Harmonizing positive environmental & social impact

in Sustainable Land-Use Finance

UNEP and UNEP-WCMC

Sustainable land-use creates benefits for people and planet

Agriculture has positive and negative impacts on people and the planet.

Under business as usual, agricultural production results in significant negative impacts on  biodiversity ,  climate  and  people .

 "Healthier, more sustainable and more equitable food systems"  are vital for achieving the Sustainable Development Goals (SDGs), notably 1 – ‘No Poverty, 2 – ‘Zero Hunger', 13 – ‘Climate Action’ and 15 – ‘Life On Land’).

The implementation of sustainable land-use practices can alleviate these risks and deliver positive outcomes.

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Environmental and social benefits

Agricultural practices that limit the use of inputs and replace monoculture with polyculture can result in positive benefits for  biodiversity and ecosystem services , reduce the release of green-house gasses, and contribute to forest protection and restoration.

Sustainable livelihoods

Sustainable management of agricultural production systems can also contribute to the well-being and sustainable livelihoods of local communities who  manage local natural resources . Additionally, these sustainable practices can  enhance adaptation to a changing climate .

Global commitments

As well as the SDGs, these actions will contribute to the achievement of the Global Biodiversity Framework, under the Convention on Biological Diversity, and as well as the Paris Agreement on climate change. 

Sustainable production

To ensure these opportunities materialise and the SDGs, and other global policy commitments, are met, a shift is needed away from business as usual towards a more sustainable approach to agricultural production.

Agriculture has an inextricable link with the climate change, biodiversity loss, social inequality and, global health crises.

Economic recovery

Building back better and greener from the impacts of the COVID-19 pandemic provides an opportunity for the agricultural sector to shift to sustainable land use and demonstrate the positive E&S impacts.

Why transition to deforestation free agriculture?

Financial institutions have a key role to play

From financial institutions to concessional finance providers, all play a vital role in making the transition to more sustainable food production and commodity supply chains.

Over the next 30 years, a further $80 billion in finance will be required to meet increasing global food demand. Financial institutions can use their influence on the agricultural sector to reverse current negative impacts and create positive E&S outcomes. 

While many financial institutions have begun to make commitments to reduce their negative E&S impacts, progress has so far been slow.  Only a third having risk-management policies  for deforestation covering the most significant commodities. 

Although the implementation of these policies will improve outcomes, financial institutions now need to think beyond risk management. They should consider how they can incentivise, monitor and report positive E&S impacts generated through their investment portfolios.

Demonstrating positive E&S impacts 

Demonstrating positive environmental and social (E&S) impact will be key to ensuring an increase in blended finance instruments and private capital flows into sustainable practices.

A growing number of impact investors have begun to adopt approaches to sustainable land-use financing that incorporate positive E&S impacts into the process for identifying and monitoring financed projects.

Pioneering funds

Funds such as  &Green ,  RSCF  and  AGRI3  have defined the E&S objectives for positive impacts they seek to achieve. Clear eligibility criteria for positive impacts are used to screen deals to ensure they can deliver E&S additionality.

Key Performance Indicators

Financial institutions are adopting Key Performance Indicators (KPIs) to demonstrate that their investments are generating the desired positive impacts which they can:

- monitor project E&S impact performance;

- aggregate E&S reporting across their portfolio and;

- publicly disclose this information.

Proliferation of KPIs

In the infancy of sustainable land-use finance, funds have developed diverse sets of project-specific KPIs.

This creates challenges for aggregating impact results at the fund level and makes it difficult for financiers to identify where to invest capital to achieve their desired impacts.

‘Land-Use Financing – Positive Impact Indicators’ directory

A directory of KPIs has been developed to help harmonise measurement and reporting across a range of positive E&S impact areas.

The Environmental and Social Knowledge Exchange Network - a community of practice and convened by UNEP, has been working towards the standardization of E&S KPIs in five priority impact areas:

  • Biodiversity conservation
  • Climate adaptation
  • Climate mitigation
  • Forest protection
  • Sustainable livelihoods

The ‘Land-Use Financing – Positive Impact Indicators’ directory enables banks and investors to standardize the framing, measurement, verification and reporting of positive E&S impact. The directory is applicable to loans and equity investments made across different forest restoration and sustainable agricultural value chains.

The directory provides between one and five KPIs per E&S impact area, allowing funds flexibility to select the most appropriate indicators to support their sustainability objectives. 

It provides recommended KPIs based on the user’s impact objectives and technical capacity.

The KPIs have been selected through consultation with a range of stakeholders - including public donors, impact fund managers and technical monitoring specialists. They are accompanied by a range of supporting information on additional materials, datasets and reporting initiatives, and, guidance on the applicability and communication of impacts achieved under each KPI.

Seeking standardization

Even if financial institutions have already adopted KPIs, the directory can help to identify standardized, good-practice methodologies that can be applied across their portfolio or to access guidance materials and datasets to reduce the costs of impact monitoring.

Voluntary and industry initiatives

The KPI Directory can be used to support existing sustainable land-use finance approaches to measuring E&S impacts by providing:

Additional land-use specific, positive and land-use focussed indicators for sustainable land-use for  The Global Impact Investing Network (GIIN) IRIS+  initiative.

Information on how to measure, monitor and report risks and provide land-use focussed E&S impact opportunities for  Principles for Responsible Investment  and  Principles for Responsible Banking.  

Regulatory requirements

The KPI directory can also support compliance with increasing regulatory requirements on sustainable financing, such as the  EU Taxonomy , and to support demonstrating positive E&S impacts towards the restoration agenda, relevant in the context of the  UN Decade on Restoration. 

Support at different stages

Financial institutions in the early stages of developing new E&S frameworks can use the directory to scope the alignment of their objectives with key impact areas.

While those in the more advanced stages of development can identify KPIs that fit best with the geography, activities and technical capacity of the projects they wish to finance.

Opportunities for mainstream financial institutions

Exploring the directory can provide opportunities for mainstream financial institutions to consider the potential for positive E&S impact to be generated through their investments.

As sustainable land-use financing matures, mainstream financial institutions could capitalize on the pioneering work of impact investors and look to integrate positive E&S benefits into the way they think about the return of the contributions on their investments.

Mainstream financial institutions can help to foster wider standardization of positive E&S impact metrics and methods – such as the requirements to set, KPIs to adopt and monitoring methods to use - helping to make sustainable land-use a recognizable, novel asset class.

By adopting a standardized approach to positive impact reporting, mainstream financial institutions can also begin to quantify their contribution to global commitments, such as the SDGs.

Contribution to global commitments

The 'Land Use Financing – Positive Impact Indicators' directory connect KPIs to specific SDG targets.

This will enable financial institutions to become positive contributors at a time of increasing pressure on the financial sector to influence the change needed to address the joint biodiversity, climate and global health crises.

Aggregating E&S impacts

Conducting accurate monitoring of KPIs can be resource intensive and may require on the ground effort at the project level, particularly for livelihoods metrics that do not easily lend themselves to cost-saving technical solutions, such as remote sensing.

Accuracy and feasibility need to be balanced to make monitoring both close effective and credible.

Capacity building

Adoption of positive impact monitoring needs an expansion of the capacity to implement monitoring and reporting, whether this be within financial institutions themselves or through third party service providers.

To aid this process, the directory identifies specific KPIs to financial institutions' capacity constraints such as the use of geospatial data and on the ground verification.

For further information on the Land-Use Financing - Positive Impact Indicators' directory, please contact  unep-cfu@un.or g.

This work has been implemented through UNEP and UNEP-WCMC.

This work has been conducted through the generous support of the Government of the Grand Duchy of Luxembourg's Ministry of Environment, Climate and Sustainable Development.

This work has been conducted through the generous support of the Government of the Grand Duchy of Luxembourg's Ministry of Environment, Climate and Sustainable Development.