Whilst there is a growing appetite amongst financial institutions to deploy capital into nature and FSLU sectors within Latin America, there is often a lack of understanding, especially among mainstream international commercial investors, about the context-specific investment landscape itself.
On November 7th, Mobilising Finance for Forests (MFF) joined forces with the Restoration Seed Capital Facility (RSCF), The Nature Conservancy (TNC), and IDH - The Sustainable Trade Initiative in São Paulo to bring together 55 industry leaders in the forestry and sustainable land use (FSLU) and restoration sectors.
The event, ‘Unlocking Private Finance for Forests and Sustainable Land Use: Sharing Lessons and Opportunities to Scale up Investment in the LATAM Region’, convened project developers, fund managers, and investors to share ideas on how to develop investment pipelines and catalyze land investments in Latin America. The event focused on the key challenges to securing capital in Latin America for FSLU and looking for potential solutions through knowledge sharing.
A recent study suggests that reducing deforestation in the Brazilian Amazon could reduce future warming in the southern Amazon by 0.56°C – which, if executed, will ensure that the Paris Agreement goals stay within reach. Another recent report reveals that by halting deforestation, decarbonizing agriculture and livestock production, and transitioning to renewable energy, the Brazilian economy could see an increase of at least BRL 40bn ($8.2 bn USD) in their annual GDP from 2050 onwards. This suggests that investing in FSLU could bring favorable future returns to both local and international investors.
As demonstrated by the various case-studies shared throughout the event, the pipeline of nature investment opportunities in Latin America is rapidly developing. The opportunities for impact and returns are exciting, but the market remains nascent and the event discussions highlighted the lack of education on both the investor and entrepreneurial ends of the sector. This creates bottlenecks that limit critical investments that could close the financing gap and increase the number of impactful and investible nature-positive opportunities in Latin America.
Despite increasing financial flows, the world is currently off target to reach the estimated $11 trillion that is needed between 2022-2050 to meet climate change and biodiversity targets. To achieve this, we have to triple the current level of global investment into Nature-based Solutions (NbS) by 2030 – this that cannot be achieved by the public sector alone. Event discussions highlighted that impact-driven organizations and individual entrepreneurs need training to be more business-minded, so that they can better attract commercial capital for their nature conservation and restoration projects.
Some entrepreneurs need essential capacity-building tailored to their individual needs. This could include how to bring a business to market, how to establish commercial relations with investors, and how to develop financial modelling skills. In Latin America in particular, this includes understanding of how to operate across formal and informal land tenure systems, building credible revenue models, or how to design impact measurement frameworks that can be clearly demonstrated to potential investors. This is critical to forming a convincing investment case that would mobilize the commercial capital waiting to be deployed, build trust between sector stakeholders and accelerate progress towards global climate and biodiversity goals.
Whilst there is a growing appetite amongst financial institutions to deploy capital into nature and FSLU sectors within Latin America, there is often a lack of understanding, especially among mainstream international commercial investors, about the context-specific investment landscape itself. At the regional knowledge exchange, a fund manager stated that “Scalability happens when the risk is understood by the market”- and this understanding must be grounded in the realities of project implementation.
As each investor is used to investing in a particular way, specific and contextual risks may appear inflated due to lack of familiarity, or a misunderstanding of facts on the ground. Exposing investors to in-country realities in Latin America through field visits and research dissemination, and increasing exchange between project developers, local fund and asset managers, and local and international investors may help to and address risk perception issues which block investments in emerging nature and FSLU opportunities.
Overall, the event highlighted that education, partnerships and mutual learning from both local and international players are key to meeting the nature finance challenge in Latin America. Education and exchange can help to build trust between private and public, entrepreneur and investor communities, to create a shared language and impact frameworks which reduce complexity in this emerging market. Ultimately, this will catalyze more courageous investments which protect and restore tropical forests.