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Asia’s first sustainability bond

by Richard Welford  This email address is being protected from spambots. You need JavaScript enabled to view it. | 28 Feb 2018

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The Tropical Landscapes Finance Facility (TLFF) has launched a US$95 million Sustainability Bond to help finance a sustainable natural rubber plantation on heavily degraded land in Indonesia. The Bond supports a project with extensive social and environmental objectives and safeguards. The plantation will help to protect a threatened national park. This is the first corporate sustainability bond in Asia.

The Tropical Landscapes Finance Facility (TLFF), a partnership between UN Environment, World Agroforestry Centre (ICRAF), ADM Capital and BNP Paribas aims to bring long-term finance to projects and companies that stimulate green growth and improve rural livelihoods in Indonesia.

The Sustainability Bond will fund PT Royal Lestari Utama (RLU), an Indonesian joint venture between France's Michelin and Indonesia's Barito Pacific Group for wildlife friendly and socially inclusive production of natural rubber. An initial 18,100 hectares of rubber were planted as of December 2017 and the TLFF bond issue will contribute to financing further development of the plantation.

The project involves collaboration with WWF, which has worked with Michelin and RLU to set aside remaining valuable forests and protecting critical wildlife conservation in one of the last places in Indonesia where elephants, tigers and orangutans co-exist. In addition, out of a concession area of 88,000 hectares, roughly 45,000 hectares are planned to be set aside for community livelihoods and conservation. The natural rubber plantation is predicted to provide approximately 16,000 jobs, providing a critical source of employment for local communities. The project has been designed to align with key Sustainable Development Goals.

This new development is indicative of an increasing interest in sustainable finance. A number of financial institutions are recognizing the role that they can play in helping to finance sustainable and impactful projects and the new Bond demonstrates that institutional investors have the appetite to invest in projects that combine financial performance with positive environmental and social impacts.

Sustainable finance refers to any form of financial service integrating environmental, social and governance (ESG) criteria into the business or investment decisions for the lasting benefit of clients that have positive social and environmental impacts. Sustainable finance contributes to sustainable development and value creation in economic, environmental and social terms. In other words, one that ensures and improves economic efficiency, prosperity, and economic competitiveness, while contributing to protecting and restoring ecological systems, and enhancing social well-being.

Activities that fall under the heading of sustainable finance include sustainable funds, green bonds, impact investing, microfinance, active ownership, credits for sustainable projects and development of the whole financial system in a more sustainable way.

Sustainable finance could provide a huge opportunity to reorient our financial system to support long term commitments to sustainable development. It seeks to combine economic prosperity with environmental and social sustainability. The goal of sustainability must be supported by a financial system that promotes the alleviation of poverty and preservation of valuable eco-systems. What we need to see is countries developing strategies that channel finds into low-carbon, resource-efficient and environmentally protective economy and that address social challenges and community interests.

Responding to the challenge of long-term sustainable development is also a powerful way for financial institutions to reclaim the positive role they can play in society.  The challenge is to improve the contribution of the financial sector to sustainable and inclusive growth, notably by financing long-term needs such as innovation and infrastructure, and accelerating the shift to a low carbon and resource-efficient and equitable economy.