Towards green finance for land-based investments

Interested in the potential to improve financial systems to support small-scale, sustainable investment in agriculture and agri-food systems? Lao PDR makes for an interesting case study. Here’s the summary of our findings.

ABOUT THE REPORTS

In Lao PDR, Land-based Investments (LBIs) in agriculture and agri-food systems offer a pathway to sustainable economic growth, poverty reduction, and food security. Financing for the agricultural transition has been influenced by several country-specific factors, including a push towards export market opportunities and foreign direct investment (FDI) in line with Lao PDR’s “turning land into capital” strategy. Yet there is also a consensus that the country’s sectoral transformation, following the national agenda, must also prioritize inclusive economic development, environmental conservation, social equity, and transparent governance to reduce imports and promote value-added agricultural products.

Emerging international best practice on sustainable finance can provide investors and commercial ventures with the tools to better mitigate the considerable financial, legal, operational, and reputational risks associated with LBIs – including delays, disputes, legal violations, and rights abuses – that may present material risk and jeopardize financial viability. A diverse set of strategies has advanced over the past few decades to move towards responsible LBIs – from voluntary company-led initiatives, to regulations that curtail negative environmental and social externalities, including a moratorium on large-scale concessions in Lao PDR in favour of smallholder producers and various contract farming schemes. Yet nature loss and disenfranchisement of rural people have continued to increase and must be reversed as quickly as possible.

One missing piece to the conversation is ‘green’ finance: behind every LBI is a source of capital that can be used to reward responsible investment or disincentivize harmful practices. Banking systems must pivot so that Small and Medium Enterprises (SMEs) and smallholders can access much-needed finance to grow their businesses, and to create an even playing field for investors to improve their behaviour at scale.

THE Authors

This briefing note, funded by the Transformative Land Investment (TLI) project, summarizes a longer report on the potential for improving financial systems to support sustainable and responsible LBIs and agri-food systems in Lao PDR. More research is needed to explore this issue in the context of other non-bank finance, such as capital markets. We invite collaborators from financial institutions, investors, governments, academia, and civil society as our community of practice works towards viable solutions.