PHOTO: Courtesy of Anouj Mehta
SPECIAL FEATURE
starting climate-friendly initiatives and seeing the impact on the ground. “To get through that bottleneck, farmers need a combination of immediate incentives and long-term assurances; incentives including tailored on-farm training, easier access to financial services and the latest
risk when changing the status quo. If a trial fails,
they may lose their livelihoods and their families may starve. Yet in the face of climate change,
Anouj Mehta
agricultural technologies. Farmers are also encouraged to adopt new practices that meet sustainability standards, enabling them to ‘get certified’ and so command higher prices at market. However, coffee and palm oil are two prime examples where higher prices are not universally achievable; there is always the element of risk.
maintaining the status quo is an existential risk for everyone.
De-risking major infrastructure Two words are key when tackling risk in unknown territory: confidence and trust. Just as farmers have to be kept motivated and reassured to reach a long-term goal, the same applies to investors. One solution put forward by the Asian Development Bank is a “structured guarantee” system that assuages perceived risk. By focusing on key aspects such as financial incentives, limited guarantees and repayment deferrals, Anouj Mehta (above) explains in the Asian Development Blog how “SDG Accelerator Bonds” can help maintain confidence in infrastructure projects, even during turbulent times: “Imagine you are the mayor of Sea City, a medium-sized Southeast Asian city of 2 million people. Sea City is slowly recovering from the worst impacts of the COVID-19 pandemic, but your unemployment rates sky-rocketed during the crisis, tax revenues are still falling, and your plans for improving the city’s infrastructure have been put on hold… “Sea City seeks to mobilize US$100 million from two primary groups of investors: one is domestic impact investors including foundations and philanthropists, the other is offshore investors who live up to a predetermined set of eligibility criteria. But why would
they choose to invest in infrastructure in a medium-sized Southeast Asian city like yours with an unproven track record and limited funds? “SDG Accelerator Bonds would help mitigate these risks for investors with a structure that includes a backing in the form of an exit guarantee or loss protection on investment by a national guarantee fund, itself supported by one or more multilateral or bilateral development agencies (e.g. the OPEC Fund). However, such backing would not be open-ended but for meeting the perceived risks of a bond for a limited time period, perhaps the time for getting underlying subprojects off the ground, and thus gradually reducing the liability of the guarantee fund. “The bond structure would also similarly offer financial incentives to the bond issuer in the period of the guarantee, such as deferral of initial payments. Hence, in the case of Sea City, the possible guarantee fund could be called upon if Sea City was unable to pay back the investors at any of the fixed exit intervals for instance, where an investor may want to pull out. Having such a structured guarantee makes the SDG Accelerator Bond seem much less risky to investors.” Much of the above holds lessons for the OPEC Fund too, as we roll out an SDG Bond Framework based on principles for green, social and sustainability bonds including more stringent selection and
“New approaches often involve a leap of faith. The real innovation for climate and development, the real ‘game changer’, lies in finding – mostly new – ways to maintain confidence via careful choreography of transitional phases. I say ‘mostly new’ because innovations like regenerative agriculture are, ironically, based on indigenous practices linked to age-old belief systems; philosophies that put a premium on circular and holistic approaches like crop rotation and managed grazing. That link may explain the willingness of some farmers to join opaque transitions because they’re looping back to traditional practices – a ‘déjà vu innovation’”. In the case of regenerative agriculture, it’s a vital loop back that should help draw down the one-third of total greenhouse gas emissions churned up by agriculture, leave landscapes more resilient to flooding, while paying farmers more reliable and sustainable incomes over the longer term. It’s a fine line, though. Low-income farmers have no reserves, so they face an existential
evaluation criteria. Building trust between investors and beneficiaries, while tracking and sharing impact to ensure continuity, will be critical to the success of this endeavor – because great leaps forward are driven by confidence.
PHOTO: ADB
27
Powered by FlippingBook