SDG Impact Finance Initiative, with the support of Convergence, awarded a proof of concept conditionally repayable grant of USD 300,000 under its Innovation Window to BlueOrchard for its Carbon Impact Fund, which aims to contribute to effective climate action and positive biodiversity impact through direct investment in impact forestry projects in emerging and frontier markets. Blue Orchard receives backing from the Schroders Group.
Forestry is important to the livelihood of many. Globally, around 1.6 billion people depend on forests for their livelihoods and 80% of all terrestrial species of animals, plants, and insects are homed in forests. The loss of forests not only threatens the livelihoods of rural communities, but also leads to increased carbon emissions, reduced biodiversity, and land degradation. However, only 3% of climate finance is allocated to nature-based solutions globally, resulting in a USD 700 billion/annum funding gap. There is an urgent need for private market participation to fill this funding gap and accelerate repercussive actions to halt the loss of forests.
BlueOrchard's Carbon Impact fund involves designing a multi-tiered USD 300 - 500 million equity fund to invest in forestry projects in emerging markets. By designing the blended finance fund, Blue Orchard aims to combat deforestation by collaborating with local partners in ODA (Official Development Assistance) countries. Together, the partnership will focus on initiatives such as sustainable timber production, conservation efforts, restoration projects, and afforestation endeavors. The strategy will also focus on generating formal employment opportunities within local communities, fostering both short-term and long-term sustainable growth for both nature and the people involved.
Design question and learning potential for the market: How can blended finance structure contribute towards climate action in the developing market, while at the same time, creating sustainable economic opportunities to local communities?
Blue Orchard uses a blended finance structure to catalyze commercial investors into natural-capital-focused impact investments. Investors have the flexibility to receive either cash dividends or carbon credits as forms of repayment, which addresses different investment needs. The capital from investors is directed towards solutions falling under two pillars: "Conservation, Reforestation & Afforestation" and "Impact Forestry." The former focuses on conserving, replanting, and naturally regenerating trees, while the latter emphasizes maintaining natural forests and implementing sustainable management practices to support timber production for industries aiming to decarbonize. Beyond climate action, the solution also aims to support local communities by providing formal employment opportunities in the forestry sector. BlueOrchard estimates that a single impact forestry project can create 500-1000 seasonal jobs and up to 50 formal positions.
Through this holistic approach, BlueOrchard offers a solution that conserves natural forests while empowering local communities, addressing both environmental and social challenges faced by emerging countries.
