Despite evidence that sustainability certifications and verifications have a positive impact in reducing nature-negative business activity, very few financial institutions are members of groups such as the Roundtable for Sustainable Palm Oil, or engage with the Roundtable for Responsible Soy, Marine Stewardship Council and Forest Stewardship Council.
These certifications offer the opportunity to scale best practices for sustainable sourcing of agricultural commodities. As a minimum, financial institutions should ensure supply-chain and trade financing programmes link to these certifications. Furthermore, there is scope for improved effectiveness and scale of these certification programmes that the programme-developers say could be achieved with greater financial sector engagement.
There is also the potential for financial institutions to design investment and lending policies and instruments using the certifications that will support companies to transition away from unsustainable practices. For example, could banks collectively agree to apply a risk premium for clients who have not undergone the verification process, or offer discounts to those that do? A more detailed paper on the use of certifications by financial institutions can be found here.
Click here to return to the Pathway for Action homepage, or to move on to Recommendation 5: Encourage greater use of green bonds/loans and sustainability-linked loans to achieve nature-positive outcomes.
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RECOMMENDATION IN PRACTICE:
Certifications and Sustainability-linked Products
There are emerging examples where the financial services offered are linked to performance against certifications. Rabobank is a major financier of the Chilean salmon industry and, as part of a collaboration with the WWF, has provided green loans to clients in this industry. The performance indicators on the loans are linked to the Aquaculture Stewardship Council’s certification standard.
The Marine Stewardship Council’s certification had a similar role in the Norwegian SpareBank’s €7.65m green loan in 2019.
eco-business Fund: Financing Sustainability-certified Businesses
The eco.business Fund was initiated in 2014 by KfW Development Bank, Conservation International, and impact asset manager, Finance in Motion, with financial support from the German Federal Ministry for Economic Cooperation and Development (BMZ). Finance in Motion has served as Fund Advisor since inception of the fund.
The fund aims to promote business and consumption practices that contribute to biodiversity conservation, to the sustainable use of natural resources and to mitigate climate change and adapt to its impacts in Latin America, the Caribbean, and sub-Saharan Africa.
Investees receiving eco.business Fund financing must:
- either hold an eligible sustainability standard;
- implement either one of the practices outlined in the “Green List” ; or
- support a practice fully aligned with the Fund’s mission.
Directing lending to businesses and producers that hold internationally recognized sustainability standards constitutes a cost-effective approach to financing sustainable production, as the monitoring and verification of sustainable practices is led by certified and independent bodies. It also enables the Fund to deliver deeper analysis of the benefits of its investments and draw upon the standards’ own work on impact measurement. The Fund has selected a set of sustainability standards to be eligible for EBF financing based on a comprehensive review and assessment of their requirements. In sub-Saharan Africa, the eco.business Fund can also engage in strategic partnerships with commodity traders or other real-sector intermediaries that are focused on improving sustainable sourcing within their value chains through standards or programs that seek to verify the sustainability of suppliers of raw materials and/or third-party producers.
In April 2021, for example, the Fund provided an investment of $10 million to Co-operative Bank of Kenya (Co-op Bank), one of the leading commercial banks in the country. The subordinated loan will be on-lent to sustainable agribusinesses, contributing to the fund’s mission of conserving biodiversity, promoting the sustainable use of natural resources, and mitigating and adapting to climate change. The investment will provide much-needed financing for businesses to enhance sustainable measures in their agricultural practices, particularly important in light of the challenging operating environment created by the COVID-19 crisis.
Through this new investment, the eco.business Fund and Co-op Bank will provide necessary credit to sustainably certified agribusinesses, such as those in the coffee, tea, and horticulture sectors; Kenya’s main agricultural exports. By financing certified producers for measures such as solar and hydroelectric installations for tea factories that reduce reliance on fuelwood, and cold storage solutions that reduce post-harvest losses, the partners also hope to boost sustainable production practices and conserve the unique ecological landscape of the country.