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Design of a blended finance vehicle investing in ecosystem conservation and restoration projects across Southeast Asia

Convergence has awarded a feasibility study grant under the Asia Climate Solutions Design Grant to Lestari Capital for the development of a blended finance vehicle called the Supply Chain Nature Crediting Vehicle. This vehicle aims to invest in ecosystem conservation and restoration projects in Southeast Asia, with a focus on carbon emission reduction along with biodiversity and community benefits.

The agriculture, forestry, and land use sectors contribute almost 20% of global greenhouse gas emissions and intensive land use sectors like palm oil can result in around 75% of the total Scope 3 emissions as defined by the Greenhouse Gas Protocol. However, current efforts to scale up conservation and restoration projects have been hindered by limited financing options. Most concessional funding comes from short-term government budgets and philanthropy, which is insufficient for large-scale initiatives. Additionally, many project operators struggle to access commercial funding as existing investors primarily focus only on high carbon-intensive areas and carbon methodologies are not always suitable to protect biodiversity, neglecting Southeast Asia's diverse ecosystems.

To tackle these obstacles, Lestari Capital's Supply Chain Nature Crediting Vehicle will invest in the development of projects spanning around 600,000 hectares of land area throughout Southeast Asia. These projects will focus on multiple ecosystem-level outcomes including reduction in deforestation, restoration of degraded land, protecting biodiversity and creating sustainable livelihoods for local communities. The vehicle will look to monetize all these outcomes as Nature Credits (NCs) for offtake by corporates who are interested in taking nature-positive action in their agricultural sourcing areas in the region. Securing long-term commitments from corporates for NCs from a portfolio of projects would also help to mitigate project risks and lower transaction costs for the vehicle.

Design question and learning potential from the market: How can a blended finance vehicle be structured to invest in conservation and restoration projects targeting standardized ecosystem-level outcomes?

The feasibility study will involve engaging with corporates to understand the types of projects they would be interested in and assessing their potential demand for purchasing NCs. This will help Lestari Capital to identify potential investment pipeline for the vehicle and engage with project developers in the region including local NGOs, community-based organizations, concession owners, and government entities. As part of the Rimba Collective, Lestari Capital already has experience of working with corporates to support conservation projects in palm-oil sourcing areas in Indonesia. They will build on this experience and adopt the learnings for the design of this proposed vehicle.

This grant will help Lestari Capital determine the capital structure of the vehicle and engage with a mix of public and private investors to evaluate their potential investment interest. Additionally, the feedback from corporates and investors will enable them to develop the financial model and impact framework for the vehicle. During the feasibility study, Lestari Capital will also evaluate the regulatory landscape related to NCs and identify the appropriate legal structure for the vehicle.

    In progress
    Year and Quarter
    Asia Climate Solutions Design Grant, 2023, Cycle 1
    Design Activity
    Feasibility Study
    Region Focus
    Southeast Asia
    Sector Focus