Energizing the green transition

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Energizing the green transition and creating new markets

This June, the Mobilizing Finance for Forest team spoke to Huib-Jan de Ruijter, Co-Chief Investment Officer of FMO.

In what ways has FMO as an institution been evolving its practices and priorities since the Paris Agreement to meet the climate and nature emergencies?

FMO began focusing on climate action long before the Paris Agreement was adopted at COP21 in 2015. Initially, our climate action was primarily directed towards ‘green’ investments, aimed at reducing greenhouse gas emissions. For example, we financed the first large scale solar project in Latin America (T-Solar in Peru) in 2011. After 2015, we expanded our approach. Long before most others, we made a public commitment to strive toward 1.5 degree alignment for our investment portfolio. This created more emphasis on our investments in forestry with the potential to sequester carbon. It also meant more emphasis on alignment of our ‘non-green’ investments. This included reducing investments that resulted in significant emissions and gradually phasing out investments in coal and fossil fuels for energy. Another area that has become increasingly important since Paris is adaptation and resilience. Through our work with the Dutch Fund for Climate and Development, we are at the forefront of supporting local entrepreneurs to cope with the consequences of climate change.    

 Could you tell us a bit about FMO's Climate Action Plan to 2030, and where MFF fits within this?

We published our Climate Action plan in 2022, outlining our commitments and ambitions for 2030. This plan includes a ‘net zero’ portfolio by 2050, supporting customers with increased Paris alignment, strengthening their resilience, and increasing the volume of investments that contribute to protecting and restoring biodiversity. We also emphasized the importance of a just and inclusive transition, which to us means integrating climate and social objectives as these are inextricably linked.

I firmly believe investing in forestry presents a unique opportunity to contribute to this just and inclusive transition. While the positive impact on climate (SDG 13) is often the primary focus when discussing forestry, I have witnessed first-hand how crucial forests are for the livelihoods of local communities (SDG 8 and SDG 10), particularly in rural areas with limited economic opportunities. Forestry businesses provide jobs, improve food and water security, shade, recreation, among many other benefits.

MFF is a critical program for us to make these investments in forestry. They are typically associated with higher risk and hence require capital with a higher risk appetite. MFF enables us to take on these higher-risk investments and to mobilize additional investments from sources that may not have the same risk tolerance.

 What are the greatest challenges remaining to fully unlocking FMO's role as an engine of the green transition?

I believe these challenges are both external and internal. Let me start on the external side. This market is still nascent with relatively few experienced entrepreneurs and proven business models. More work is needed to create investable projects. This is where our market creation efforts come into play, supporting the business ecosystem and building a pipeline of investable opportunities. This is not achieved overnight and requires perseverance.

On the internal side, we are also still learning ourselves. A great example was our recent forestry trip to several countries in Africa, where colleagues from different parts of the organization participated to gain a better understanding of different forestry business models.

What role could DFIs play in creating new markets for nature? Can you say something about FMO’s approach to market creation?

FMO takes a focused approach to market creation, concentrating on a few core sectors, including forestry and sustainable land-use. Our strategy involves two main aspects: First, we aim to build the business ecosystem, which includes knowledge building, for instance, around the integrity of carbon finance. Secondly, we seek to pioneer and support very early-stage entrepreneurs, particularly those investing in protecting and restoring biodiversity. Our hope is that some of these models will prove commercially viable, scalable, and investable over time.

Where are DFI resources best put to use to mobilise additional investment in nature and Forests and Sustainable Land Use (FSLU) specifically?

In my view, DFI resources are still desperately needed across the FSLU space in emerging markets. You’ll find very few commercial investors that are willing to take on the risk related to these investments. More specifically, I believe that carbon finance offers an exciting opportunity to attract more capital for investments in FSLU in emerging markets which can be ‘unlocked’ by DFI investment. However, ensuring the integrity of these investments is essential. I believe that this is where DFIs are uniquely positioned to make the difference, they can help safeguard the integrity of carbon finance flows.

How have you seen the use and impact of blended finance change in the past couple of years? What challenges remain to fully unlock the potential of blended finance to accelerate the green transition?

 I see that blended finance is increasingly being utilized to de-risk commercial investors. We cannot achieve the Paris goals and the Sustainable Development Goals without significant commercial investment. De-risking can accelerate their involvement which is crucial given that the clock is ticking. FMO’s SDG Loan Fund serves as an excellent example of how blended finance can be leveraged to attract commercial investment at scale. A portion of the fund is expected to flow to the FSLU sector in emerging markets, further bolstering its development.

What do you want to see more of from investors, project developers, fund managers, and other DFIs in the space, in order to scale up investment in nature?

Ultimately, we have come to the realization that no single entity can tackle this challenge alone. Each player brings unique strengths to the table, and collaboration is essential to accelerate investments in nature, and to do this fast. Therefore, I strongly advocate for more partnerships among these different actors. MFF, the Dutch Fund for Climate and Development and the SDG Loan Fund serve as great examples of these partnerships. It is crucial to recognize that building and nurturing these partnerships requires willingness and time. To give you an idea: the initial talks for the SDG Loan Fund started 4 years before the actual signing of the contracts. To accelerate, I believe we need to make an even larger effort to truly understand each other. For project developers this means for instance a better understanding of the environmental and social requirements of DFIs and building this capability. For DFIs and fund managers it means a better understanding of the financial risk/return approach of institutional investors.

Looking ahead at the next 5 years, what emerging opportunities and sectors are you most excited about? What do you see at the role for FMO in this?

As previously mentioned, I am genuinely excited by the potential of carbon finance. My enthusiasm may stem from my involvement in one of the pioneering initiatives aimed at tackling deforestation at scale through carbon finance. By effectively targeting the drivers of deforestation, the positive effect of these investments for people, climate and nature can be profound when executed correctly. FMO has the opportunity to lead in this domain by facilitating financing through strategic partnerships and by ensuring the integrity of our endeavors.

Huib-Jan de Ruijter 17-01-223004

About Huib-Jan de Ruijter

Huib-Jan de Ruijter was appointed Co-Chief Investment Officer in 2022, after joining FMO’s Management Board as interim Chief Investment Officer in October 2020. Since 2015, Huib-Jan was Director Financial Institutions, responsible for the sector department which works closely with banks, microfinance institutions and fintechs to advance access to finance for entrepreneurs. He started within FMO as Investment Officer in the Financial Markets department in 2008. He was promoted to Director of this department in 2011 and in this capacity responsible for FMO’s treasury as well as loan syndications.

Before joining FMO, he was an Executive Director in the Financing Group of Goldman Sachs based in London. He started his career at ABN AMRO for which he worked in various roles in Amsterdam, London and Lisbon. Huib-Jan studied in Groningen where he completed Masters in both Business Administration and Law. He is a CFA Charter holder and attended Summer school at the London School of Economics and Political Science (LSE) where he took courses on International Development.

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