ImpactAlpha, Aug. 12 – More than two-dozen investment funds are making investments in tropical forests and communities. The funds have at least $2.6 billion in capital to invest in firms and projects generating revenue from tropical forestry and agriculture products and benefiting smallholder farmers and forest-dependent communities.
“Combating deforestation, incentivizing conservation, and improving livelihoods requires mobilization of significant capital, but many commercial investors are hesitant to participate because of the risks,” according to an analysis from ISF Advisors. To attract capital and drive more inclusive impact, fund managers are tailoring approaches and fund structures.
Agriculture-focused funds like IDH’s Farmfit target cooperatives and agribusinesses that source from farmers adjacent to tropical forests. New Forests’ Tropical Asia Forest Fund invests in companies that source timber sustainably (see, “Taking an ‘impact tranche,’ Packard Foundation pushes forest fund beyond business as usual”). Hybrid funds, like Moringa, focus on agribusinesses growing non-timber products in tropical forests.
- Catalytic capital. Newer funds such as &Green, AGRI3 and Farmfit are attracting commercial capital by structuring funds as co-investments or by taking junior positions. Terra Silva, a fund of funds, is aiming to help eight to 10 investment fund managers prove that sustainable tropical forests are a profitable bet for commercial investors (see, “Terra Silva has $90 million in catalytic capital for carbon reduction in tropical forests”). Project operators including ECOTIERRA and Terra Global, are responding to project pipeline challenges by sponsoring their own funds and stepping into the fund manager role.
- Securing supply chains. Companies looking to secure inputs are investing in tropical forest funds. Michelin sponsored the The Tropical Landscapes Finance Facility managed by ADM Capital. Danone, Mars and other French companies set up the Livelihoods Carbon Fund and Livelihoods Fund for Family Farming.