Development banks such as the European Investment Bank and United Nations (UN) agencies have praised the Land Degradation Neutrality Fund as a promising ‘ﬁrst-of-its-kind’ investment model for addressing the degradation of fertile land. The Fund is tasked with investing in activities that aim to achieve the goal of so-called land degradation neutrality. Could the Fund, however, turn into another vehicle for financial capital companies to expand control over land used for peasant farming? The Land Degradation Neutrality Fund was conceived by the UN Convention to Combat Desertification, which is the UN body also overseeing activities related to target 15.3 of the UN Sustainable Development Goals (SDGs). It is a privately managed fund run by Mirova, an affiliate of Ostrum Asset Management, formerly known as Natixis Asset Management – one of the largest investment funds in France.
In its 2012 policy paper Zero Net Land Degradation: A New Sustainable Development Goal (SDG) for Rio+20, the Secretariat of the UN Convention to Combat Desertification made the case for the issue of land degradation neutrality – the term that came to replace ‘zero net land degradation’ – to be reflected in the final declaration of the Rio+20 summit. The Declaration does make mention of the term and opens the way for the eventual adoption of target 15.3 of the SDGs: “By 2030, combat desertification, restore degraded land and soil, including land affected by desertification, drought and floods, and strive to achieve a land degradation-neutral world.” In 2017, the Global Mechanism of the Convention to Combat Desertification and the financial asset management company Mirova launched the Land Degradation Neutrality Fund, which they designed to “contribute significantly to land degradation neutrality” and “invest in profitable projects with the aim of delivering competitive returns for investors.”
The emphasis of Rio+20 on natural capital and private investment for obtaining UN environmental convention goals paves the way for Mirova to manage the Land Degradation Neutrality Fund
Two tendencies strongly influenced the official outcome of the Rio+20 summit and shaped the focus of SDG target 15.3 on the ‘neutrality’ of land degradation (as opposed to halting the further loss of fertile soil and the advance of desertification in dryland areas in the global South). The first tendency was that a Green Economy was elevated to the new leitmotif of the international environmental policy agenda; the second was the failure of most industrialised countries to honour their long-standing commitment to allocate 0.7 per cent of their gross national income to official development assistance (ODA). As a result, development finance and private-sector capital investment becoming increasingly blurred – with uncertain outcomes for development goal. These tendencies also influenced the design of the Land Degradation Neutrality Fund as a funding mechanism to achieve this SDG target. They paved the way for a financial capital firm such as Mirova to be entrusted with managing a fund set up by a UN environmental convention whose principal goal was to advance activities in support of SDG target 15.3 on land degradation neutrality.
1 – The Green Economy and the economic valuation of nature as a new leitmotif.
Governments, UN agencies, private-sector participants and the conservation industry showed tremendous enthusiasm at the Rio+20 summit for the related concepts of a Green Economy and a new economy with nature. A UN report prepared in the run-up to the Rio+20 summit described the Green Economy idea behind the Rio+20 conference as “an attempt to unite under one banner a broad suite of economic instruments relevant to sustainable development.” Perhaps the most controversial as well as the most rapidly advancing concept-turned-instrument in the toolkit for a new economy with nature is the mechanism of ‘offsetting’ or ‘compensation’: A biodiversity hotspot or land inside a protected area becomes available for industrial exploitation against a promise that, elsewhere, a so-called degraded area with comparable biodiversity will be restored or that destruction of a particularly biodiversity-rich habitat elsewhere will be prevented. This notion is also reflected in the land degradation neutrality approach: Compensation replaces the aim enshrined in the UN Convention to Combat Desertification, halting the loss of fertile soil. The goal of a land degradation-neutral world, where the continued loss of fertile soil is accepted, if not facilitated, replaces the ambition to work towards a world in which land degradation in areas at risk of desertification is prevented.
Little has come of the much-advertised Natural Capital Declaration, issued on the sidelines of the Rio+20 summit in 2012 as “a commitment from banks, investors and insurance firms to change their business models to reflect the materiality of natural capital for the financial sector.” Actual outcomes as well as the theoretical underpinnings of ‘offsetting’ have been widely called into question since then, too. Yet, with SDG target 15.3, the concept of offsetting has become enshrined in the policy toolbox of the UN Convention to Combat Desertification.
2 – Most industrialised countries have failed to honour their long-standing commitment to allocate 0.7 per cent of their gross national income to ODA.
In a push for ‘alternative’ financing options, predominantly from developed countries that are retreating from their 0.7 per cent commitment, the lines between development finance and industrialised country and company priorities on trade and investment have become increasingly blurred. At the Rio+20 summit, this tendency was perceptible, too. The Natural Capital Declaration is but one indication of the strong presence of the financial capital industry at the summit; so-called novel financial instruments and the blending of public and private funds were promoted at many side-events, often co-hosted by the financial industry and UN agencies such as the UN Environment Programme. The idea behind the Private–Public-Partnership 2.0 model advanced at these events is that public funds are used to ‘de-risk’ private finance: The public investor might receive returns only after private investors have been awarded a return on their investment, whereas the public investor takes losses first if there are no returns to be distributed. Under such a private–public partnership model for land degradation neutrality, private investors could count on a risk buffer for their investment in a sector, agriculture, which is considered high-risk for private-sector investors. They would also bear less – sometimes virtually no – risk of losing their investment if, for example, activities intended to restore so-called degraded land failed to achieve their objective of restoring soil fertility or generate a return. They might also be shielded from investment risk if the project collapsed due to conflict over the land in question, for example. All of these are possible, if not likely, scenarios for activities claiming to deliver land degradation neutrality that are driven primarily by financial capital investment priorities with an emphasis on generating returns on private capital investment.
Mirova Natural Capital and the Land Degradation Neutrality Fund
Though this promotion of private capital investment as a source of funding to attain goals of UN environmental conventions has become less visible since the Rio+20 summit, it remains perceptible in many UN documents and decisions. One such example is the official UN report on the 13th Conference of the Parties to the Convention to Combat Desertification, which took place in Ordos, China, in 2017. Paragraph 27 of the Summary of the high-level segment is entitled “Private capital is the ‘Holy Grail’”.
At the same UN conference, the financial asset management company Mirova was confirmed as the private-sector company to manage the Land Degradation Neutrality Fund. Mirova is an affiliate of Ostrum Asset Management, formerly known as Natixis Asset Management. It is one of the biggest private investment funds in France. In 2017, Mirova acquired the natural capital asset management firm Ecosphere Capital Limited and its Althelia Funds. Althelia is one of the signatories of the 2012 Natural Capital Declaration. The Land Degradation Neutrality Fund is managed as a private fund by the new entity that emerged from this acquisition, Mirova Natural Capital.
Structure of the Land Degradation Neutrality Fund
A target size of USD 300 million has been announced for the Land Degradation Neutrality Fund. As noted above, it was launched at the 13th Conference of the Parties to the UN Convention to Combat Desertification in 2017 with the expectation that the Fund will secure private-sector investment for the restoration of so-called degraded land and activities to promote sustainable land use. Such investments, the backers of the Fund hope, will help attain SDG target 15.3.
The Fund is described as a private-impact investment fund that uses blended finance: Public funds are used to ‘de-risk’ private capital investments. The target is for a 30 per cent public finance contribution, with private capital investors contributing 70 per cent of the funds. This split will be applied both at the level of individual project investments and the overall investor contributions to the Fund. Public funds would cover the riskier parts of the investment, whereas private capital investors are exposed to lower risk levels and receive a return on their investment before public finance investors do. The European Investment Bank, France's Agence Française de Développement and the US Agency for International Development (USAID) Development Innovation Ventures are mentioned as institutions to have pledged public money to the Land Degradation Neutrality Fund. The private financial capital firm BNP Paribas Cardif is mentioned as one of the private-sector investors. According to a statement from BNP Paribas Cardif, the Land Degradation Neutrality Fund aims to eventually invest in around 15 projects during the 15 years it is scheduled to operate. How much the Fund manager, Mirova Natural Capital, is charging for the management of the Fund and whether there are any requirements for avoiding land conflicts as a result of Fund investments, is not known.
In terms of the financial instruments that the Fund is likely to use, an Althelia Funds job advert notes that “the core investment strategy of the LDN Fund is focused on debt instruments but innovation will also be needed to design specific mezzanine / quasi-equity transactions.”
According to the policy brief A review of the Land Degradation Neutrality Process, published by the International Union for Conservation of Nature (IUCN), “the LDN Fund has identified investments in two sectors – sustainable agriculture and sustainable forestry – and may look at investments in ecotourism and green infrastructure on an ancillary basis” as the main fields of investment. In early 2019, the Fund announced its first investment of USD 12 million in a programme called Urapi Sustainable Land Use. According to project descriptions, the programme focuses on four smallholder cooperatives producing coffee for export and on restoring so-called degraded land in Peru’s Selva Norte region. It aims to restore around 9,000 hectares of land into agroforestry systems, primarily for coffee production. The programme was developed by Canadian company Ecotierra. The company mentions the uptake and storage of carbon as well as improvements in the livelihoods of 2,400 producers as further objectives.
Risky business for peasant farmers?
Future investment decisions by the Fund managers will reveal whether the Fund's investments will become another subsidy for industrial agriculture or be structured in a way that prioritizes peasant farming and protects peasant farmers deciding how they use their land.
The Fund’s approach to investment, described in its 2017 brochure, suggests that delivering returns on private capital investments might take precedence over ensuring that peasant farmers are not short-changed or made to bear all the risk of the investment: “The Fund will invest in profitable projects with the aim of delivering competitive returns for investors.” Who bears the risk if what Fund managers considered a ‘profitable’ project to invest in only generates enough for participating peasant farmers to cover costs? Will peasant families or cooperatives be obliged to put up their farming land or assets, such as processing facilities, as mortgage? Will they then be facing the risk of losing their land and livelihoods if the hoped-for improvements in farming practises or the forestry operation suggested (or imposed?) by those who offered the Fund investment turn out to be less profitable than promised?
The same 2017 brochure claims that “sustainable certifications (e.g. Fairtrade, Rainforest Alliance, FSC) drive prices up” and mentions setting up “sustainable rubber tree plantations” and “[p]artnership with international conservation NGOs” as examples for investment opportunities.
These propositions are not new. Where they have been tried before, they have regularly resulted in grief, conflict or a weakening of community cohesion. In the case of the forest and plantation management label FSC, there is little evidence that certification drives up prices for producers. Who will bear the cost if peasant farmers decide to accept a loan from the company presenting a business plan that is based on such questionable assumptions as ‘certification labels will drive up prices’? Will the peasant family lose their land if they had to put it up as mortgage for the loan? Or will the Fund manager who presented the unrealistic business plan write off the loan and reduce dividends for its private capital investors?
Another area of concern is the seeming emphasis of the Fund on tying independent peasant farmers into outgrower schemes. “The beneficiaries are expected to be smallholder farmers, and agriculture/forestry workers in developing countries, who will benefit from the Fund’s investments in sustainable land management projects that create outgrower schemes and new decent jobs,” the 2017 brochure notes. Will smallholder farmers really be beneficiaries of Land Degradation Neutrality Fund investments at the end of the day? Experiences with outgrower schemes involving oil palm or rubber plantations demonstrate a whole suit of dangers. These include loss of land for food production, unmitigated exposure to fluctuations in global commodity prices and a risk of peasant farmers becoming mere labourers on their own land.