ADM Capital and Partners Announce Inaugural Transaction for Indonesia Green Lending Platform
The Tropical Landscapes Finance Facility (“TLFF”) launched its first transaction on February 26th, a landmark USD95 million loan to an Indonesian JV between Michelin and Barito Pacific to help finance a sustainable rubber plantation in two heavily degraded landscapes.
TLFF is a partnership between ADM Capital/ADM Capital Foundation, BNP Paribas (“BNPP”), UN Environment (“UNEP”) and World Agroforestry Centre (“ICRAF”) established in October 2016 to provide access to long-term finance at scale to commercial projects with clear environmental and social benefit.
TLFF consists of a lending platform managed by ADM Capital with BNPP as structuring adviser and arranger of a Medium Term Note (“MTN”) program that provides liquidity to projects in sustainable agriculture and renewable energy. A grant fund will be managed by UNEP and ICRAF, and will provide technical assistance to projects, pipeline development as well as monitoring and evaluation support.
An estimated USD 50 bn of finance is needed in landscape projects alone. This cannot come from just the public sector and the private sector must engage. TLFF is one initiative that is designed to help this happen.
In some instances, in order to encourage private finance through the TLLF, credit risk reduction mechanisms (e.g. junior subordinated loans, guarantees, etc.) will be necessary.
In this first transaction, USAID has provided a partial credit guarantee for a loan to PT Royal Lestari Utama (“RLU”) to cover sustainable rubber plantations in Jambi, Sumatra and East Kalimantan. The concessions total 88,000 hectares but roughly half will be left for biodiversity conservation or community livelihood programs.
TLFF I PTE. LTD, a newly established special purpose company incorporated in Singapore will issue the long-dated Sustainability Bond to fund the transaction, which incorporates extensive social and environmental objectives and safeguards.
WWF has worked with RLU since 2015 to set aside remaining High Carbon Stock (HCS) and High Carbon Value (HCV) forest in the RLU concessions. Critical wildlife conservation and riparian areas have also been identified and set aside as “no go” areas for planting.
In another environmental benefit from the project, in Jambi the RLU plantings, conservation areas and two WWF ecosystem restoration concessions at either end of the project will serve as an important and contiguous buffer zone to protect the threatened 143,000 hectare Bukit Tigapuluh National Park against encroachment. The National Park, which contains unique biodiversity, is one of the last remaining places in Indonesia where elephants, tigers and orangutans exist together.
In terms of local communities, the plantation is expected eventually to provide 16,000 fair-wage jobs, offering a critical source of employment. A Community Partnership Program will include additional livelihood support and training for smallholders living in the concessions.
Vigeo Eiris, the ESG research agency, has confirmed the TLFF I issued bond as ’Sustainability Notes’ with positive contribution to sustainable development and aligned with the ICMA Sustainability Bond Guidelines. More information is available here.
The main barriers to sustainable land use finance that the Tropical Landscapes Finance Facility aims to address are:
- The need for incentives for supply chain companies (e.g, palm oil, rubber, coffee, cocoa, etc.) to accelerate the drive towards sustainable production decoupled from deforestation and forest degradation;
- Access to finance for smallholders (e.g. through on-lending according to E&S criteria by local banks as the main debtor of TLFF loans);
- Longer loan tenors that incorporate repayment grace periods when there is no cash flow after replanting thereby enabling long-term sustainable production;
- Support for smallholder farmers to improve yields on existing agricultural land or achieve rural jobs thereby improving their income and livelihoods in the face of a changing climate;
- A need to systematically embed requirements around forest protection and/or restoration in loan requirements as well as other social and environmental requirements thereby, contributing to balancing agricultural production with climate change targets, protection of biological diversity and improving rural livelihoods.
ADMCF/ADM Capital in 2016 received a Design Funding Grant from Convergence Blended Finance (“Convergence”) to help build the lending platform and initial pipeline of projects.
Others have also stepped in with support to various aspects of the inaugural TLFF project, including potential funding for a 9,700 hectare Wildlife Conservation Area in one of the two RLU Jambi concessions neighbouring the National Park. This would allow a continued free range for, in particular, the 150 remaining Sumatran elephants (four family groups) living in the southern parts of the forest and bordering concession areas.
Additionally, the Green Climate Fund, in a private sector call for proposals, recently shortlisted the RLU project for a second tranche of funding (both loans and grants).
