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Design of Dual Blended Finance Structure I (“DBFS”) to invest in community-focused regenerative agroforestry projects in Indonesia

Convergence awarded a proof of concept grant under the Asia Climate Solutions Design Grant to NBSV Worldwide (sister entity of Fairventures Social Forestry) for the design and launch of a $100 million blended finance vehicle, Dual Blended Finance Structure I (“DBFS”), to support the development of regenerative agroforestry projects in Indonesia partnering with local communities & smallholder farmers.

Since the 1960s, Indonesia has lost half of its forest cover to deforestation, with key drivers being extensive mining, logging, and conversion of forest land to agricultural plantations. The vehicle will address that by financing a portfolio of projects including sustainable agroforestry through intercropping of timber with cash crops; and conservation of existing forests leading to the generation of carbon credits. NBSV would undertake the responsibility for managing the vehicle as well as developing agroforestry projects.

The projects will follow different operational approaches including transitioning existing smallholder farmers from conventional farming to sustainable agroforestry practices and the implementation of new large-scale projects that would help restore forest ecosystems, protect biodiversity and promote sustainable land management practices. Additionally, the vehicle will have a strong focus on supporting local communities as part of social forestry projects, where they partner with local community organizations that have access to land rights, as well as other types of timber concession projects. Overall the vehicle will look to sustainably manage 100,000 hectares of forest land with the potential to result in more than 6 million tons of carbon emissions avoided, the creation of around 5,000 long-term jobs, improved livelihoods of more than 25,000 residents, and the development of over 100 local communities.

Convergence previously awarded Fairventures Social Forestry (FSF) a feasibility study grant under the Asia Natural Capital Design Funding Window to complete the initial design of this proposed vehicle. During this study, FSFidentified the project pipeline for DBFS and secured funding commitments to support the preliminary development of some of the initial projects in Java and Sumatra. Additionally, FSF utilized this grant to determine the initial financial and legal structure of the vehicle and set up their sister entity NBSV Worldwide to lead the design and operation of the proposed vehicle. Convergence’s proof of concept grant will support them to build on that work and launch DBFS.

Design question and learning potential from the market: How can a blended finance vehicle be designed to invest in community-focused regenerative agroforestry projects at scale?

During the proof of concept, NBSV Worldwide will look to finalize the capital structure of the proposed vehicle consisting of grants as well as concessional and commercial tranches of debt and equity. Another important aspect would be engaging with the different types of funders to secure anchor commitments for the proposed vehicle. This will help NBSV to also finalize the overall financial model and impact framework for this vehicle which would include enhancing their ESG Policy and Gender Action Plan.

NBSV Worldwide aims to also make further progress on the project pipeline and engage with potential offtakers for agroforestry products and carbon credits. Additionally, they will use this grant to develop the overall carbon strategy for the vehicle which would include assessing the carbon credit potential for portfolio projects, alignment of vehicles with relevant voluntary and regulatory carbon standards and exploring potential carbon pre-financing opportunities for projects.

    In progress
    Year and Quarter
    Asia Climate Solutions Design Grant, 2023, Cycle 1
    Design Activity
    Proof of Concept
    Region Focus
    Southeast Asia
    Sector Focus