Indonesia occupies less than 1% of land on earth but is home to the world’s third-largest expanse of tropical forest. These forests are home to around 10-15% of all animal and plant species on the planet and also act as a massive carbon sink, absorbing CO2 from the atmosphere as they grow. Despite the value these forests provide to the environment and local communities, Indonesia’s forests are under threat from deforestation, with key drivers being extensive mining, logging, and the conversion of forest land to agricultural plantations. Since the 1960s, Indonesia has lost half of its forest cover to deforestation and has been among the world's top five countries for forest loss for the past two decades.

There is huge climate change mitigation potential in protecting existing Indonesian forests and restoring degraded areas, which also has the potential to provide livelihoods for close to 40 million rural and indigenous people.

As a result, the Indonesian Government has implemented a program to grant forest-dependent communities’ access to forest land through long-term social forestry permits. However, the concrete economic benefits for households and communities remain largely absent, as many of them lack the technical skills and have limited access to capital for sustainable forestry or agriculture practices. Therefore, there is a need for project developers to support local communities by utilizing the social forestry program to create attractive economic benefits for these communities alongside natural resource protection.

How Fairventures Social Forestry is helping to address these challenges

Convergence grantee Fairventures Social Forestry (FSF) is a project developer and investment manager looking to showcase a viable model for forest landscape restoration and conservation in emerging markets by partnering with local communities on lands issued through these social forestry permits.

Convergence awarded FSF a feasibility study grant through the Asia Natural Capital Window, funded by RS Group, to help them design a blended finance vehicle, which invests in projects focused on restoring degraded land for sustainable agroforestry and conservation of existing forests in Indonesia.

It can be challenging for such long-term forestry projects in emerging markets to attract investment at scale due to long project development timelines and the higher perceived risk associated with developing countries. However, blended finance can be instrumental in making these projects investable. FSF intends to utilize grants to fund the initial development activities and de-risk projects, making it attractive for impact equity investors and lenders to invest at a later stage.

Through this blended finance vehicle, FSF aims to sustainably manage 100,000+ hectares of forest land by financing projects involving sustainable agroforestry on restored degraded land through the intercropping of timber with cash crops and conservation of existing forests, resulting in improved local biodiversity and carbon sequestration.

Nursery for crops like ginger and cocoa being considered by FSF to be planted along with timber

Through this blended finance vehicle, FSF intends to also create a significant impact for local communities and views them as key partners in the implementation of projects supported by the vehicle. The vehicle will look to provide local communities with new employment opportunities generated by funded projects and in turn, the communities will also receive a share of the profits from these projects. In the long term, the vehicle has the potential to extend and sustainably manage 100,000 hectares of forest land, which could result in more than 6 million tons of carbon emissions avoided, sustainable income for around 4,000 households, livelihood impact for more than 20,000 residents, and development of over 100 local communities.

Sri Pornia, Field Work Team Leader, FSF

The progress to date

FSF has launched a 3,000-hectare pilot project in Central Kalimantan, Indonesia, for agroforestry and conservation activities with the support of the local community.

Nursery where timber plants are grown until they are ready to be planted in the field.

“The social forestry program from the government, in cooperation with FSF, helped us support the community to manage the forest in a sustainable way. Previously, the mindset of the people [local community] was too focused on how to harvest the forest, not how to manage it… Through this social forestry permit, the community and the farmers can manage the forest by themselves and have access to long-term income, and with the help of FSF, make it sustainable.” - Miko Luiter, Head of Forest Management Unit, Central Kalimantan.

Timber trees already planted at the pilot site in Central Kalimantan

FSF is underway to reforest 450 hectares of degraded land and has identified around 550 hectares of forest area for conservation. One of the biggest challenges for the pilot has been gathering support from the local communities. FSF has a long-term cooperation agreement with the local community organization for the pilot site, HKm Batu Bulan. FSF, with support from HKm Batu Bulan, has spent time educating community members about the details of the project and its intended positive impact on the environment and their community. As a result, the pilot has already seen participation from 130 field workers (of which the majority are women) from the local community, in addition to the 50-member team that FSF has in Indonesia.

“Before the existence of FSF and this cooperation (with HKm Batu Bulan), the local people had unsustainable jobs, such as illegal mining/logging. It is hard to make a living out of these activities. After the partnership has been established, the local communities see the opportunity/difference and directly want to be part of the project, and as a result most of them are no longer working in the illegal logging/mining activities.” - Suterman A. Djohan, Head of Hkm Batu Bulan, the local community organization for the pilot project site.

For this pilot, FSF has received technical assistance from IDH and funding support from Good Energies Foundation and UBS Optimus Foundation. FSF also recently won the Liveability Challenge, which is organized by Temasek Foundation annually. As the winners of the challenge, FSF received SGD1 million in funding from Temasek Foundation, which will help them develop their next projects in Indonesia.

The way forward

FSF’s goal is to launch the blended finance vehicle described above, which pools different types of capital like grants, equity, and impact loans, that can attract capital at scale to finance a portfolio of agroforestry projects. As the vehicle scales, it will also look to include other types of projects in the portfolio, like forestry concessions. The funding from Convergence is supporting FSF to build upon their existing stakeholder engagements and further develop a pipeline of investable projects for the vehicle. FSF is also using the feasibility study grant for creating a comprehensive financial model and identifying the appropriate legal structure of the vehicle.