Sustainable Land Bonds: New Thinking from The Nature Conservancy



TNC is establishing something of a presence in the climate finance landscape as a creator of innovative financial structures. Ahead of the Paris COP it came out with a debt conversion deal with the government of the Seychelles, whereby TNC would use its higher credit rating to reduce the cost of the country’s debt, in return for action by the Seychelles on marine conservation.  That deal has just resulted in the announcement of two new marine conservation areas.

More recently, TNC worked with a regional government in Mexico to create a coastal zone management trust and a parametric insurance product covering the giant meso-American reef, which is critical to tourism in the area.  The policy will be paid for by levies collected from tourism operators.

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The latest piece of thinking from TNC again uses the notion of ‘natural climate solutions’  to engineer down the cost of capital for developing countries.  Launched in conjunction with the Climate Bonds Initiative, Sustainable Land Bonds (SLBs) are essentially green bonds whose servicing costs are then subsidised via receipts from a third party in return for pre-agreed levels emission reductions from land-based initiatives carried out by the bond issuer.  Third parties may include countries and corporations that can’t directly mitigate their own emissions and for whom the land use outcomes create value they can use as indirect offsets.

TNC says that “SLBs target institutional investors in mainstream capital markets (where interest rates are at record low levels and demand for emerging market sovereign debt is high) and match with results-based payment agreements that pay countries for achieving emission reduction outcomes. As such, they build on the success of the Green Bond market, and go a step further by establishing a transparent link to outcomes in terms of national emission reductions [as promised, for example, in a country’s NDC].”  Because of their potential size, SLBs allow governments to “make  large-scale interventions, while results-based payment agreements will lower the cost of borrowing—potentially to zero—so long as agreed emission reductions are achieved.”

One in three of all jobs worldwide are in agriculture, second only to the service sector, and this rises to 60% or more in sub-Saharan Africa and parts of Asia, but TNC says that “existing agricultural practices, combined with conversion of forests, wetlands, peatlands and mangroves, currently contribute around a quarter of the world’s greenhouse gas emissions, thus creating a negative feedback loop that undermines the sustainability of rural economies.”

TNC’s research shows that that improved land management regimes (‘natural climate solutions’) can deliver 37% of all cost-effective CO2 mitigation needed to 2030.

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