Watson, ODI

In bringing together the views of a number of initiatives tracking REDD+ finance, this series has highlighted why there isn’t a single aggregate figure for global REDD+ finance flowing. Despite this, we are increasingly able to assess where finance is coming from, how it flows through different channels and funds to recipient countries and eventually to REDD+ projects and activities on the ground. But knowledge remains incomplete and we are still faced with challenges and gaps that make it difficult to make comprehensive and conclusive remarks about the state of REDD+ finance.

Continued concerted efforts are needed to change this and we identify three steps that can pave a way forward to a better understanding of REDD+ finance:

1. Develop capacity and expertise for in-country REDD+ finance tracking to improve reporting and effective REDD+ finance spend.

Monitoring REDD+ finance allows us to evaluate REDD+ and REDD+ spend. Funding gaps become more obvious as a more comprehensive picture emerges; as it is possible to see which regions in-country and REDD+ activities are underfunded and where money can be more strategically spent. It is also important to link expenditures to actual impacts to evaluate successes and failures and help determine how REDD+ finance can be effectively scaled up in the medium to long-term.

Few countries have centralised systems for tracking climate finance that arrives through a number of channels and instruments. REDD+ finance is no exception. Supporting the appropriate institutions for REDD+ finance tracking could include determining the right combination of civil society, academic and governmental institutions for this role as well as stronger collaborations with in-country REDD+ Focal Points to consolidate and report national data to the REDD+ Partnership’s Voluntary REDD+ Database (VRD). Forest Trends’ REDDX initiative, for example, has started to do this by working with local civil society partner organizations and REDD+ Focal Points to promote longer term in-country tacking capacity and more comprehensive data reported back to the REDD+ Partnership’s VRD.

2. Establish broader discourse and develop a protocol through which private finance for REDD+ can be better understood and tracked.

It is increasingly clear that we must involve a variety of private sector actors in discussions on REDD+ finance if we are to develop a better idea of how to attract private sector capital at scale, while also more effectively tracking private sector finance. Improvements can be made through aligning with wider existing climate finance tracking efforts which have made more progress than in the REDD+ space.

3. Take proactive steps towards understanding needs to track REDD+ finance under a globally integrated REDD+ mechanism, as well as understanding how REDD+ fits within emerging climate finance funds such as the Green Climate Fund.

The long term success of REDD+ (in terms of policy and leveraging additional finance) will depend on more standardized approaches to monitoring, reporting and evaluation which link expenditure to actual impact. Looking towards a potential United Nations Framework Convention on Climate Change (UNFCCC) REDD+ mechanism, the potential inclusion of REDD+ in the Nationally Appropriate Mitigation Action (NAMA) Registry, or a possible REDD+ window under the Green Climate Fund, there will be a clear need for a common reporting framework for REDD+ finance. Taking proactive steps and encouraging contributor and recipient countries to track what actually happened with REDD+ finance helps measure impacts and evaluate successes in a comparable way, and is likely to facilitate these future possibilities for REDD+ activities.

The road ahead

No REDD+ finance tracking institution or initiative is, or claims to be, comprehensive on its own. This series has been a first attempt to bring together a community of practice tracking aspects of REDD+ finance. It is critical that we continue to expand this community to learn from one another and work together to more effectively track and record the global state of REDD+ finance.

In addition to improving the way that REDD+ finance is monitored and tracked, more emphasis should be placed on sharing experiences and lessons with wider efforts to track climate finance and development aid.  Gaining clarity over where money is going, through whom and how fast, is a first step to ensuring that the money does what it should, where it should. If donors and recipients of climate finance design transparent, comparable and accessible financial accounting systems, we will be able to more effectively track and monitor for accountability at a global or national level, by government or civil society.

This series of blogs on REDD+ finance intends to create a forum for debate and exchange of ideas. It should not be understood to reflect the views of Forest Trends, REDDX, ODI or Climate Funds Update.

REDD+ Finance: Private Lessons For The Public Sphere

Molly Peters-Stanley, Ecosystem Marketplace

Kenya’s Kasigau Corridor Project that Reduces Deforestation and forest Degradation (“REDD”) protects 200,000 hectares of endangered forest between the Tsavo East and Tsavo West National Parks. The Surui Forest Carbon Project protects 32,000 hectares of endangered forest in the Brazilian Amazon. Cambodia’s Oddar Meanchey REDD+ Project protects 64,000 hectares of endangered forest in the northwest province of the same name. The world’s largest REDD project – the Mai Ndombe REDD+ Project in the Democratic Republic of the Congo – will protect almost 250,000 hectares and dispatch with approximately 175 million tonnes of carbon over its lifetime.

Beyond the fact that each of these endeavors harness carbon markets to reduce greenhouse gas emissions by saving endangered rainforest, each of them has been spearheaded by private initiatives working closely with national, state, and local governments, which means each has managed to identify risk mitigation tools – that appeal to both the private and public sectors.

Each, therefore, is ripe with lessons for anyone looking to develop REDD interventions that will make the leap from “project” to “program” – i.e. from private and local, to public and jurisdictional. Admittedly, there are still gaps in information on finance and activities at the project level, but, Ecosystem Marketplace has been tracking private sector projects since 2005, reporting forest carbon data on the Forest Carbon Portal and in Ecosystem Marketplace’s annual State of the Forest Carbon Markets reports designed to explore these lessons and results.

Through focusing tracking on the project level we have found that the private sector was more likely to support projects that reported at least one revenue stream other than carbon offset sales, like sustainably commodity (including Fairtrade-certified) sales revenue or donor government contributions. The presence of additional non-carbon revenues suggests to private sector actors that the project is more likely to be financially viable in the case that carbon markets are not a long-lived source of project financing. Our more recent findings illustrate that private dollars are also “mobile” – with businesses preferring to catalyze new activities in new locations, which is not inherently conducive to large-scale, long-term REDD activities.

Based on these findings, is the profit motive alone too capricious to support and expand REDD efforts? Should the burden of forest conservation instead rest solely with forests’ traditional public sector custodians? In reality and as reported last week by UNEP FI, seasoned stakeholders conclude that both public and private actors must be at the table if the world is to support existing forestry and land use carbon projects (total of $2.2 – $5.4 billion over an unspecified timeframe, according to Ecosystem Marketplace’s 2012 survey data; cut deforestation in half between 2015 and 2020 ($75 – $300 billion according to Resources for the Future estimates); or protect the world’s hectares that are currently under threat ($1 trillion, based on 55.5 million hectares that will be lost between 2010 and 2020, as estimated by WWF, multiplied by average price per hectare paid for REDD offsets in 2011 [$20/ha] based on Ecosystem Marketplace data). Regardless of your metric of choice, the price tag is too high to ignore anyone with insights into how a significant source of finance can be incentivized to act.

To this end, private project developers that have honed their business models to become market “survivors” provide proof of concept for the idea of internationally-financed conservation forestry. They have an inherent understanding of why the private sector steps in – or backs out of – forest finance, learned over now-decades of direct experience with private sector stakeholders. They also boast first-hand experience with national and regional government approval processes and gaps in capacity – often including a deep understanding of the extent of local governments’ capacity for enforcement.

Many actors already understand the value of lessons gleaned from these private pilot actions, which is why the Verified Carbon Standard and the American Carbon Registry are working with national governments on Jurisdictional Nested REDD (JNR) that ensure existing projects can be absorbed into national accounting programs. It’s why the Norwegian government is even helping to pilot nested programs around the world.

And it’s why Forest Trends’ Ecosystem Marketplace and REDD Expenditures Tracking initiatives are tracking payments – both public and private, top-down and bottom-up – to uncover “sweet spots” where emerging government REDD programs have successfully engaged the private sector as investor, implementer, or (in an ideal world) both. Private lessons for the public sphere to increase private investment, therefore, include (but are not limited to):

  • Due consideration and recognition of private actors’ early action via public support of credited project-level activities. Indications that governments will support early action REDD projects (via “buyer of last resort” credit purchase guarantees or other purchase programs) would help de-risk new investment or projects in need of re-financing, and could be implemented to reward those already exploring REDD implementation on the ground, in tandem with the development of up-scaled REDD approaches. Such approaches have successfully been taken in other sectors in some countries, as explored in this report.
  • Enacting policies that favor “zero-deforestation” or low carbon products/commodities by recognizing products sourced from verified REDD projects, activities or areas.
  • Engaging with private actors to explore “carbon-linked” funding mechanisms, like REDD/carbon revenue bonds, developing new types of public-private contract structures to deliver low cost REDD emissions reductions. Such efforts would leverage the early experience of project developers managing relationships with donor governments supporting emerging jurisdictional nested REDD programs.

Unless policymakers are willing to incorporate more lessons from the companies that are already buying REDD project offsets or from the developers who are creating them, they run the risk of re-creating the Kyoto Protocol’s sub-optimal treatment of forest carbon offsets. The world needs a mechanism that incorporates tested methods that work. And that requires more funding for pilot projects and more efforts to harvest existing projects for insights that can be broadcasted from the boardroom to Bonn.

This series of blogs on REDD+ finance intends to create a forum for debate and exchange of ideas, this blog reflects the opinions of Molly Peters-Stanley of Ecosystem Marketplace, and should not be understood to reflect the views of ODI or Climate Funds Update.

REDD+ Finance: What do we know about the private sector contribution?

Iain Henderson & Jacinto Coello, UNEP FI

There is broad consensus that private finance and investment are needed for REDD+ to meet its climate change mitigation potential in the medium to long-term. Those who are familiar with REDD+ will have heard countless variations of an equation that currently does not balance.  Annual REDD+ additional investment needs are estimated to be in the order of tens of billions of dollars, yet the current sums available – which are largely public funds- are a fraction of this number. The hope and expectation is that private sector capital will conveniently fill the gap, et voila! The burden placed upon private capital to balance the books has also been creeping higher over the past few years. REDD+ is not only more complex and expensive than first thought five years ago but public sector finances have also been decimated by successive financial crises in every corner of the globe.

The anticipated flows of private sector finance have yet to materialize. REDD+ finance remains dominated by public sector flows focused on the capacity building and enabling conditions that are the foundation stone of REDD+ and which are vital to catalyze private sector capital. For private sector capital to flow at scale, these public sector funds must be used strategically to improve the financial attractiveness of REDD+ for the private sector. Private sector investment is driven by expectations of future returns and these are currently too low and opaque given the risks and uncertainties compared to other potential investment opportunities.

Despite this broad consensus on the need for private finance and investment in REDD+, very little is known about current flows of private sector finance into REDD+, and what little is known shows that current amounts being channeled are close to insignificant. Difficulties in estimating and tracking volumes of private sector capital flowing into REDD+ arise from a variety of reasons.

There is no standardized definition describing what REDD+ finance or investment constitutes. Should investment into activities that contribute to REDD+, but aren’t directly linked to REDD+ verified emission reductions (VERs) count? Examples might include ‘climate-smart’ agricultural related to drivers of deforestation, green bonds where proceeds are used for ‘forest-friendly’ activities or corporates investing in medium or long-term supply chain security.

Different types of finance are often considered as equal. However, grants, short-term loans, equity investments, ‘in-kind’ payments and carbon off-take agreements all differ in how, why and when they are used. Aggregating these numbers can also potentially confuse and inflate the volume of private sector capital flows through double or triple counting and it also hampers attempts to identify financial bottlenecks at different points in the lifecycle of an activity.

It is also important that we use greater precision when describing sources of finance. ‘Institutional investors’ such as pension funds are one of the largest sources of private sector capital. As the ‘big beasts’ of the private sector financial world- they are sometimes referred to as one of the great hopes for the REDD+ related financial ills we currently face. They can allocate the ‘patient capital’ that REDD+ needs and have trillions of dollars under management. However, in order to unlock this huge pool of potential investment, we must first acknowledge the fact that most pension funds can’t currently allocate to anything resembling a ‘REDD+ investment’. The majority of pension fund capital is invested in liquid, listed securities yet many of the investment opportunities in the REDD+ space are through unlisted private equity or debt vehicles that a large amount of pension funds can’t allocate capital to at the required scale. Unlike publicly listed companies, private companies also have fewer legal obligations to report their finances which further compounds efforts to track financial flows.

Tracking private sector finance into REDD+ will be a daunting task until some of the above issues are addressed. Currently, however, more efforts should be placed in better understanding the role that private climate finance can play in contributing to REDD+ through some of the following activities:

  • Engage with and involve the private sector in a constructive discussion on REDD+ to understand what the enabling conditions are that would attract private sector capital at scale. This can be done during the development of national REDD+ strategies.
  • Develop clear definitions and parameters for what constitutes REDD+ private sector finance and investment.
  • Appreciate that the finance landscape is extremely varied and different types and sources of capital have different uses at different times. This is a key step in connecting the vast pools of private sector capital with the activities that need funding.

UNEP FI is supporting efforts to engage the private sector in general and the private financial sector in particular in REDD+ at both the national and international level.  The ultimate aim of this engagement is to reshape the way forest assets are currently exploited and help the transition towards more sustainable land-use patterns.

This series of blogs on REDD+ finance intends to create a forum for debate and exchange of ideas, this blog reflects the opinions of Iain Henderson & Jacinto Coello of UNEP FI, and should not be understood to reflect the views of ODI, Forest Trends, REDDX or Climate Funds Update.

REDD+ finance: Lessons from the US

Jeff Metcalfe, Tropical Forest Group

The Tropical Forest Group has been tracking the REDD+ finance flowing from the U.S. in its U.S. REDD+ Finance Database (USRFD). This contains more than 800 data points for REDD or sustainable forestry reported by United States agencies with data transcribed from public documents. Although it is not linked to the US government, the USRFD is the only centralised way to assess US REDD+ finance from USAID, the Treasury Department and the US State Department.

Different US agencies have different reporting styles and different ways for classifying expenditures, which presents a challenge when synthesising and analysing reports in the data base. For a variety of reasons, the Treasury and State Departments are required to provide detailed reports and a list of expenditures by country, while USAID provides more general overviews even though it often dispenses more money. Further, since finance flows from multiple agencies, redundancies are common and estimates can be revised after they have been posted. Rarely is there a comparable picture of what is being spent.

Still, we can draw general conclusions. Data from 2008 to 2011 shows US REDD+ finance focused on forest nations with large forests and relatively high GDP and the smallest overall capacity gaps for executing national forest monitoring systems that can link with an international REDD+ framework. Several factors are likely to influence spending, but the trends may be because the US has focused its support on countries that can implement projects and there can be more certainty on the return.

While big picture trends emerge from spending, it is very difficult to link finance to impact. Tracking REDD+ finance would be much more effective if donor nations would strive to:

  • Report in specific line items with explicitly stated goals;
  • Provide summary information and links to reports that show where and how the climate funds were or are being used;
  • Work with recipient countries in reporting.

The Global Challenge

The US situation is hardly unique, and pinning down what REDD+ finance is can be tough given its variety of forms no matter which donor country you are examining.  REDD+ finance might be channelled toward strengthening partnerships between local people and forest governments in one instance, and developing methods and technologies for forest carbon inventory and mapping in another.

This creates difficulties as many readiness activities are not fundamentally different from activities funded historically in forest conservation. Actors therefore count different things as REDD+ finance. Pulling apart what is REDD+ finance or how much finance can be attributed to any one activity is complex as much funding arrives with multiple objectives, or as part of national country programs.

Multiple Channels

Finance for REDD+ is also delivered in many different ways. Some countries, such as Norway, have a number of high value bilateral agreements and also tend to focus on emission-reductions as an outcome, such as for the Amazon Fund. The UK, in contrast, funds REDD+ mostly through multilateral REDD+ funds such as the Forest Carbon Partnership Facility or Forest Investment Program.  The instruments through which finance is delivered can also differ, including: grants, loans, equity, loan forgiveness, insurance, and private investments, which affects the way finance is accounted for (is a grant the same value as a loan?).

These channels don’t all converge to a central point in country either. Forest, environment, or agriculture ministries, international or local NGOs, and other various intermediaries can be engaged as intermediaries and in implementing REDD+ projects. Where centralised reporting does not exist or function effectively, it is hard to establish the total amounts of REDD+ finance arrive in recipient countries as no one is counting everything.

Why it doesn’t always add up

Aside from making aggregate figures on REDD+ finance elusive, variety in activities, channels and reporting of REDD+ finance, leads to discrepancies between contributor and recipient countries.  The Voluntary REDD+ Database of the REDD+ Partnership, for example, reports US$3.35 billion from contributor countries through bilateral flows, while recipients report only US$1.44 billion. This occurs because the Voluntary REDD+ Database receives information from both bottom-up and top-down, whereas, most other initiatives seek just one data source.

While there may be political motivations for contributors to report significant amounts of spending, the differences are also likely to be a function of large bureaucracies not speaking the same language or following the same reporting process. There is also, often, a significant time-lag that exists between when a contributor country declares money spent (typically when it is allocated) and when a recipient nation recognizes it’s delivery (typically when it lands in a bank account). The regularity with which it is reported in a REDD+ finance database also comes into play. This makes it difficult to square reports across nations at any given time. Countries’ different fiscal years compound the problem.

REDD infographic - data updates and collection

Despite formidable challenges, the ability to more accurately track climate finance is critical to moving REDD+ forward. Being able to accurately track REDD+ finance also enables us to link expenditures to actual impacts so we can assess the effectiveness of a particular strategy, something critical to evolving REDD+ at this relatively early stage in the game. Ultimately, REDD+ finance, as well as climate finance more generally, will depend on trust and accountability.  Without a way to accurately measure progress against commitments, neither is on solid footing.

This series of blogs on REDD+ finance intends to create a forum for debate and exchange of ideas, this blog reflects the opinions of Jeff Metcalfe of the Tropical Forest Group, and should not be understood to reflect the views of ODI, Forest Trends, REDDX or Climate Funds Update.

REDD+ finance: What you see isn’t always what you get

Alice Harrison, Transparency International

A colleague recently likened his experience tracking climate and REDD+ money in Mexico to an archaeological dig. Little by little, fragments of your object begin to reveal themselves, but not without a significant amount of time, resources and tenacity.

At Transparency International (TI) we have been monitoring climate finance flows in six countries – of which four are REDD+- recipients. Gaining clarity over what money is going where is a first step to ensuring that the money does what it should, where it should, and doesn’t surreptitiously slip into the wrong bank account, or get lost among the myriad of climate finance projects currently proposed or underway.

Transparency is like a prophylactic against negligent or corrupt spending. The trouble with REDD+ is that – in experience – transparency has been fairly poor. Often this is due not to REDD+ systems or institutions per se, but broader issues such as access to information and budget classification.

Take the situation in Kenya. The Kenya Forest Service is responsible for managing a combined grant of US $400,000 from the Forest Carbon Partnership Facility and UN-REDD to develop Kenya’s REDD+ Readiness Plan. Information provided on the Ministry of Forestry and Wildlife’s website confirms this and provides an outline of the activities to be undertaken under the readiness plan. The plan itself is missing from the site though, as is a more detailed breakdown of expenditure lines.

The missing parts of the puzzle are hard to come by. Access to information is provided for in Kenya’s 2010 constitution, but in the absence of accompanying laws it remains somewhat of a hollow promise – requests for information can be met with silence or long delays. At times our team found it easier to look for information through other means such as identifying informers in the relevant ministries.

Mexico, meanwhile, boasts one of the world’s strongest access to information laws, with an institutional architecture on-hand to enforce it. The problem TI staff encountered there, however, was that while government bodies responded to their information requests, they simply didn’t have the relevant information. This is due in large to an inadequate system of budget classification. There is no single database to distinguish REDD-related expenditure from other categories of public money, including adaptation finance and development aid. This means that it is hard to trace the journey that REDD+ money takes through the national budget, let alone its impact.

Hurdles like these are not exceptional, they are to be found in a great deal of climate finance-recipient countries. Many donor states also have a poor track record for accounting for REDD+ finance in a clear, timely and accessible way. One has to wonder – if an anti-corruption organisation like Transparency International struggles to ascertain where and how this money is being spent, how do its beneficiaries stand a chance of holding their leaders to account for it?

Opacity can be explained by many things. Sometimes it’s born of habit – the continuation of a historical culture of privacy. Often it is a capacity issue, with government agencies lacking the staff or the resources to consolidate data and make it publicly accessible. Regardless of cause or intent, however, a lack of transparency can serve to shield behaviour that is irresponsible, illegal or corrupt.

REDD+ money is a scarce resource. Ensuring that it is spent fairly and wisely will require carefully watching the movement of money, scrutinising the rationale for its allocation, and raising the red flag when things go awry. There is a great deal of untapped potential in citizen monitoring. If members of the public are given access to better data on REDD+ spending, they can act as watchdogs to help ensure its effectiveness.

Before this can happen, we need national registries that disaggregate REDD+ from other monetary flows. We also need full transparency of information for all projects, and proactive as opposed to reactive disclosure. Without this, there is greater risk that REDD+ won’t work.

Read more about Transparency International’s work tracking climate finance here, and its REDD+ risk assessments in Indonesia, Papua New Guinea and Vietnam here.

This series of blogs on REDD+ finance intends to create a forum for debate and exchange of ideas, this blog reflects the opinions of Alice Harrison of Transparency International, and should not be understood to reflect the views of ODI, REDDX or Climate Funds Update.