WRI Publications Feed: Rio+20

How to Identify Degraded Land for Sustainable Palm Oil in Indonesia

Maggie Barron — Tue, 10 Apr 2012 12:57:57 -0400

Summary

Palm oil production in Indonesia has the potential to generate local benefits if oil palm cultivation expansion follows sustainable planning and management practices, including respect for local interests and rights. Potential benefits include increased incomes, profits, and government revenues, reduced poverty, and improved natural resource management. Whether this potential is achieved will depend on how new areas for oil palm cultivation are identified.

This working paper demonstrates how to implement a quick and cost-effective method for identifying potentially suitable areas for oil palm cultivation. The method is designed in accordance with established standards for sustainable palm oil production, such as those of the Roundtable on Sustainable Palm Oil (RSPO); incorporates relevant Indonesian laws and policies; and is consistent with proposed national REDD+ strategies to support palm oil production on low carbon degraded land. The method consists of a desktop analysis using readily available data and rapid field assessments. It is based on a set of indicators related to selected environmental, economic, social, and legal considerations.

This method can be used by companies as a first step in a site selection process for a certified sustainable plantation and can inform government officials and nongovernmental organizations (NGOs) in assessing land use policy options to support the expansion of sustainable palm oil production on degraded land. However, since it is designed primarily to rapidly identify the highest priority areas for further investigation, it should not be used to predetermine where oil palm cultivation expansion should occur.

Using this method as a first step in a site selection process can reduce the costs of implementing the additional due diligence activities required to confirm the suitability of a potential site for oil palm cultivation. These activities, which are outside the scope of this paper, include community mapping to document community claims and rights, conducting high conservation value (HCV) and social impact assessments, implementing a comprehensive free prior and informed consent (FPIC) process, and fulfilling legal requirements.

The World Resources Institute (WRI) and Sekala applied this method to identify nine potentially suitable areas in the Indonesian province of West Kalimantan for a pilot sustainable palm oil project under Project POTICO. These nine sites were identified through targeted field assessments of high priority sites identified through the desktop analysis using project-specific criteria and do not represent all potentially suitable areas in the province.

The desktop analysis, the first step in this method, classified a total of approximately seven million hectares of land in the provinces of West Kalimantan and Central Kalimantan as potentially suitable, using the best publicly available data at the time of publication.

This desktop analysis, associated data, and other supplemental materials will be made easily accessible on a “Suitability Mapper” application to be available on this website in mid-2012. The application will allow users to replicate the desktop portion of this analysis or generate their own suitability maps—using parameters of their choice—to guide their own targeted field assessments.

Produksi kelapa sawit di Indonesia berpotensi menghasilkan manfaat-manfaat lokal jika pengembangannya mengikuti praktek-praktek perencanaan dan pengelolaan yang berkelanjutan, termasuk menghormati kepentingan dan hak-hak lokal. Manfaat-manfaat potensial tersebut antara lain peningkatan penghasilan bagi masyarakat sekitar, peningkatan pendapatan pemerintah, pengurangan kemiskinan dan perbaikan pengelolaan sumber daya alam. Tercapainya potensi ini akan bergantung dari bagaimana perusahaan dan pemerintah mengidentifikasi kawasan-kawasan baru untuk penanaman kelapa sawit.

Laporan ini memuat sebuah metode cepat dan murah untuk mengidentifikasi kawasan-kawasan berpotensi cocok untuk budidaya kelapa sawit. Metode ini dirancang untuk mendorong produksi kelapa sawit pada lahan terdegradasi berkarbon rendah sesuai standar yang sudah ada untuk produksi kelapa sawit berkelanjutan, seperti Roundtable on Sustainable Palm Oil (RSPO); sesuai dengan hukum dan kebijakan yang ada di Indonesia; dan juga konsisten dengan rancangan strategi nasional Pengurangan Emisi dari Deforestasi dan Degradasi Hutan (Reducing Emissions from Deforestation and Forest Degradation - REDD+). Metode ini terdiri dari analisis desktop menggunakan data yang telah tersedia dan juga peninjauan lapangan. Metode ini terdiri dari sejumlah indikator yang mempertimbangkan faktor lingkungan, ekonomi, sosial dan hukum.

Metode ini dapat digunakan oleh perusahaan kelapa sawit sebagai langkah pertama dalam proses pemilihan lokasi untuk perkebunan bersertifikat ramah lingkungan. Metode ini juga dapat menginformasikan pihak pemerintah dan organisasi non pemerintah (NGO) dalam membuat kebijakan yang mendukung ekspansi produksi kelapa sawit pada lahan terdegradasi. Namun, karena metode ini dirancang hanya untuk mengidentifikasi kawasan prioritas tertinggi untuk diselidiki lebih lanjut, seharusnya bukan menjadi satu-satunya penentu lokasi ekspansi perkebunan kelapa sawit.

Dengan menggunakan metode ini sebagai langkah pertama dalam proses pemilihan lokasi, perusahaan kelapa sawit dapat mengurangi biaya kegiatan-kegiatan tambahan yang dibutuhkan untuk memastikan kecocokan sebuah kawasan yang berpotensi dijadikan perkebunan kelapa sawit. Kegiatan-kegiatan tersebut, yang berada di luar lingkup pembahasan laporan ini, terdiri dari pemetaan partisipatif untuk mendokumentasikan klaim-klaim dan hak-hak masyarakat, melakukan penilaian Kawasan Bernilai Konservasi Tinggi (HCV) dan dampak sosial, menerapkan proses persetujuan atas dasar informasi awal tanpa paksaan (PADIATAPA/FPIC) yang menyeluruh dan memenuhi persyaratan hukum.

World Resources Institute (WRI) dan Sekala menerapkan metode ini untuk mengidentifikasi sembilan kawasan berpotensi di Provinsi Kalimantan Barat sebagai proyek percontohan kelapa sawit berkelanjutan di bawah Proyek POTICO (http://www.wri.org/project/potico). Kesembilan kawasan tersebut didapat melalui peninjauan lapangan yang berfokus pada kawasan prioritas tertinggi hasil dari analisis desktop, menggunakan kriteria khusus untuk konteks proyek tersebut dan tidak bermaksud untuk mewakili seluruh kawasan berpotensi di provinsi tersebut.

Langkah pertama dalam metode ini adalah analisis desktop yang mengklasifikasikan sekitar 7 juta hektar lahan yang berpotensi cocok di Provinsi Kalimantan Barat dan Kalimantan Tengah. Analisa ini menggunakan data-data yang tersedia untuk umum pada saat laporan ini ditulis. Analisis desktop, data terkait, dan materi-materi pendukung lainnya bisa diakses di situs web (http://wri.org/ publication/identifying-degraded-land-sustainable-palmoil- indonesia). Situs ini juga memungkinkan para pengguna untuk membuat sendiri sebuah peta kecocokan – menggunakan parameter pilihan mereka – untuk memulai penilaian lapangan sesuai dengan kebutuhan.

Indonesia's Moratorium on New Forest Concessions: Key Findings and Next Steps

Maggie Barron — Fri, 17 Feb 2012 10:50:39 -0500

The Indonesian moratorium on the award of new licenses in primary natural forests and peat lands, announced in May 2011, is an important step for improving management of forest resources by “pausing” business-as-usual and allowing time to implement reforms.

To quantify the moratorium’s coverage, exemptions, encroachments, and additionality (i.e., whether the moratorium extends protection to land not already protected), the World Resources Institute (WRI) analyzed the indicative moratorium map released by the Ministry of Forestry in July 2011. The objective of the analysis was to better characterize the moratorium’s potential impacts and identify opportunities for improvement.

The analysis concluded that the moratorium in its current state will not contribute to Indonesia’s greenhouse gas emission reduction goal of 26 percent by 2020. Although there are 43.3 million hectares (ha) of primary forests and peat lands and significant carbon stocks within the boundaries of the indicative moratorium map (IMM), the questionable status of secondary forests, the exemption of existing concessions, and the limited enforcement of the moratorium boundaries may result in gains being negated by other land-use emissions. Nonetheless, long-term positive impacts can still be achieved if significant governance reforms are accomplished during the moratorium period.

Interactive Forest Atlas for Democratic Republic of Congo (Atlas Forestier Interactif de la République Démocratique du Congo)

Fri, 14 Jan 2011 13:10:01 -0500

Résumé exécutif

(Read in English)

Carte interactive/Interactive Map

Explorez notre carte interactive pour observer en détail les concessions forestières, les aires protégées et l’évolution du couvert forestier en République Démocratique du Congo (en Français et Anglais).

Explore our interactive map viewer to examine in detail logging concessions, protected areas, and forest change in the Democratic Republic of Congo (in both English and French).

Consciente du rôle essentiel des écosystèmes forestiers, le gouvernement de la RDC s’est engagé, en partenariat avec la communauté internationale, à améliorer la gouvernance du secteur forestier afin d’en assurer une gestion durable.

Pour ce faire, la RDC a ratifié plusieurs conventions et accords internationaux et régionaux, et lancé des initiatives nationales visant la gestion durable des forêts, dont (par ordre chronologique) :

l’organisation du Forum sur la Politique Forestière en 2000;
la promulgation du Code forestier par la loi no 011/ 2002 du 29 août 2002;
l’élaboration et la mise en route de l’Agenda Prioritaire pour la relance du secteur forestier en 2003;
la tenue de deux tables rondes sur la forêt en 2004 et 2006;
la rédaction et constante amélioration du Programme National Forêts et Conservation de la Nature (PNFoCo) d’une durée de 10 ans, débuté en 2004;
la rédaction du plan de préparation pour le processus Réduction des Émissions liées à la Déforestation et à la Dégradation (REDD);
la ratification du traité de la Commission des Forêts d’Afrique Centrale (COMIFAC) en janvier 2010.

Afin de respecter son engagement de garantir une gestion durable et responsable des ressources forestières, le Ministère de l’Environnement, Conservation de la Nature et Tourisme (MECNT) a entrepris de se doter d’outils lui permettant d’acquérir une meilleure connaissance du patrimoine forestier congolais et de suivre son évolution. Cet dans cet état d’esprit qu’en 2006 le MECNT signait avec le World Resources Institute (WRI) un accord de collaboration visant le développement d’un Atlas forestier interactif, comme outil moderne associant l’usage de la télédétection, des bases de données et des Systèmes d’Informations Géographiques (SIG). Cet outil devrait permettre aux acteurs impliqués dans la gestion forestière de pallier aux difficultés d’accès à des données fiables, et d’aider à une utilisation de ces données. L’Atlas forestier interactif répond aux besoins tant de l’administration congolaise que des acteurs non-étatiques (secteur industriel et société civile) en apportant une solution à : (1) la dispersion des informations à travers les différents organismes (secteur privé, société civile et autres parties prenantes du secteur forestier), ministères, directions et services, (2) la faible qualité de l’information disponible (information disparate, parfois désuète, sources de données fragmentaires, absence de standards) et (3) la faiblesse ou l’absence de communication et de coordination dans la gestion et la diffusion de l’information entre les différents acteurs, tels les producteurs de données et les utilisateurs de l’information. Cet Atlas forestier interactif a été produit de façon conjointe par le MECNT et le WRI dans le cadre la convention de collaboration sus-mentionnée, permettant une appropriation de l’outil par les services administratifs congolais. Les informations fournies par l’Atlas sont publiques et rendues activement disponibles aux parties prenantes, confirmant l’engagement du gouvernement pour une gestion transparente du secteur forestier.

Cette première version de l’Atlas forestier interactif de la RDC se présente sous format informatique et papier, le tout comprenant 5 produits distincts, à savoir : un rapport synthèse, un manuel d’utilisation, une application SIG, des données vectorielles et enfin une affiche présentant la situation actuelle de l’affectation du Domaine Forestier de l’État (DFE), et enfin une carte interactive en ligne.

Comme le prévoit la convention MECNTWRI, cet Atlas comprend toutes les informations actualisées relatives aux limites géographiques et aux attributs descriptifs des zones forestières vouées à la production ou la conservation fournies par le MECNT. Pour cette première version, les efforts ont été concentrés plus particulièrement sur les données liées aux titres forestiers admissibles aux processus de conversion suivant l’application de l’article 155 du Code forestier de 2002 et des dispositions du décret 05/116 de 2005. En outre, ont aussi été considérées toutes les informations connexes et pertinentes disponibles au moment de la publication, comme par exemple les routes nationales, les chemins forestiers et les aires protégées. L’Atlas est cependant un outil en constante évolution afin de prendre en considération les modifications d’éléments existants ou l’intégration de nouvelles couches d’information. Ainsi, l’acquisition d’images satellites plus récentes permettra d’actualiser les pistes forestières ; les plans d’aménagement, les données d’inventaire et les limites d’autorisation de coupe industrielle de bois sont autant de nouveaux éléments qui pourront s’intégrer aux prochaines versions de l’Atlas.

À ces efforts doivent s’ajouter d’autres actions pour assurer la qualité, la fiabilité, l’exhaustivité et la cohérence des données et des informations produites. Soulignons entre autres:

l’institutionnalisation d’une base de données géographiques (SIG) unique pour la gestion des informations forestières ;
la mise en place et l’institutionnalisation de standards de cartographie forestière numérique ;
l’élaboration de procédures d’échanges d’information entre les acteurs au sein du MECNT, mais aussi avec d’autres ministères, la société civile et le secteur privé, pour une actualisation complète de la base de données géoréférencées de l’Atlas ;
le renforcement de la fiabilité des données grâce à la formation continue des acteurs responsables des opérations de récolte, d’archivage et de traitement des données au sein des institutions nationales techniques mandatées, des opérateurs privés et de la société civile.

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Executive Summary

Recognizing the essential role of forest ecosystems, the government of the Democratic Republic of Congo (DRC) has partnered with the international community to improve forest sector governance and ensure sustainable management of the country’s vast forest resources.

To achieve this goal, the DRC’s Ministry of Environment, Nature Conservation and Tourism (MECNT) sought to develop tools that would present an accurate snapshot of the nation’s forests and their evolution. In 2006, MECNT signed an agreement with WRI to develop a first-ever Interactive Forest Atlas for the DRC – a tool which would combine the use of remote sensing, geodatabases, and Geographic Information Systems (GIS) to monitor and manage forests.

The Interactive Forest Atlas meets the needs of both the Congolese administration and non-governmental actors by providing a solution to:

The dispersion of information across different government departments and organizations (private sector, civil society and other stakeholders in the forestry sector);
Low quality, incomplete, and often publicly inaccessible forest information;
Weak or absent communication, coordination, and information sharing between forest sector stakeholders.

Produced jointly by MECNT and WRI, the Interactive Forest Atlas is freely and publicly available to any party working or interested in the DRC’s forest sector – affirming the governmnet’s commitment to transparent resource management.

This preliminary version of the Interactive Forest Atlas contains 5 products:

Overview report
Atlas user manual
GIS applications
Vector data
Poster showing current forest allocations in the DRC
Interactive map viewer

As required under the MECNT-WRI agreement, this Atlas includes all updated information provided by MECNT on geographic boundaries and the descriptive attributes of forest areas slated for production or conservation. For this first version, MECNT and WRI focused specifically on data related to titles submitted to the DRC Forest Title Conversion Process, following the application of section 155 of the 2002 Forest Code. This Atlas also includes other information available at the date of publication, such as national roads, logging roads, and protected areas.

The Atlas, however, is a tool that is constantly evolving, in order to take into account changes to existing data and the integration of new information layers. Thus, the ongoing acquisition of new satellite images will allow MECNT and WRI to update information on logging roads, management plans, inventory data and industrial cutting limits for the next version of the Atlas.

To accomplish these goals, and ensure the quality, reliability, and coherence of forest information, MECNT and WRI aim to undertake the following actions during the next phase of the partnership:

The institutionalization of a single, centralized GIS database to manage forest information;
The establishment and institutionalization of numerical forest mapping standards;
The development of procedures for information sharing between actors within MECNT and other departments, the private sector, and civil society to ensure an up-to-date, accurate geodatabse;
Strengthening the reliability of data through the training of those actors responsible for the gathering, storing, and processing of forest data in national technical institutions, companies, and civil society.

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Modernizing Public Transportation: Lessons learned from major bus improvements in Latin America and Asia

Maggie Barron — Sat, 30 Oct 2010 14:52:37 -0400

The mega-cities of Latin America and Asia rely on public transport to keep their citizens moving and economies working while mitigating the negative environmental impacts of rapid motorization. Increasingly, these cities are upgrading or even transforming their public transport systems to better serve the needs of their populations and the environment. Some of these efforts have been more successful than others and some more widely publicized. To date, however, there has been no synthesis of benefits and shortcomings of the various approaches taken, in order to inform future urban transport projects in emerging nations. There are several studies, for example, about the celebrated successes of the TransMilenio bus rapid transit system in Bogotá, Colombia, and its counterpart in Curitiba, Brazil, but little literature on the shortcomings of these, and similar systems, creating an informational gap in constructive advice on lessons to be learned.

This study seeks to fill that information gap by summarizing key findings and lessons learned from a comprehensive review of major bus improvements in 13 Latin American and Asian cities. In particular, it reviews and synthesizes information regarding challenges experienced by transport system decision makers in three key areas: planning, implementation and operations. In order to assist urban transport planners and implementing agencies, the study also provides recommendations on avoiding or mitigating similar difficulties when introducing bus reforms in developing world cities.

The selected cities were chosen for several reasons including: long-term recognition in urban transport practices, multi-functional land usage practices for urban environments, and/or the recent1 completion of bus system improvements. The review includes the following cities: Curitiba, Quito, Bogotá, São Paulo, León, México City, Pereira, Guayaquil, Santiago and Guadalajara in Latin America, and Jakarta, Beijing and Ahmedabad in Asia. The cities vary in size and socioeconomic characteristics (see table 1), but in each case buses account for a substantial portion of total public transport use and bus rapid transit (BRT) was introduced as a component of reform.

How to Use this Report

This synthesis report summarizes cross-cutting issues gleaned from an in-depth review of 13 cities based on an analysis of available material, site visits, and interviews with stakeholders, especially members of implementation teams and transit operators. Case studies about several of the reviewed cities have been published on the EMBARQ (www.embarq.org) website.

The following three sections of this report provide:

An overview of transit provision in the target cities, together with technical, financial and performance information about the bus systems;
A synthesis of lessons learned from addressing issues that arose in the planning, implementation and operation of the bus systems;
Conclusions and recommendations for urban planners and transit decision makers in developing countries.

Key Findings

The transit improvements in 13 cities reviewed in this report resulted in a variety of improved conditions for city commuters, some of which also benefited the population at large and the environment. These included reductions in air pollutants, greenhouse gas emissions, noise and traffic accidents, and efficiency improvements by bus rapid transit corridors compared with traditional bus services. Corridors in the selected bus systems exhibit very high usage levels (1,780-43,000 passengers/hour/direction), with comparatively low capital investments2 (US$1.4-12.5 million/km), and little or no operational subsidies.

The review also revealed common challenges and lessons:

No project was perfectly executed, due to a combination of institutional, technical, financial and/or politically induced time constraints;
Initial implementation was generally rushed, causing operational and user problems;
Financial and institutional sustainability was not necessarily assured;
Bus rapid transit routes were often not fully integrated into the rest of the cities’ public transport system;
Many projects faced extensive challenges in accommodating regular city traffic;
In cities where BRT services were new, or expanded quickly, public information and user education was critically important to a smooth launch.

Recommendations

Planning Phase

Institute a comprehensive planning process which combines financial, legal, institutional and environmental concerns with engineering/ technical efforts.
Improve the quality of information used to make decisions on key building blocks of a new or improved transport system, such as: route selection, basic infrastructure concepts (median lanes, types of stations, terminals), vehicle technologies, and types of operation.
Dedicate enough resources—time and money— for adequate project preparation, but avoid endless alternatives analysis.
Use experiences from other cities as a reference, but adapt system components and characteristics to local conditions.
Seek to create special purpose full-time teams for system planning and implementation, independent from day-to-day responsibilities.

Decision-making Process

Get early approval from high-level decision makers as top-down approaches are faster and resolve interagency conflict. At the same time, maintain community involvement through education and participatory processes.
Maintain and nurture high-level approval and buy-in during the implementation and operation of the system.
Pay careful attention to regulatory/institutional issues, adapting the existing regulatory framework if required. Where bus improvements are to be integrated with an existing metro system, convince the rail operator that the BRT is complementary, not a competitor.

Power to the People: Investing in Clean Energy for the Base of the Pyramid in India

Maggie Barron — Fri, 01 Oct 2010 12:52:23 -0400

Executive Summary

India, a rapidly emerging economy with the world’s second largest population, is facing a surging energy demand. Its rural Base of the Pyramid (BoP) consists of 114 million households, representing 76 percent of India’s rural residents and almost 60 percent of the country’s total population. Despite their low income, these households constitute a significant consumer market for the energy services and products required to provide daily necessities such as cooking and lighting. Using the most recent available expenditure data (2004/2005), we estimated that India’s rural BoP consumers spent INR 224 billion (US$4.86 billion) per year on their energy needs.

What is the Base of the Pyramid?

The Base of the Pyramid (also referred to as the Bottom of the Pyramid) refers to the estimated 4 billion people around the world who are poor by any measure and have limited or no access to essential products and services such as energy, clean water, and communications. Globally, people in this socioeconomic group earn US$1 to US$8 in purchasing power parity (PPP) per day. Yet these households often pay higher prices than wealthier consumers do for lower-quality goods and services because of uncompetitive markets.

Since this report focuses specifically on rural India, we define the rural Indian BoP market as households in the bottom four expenditure quintiles (based on data from the National Sample Survey Organization) that spend less than INR 3,453 Indian rupees (US$75) on goods and services per month. This definition represents a market of 114 million households, or 76 percent of the rural population.

In 2005, approximately 45 percent of India’s rural BoP households still did not have reliable access to electricity and relied on kerosene for lighting, and more than 85 percent of rural BoP households mostly used conventional free or inexpensive sources of fuel, such as firewood and dung, for cooking. These fuel sources, however, are not only harmful to users’ health but also contribute to pollution and environmental degradation.

A growing number of Indian companies see a market opportunity in providing rural BoP households with access to alternative cooking and electricity solutions and consequently are developing clean energy products and services for this market.

“Clean energy” refers to products and services that produce energy from renewable resources and emit fewer greenhouse gas emissions than does energy from conventional fuel sources. The lack of a reliable supply of power from the electricity grid and the availability of free and inexpensive fuels, such as wood and kerosene, are key influences on this market. In this report, we focus on two areas in this growing, high-potential market: clean energy electricity systems and clean energy cooking and light products. We examined a representative selection of companies selling solar lanterns, solar home systems, energy-efficient cookstoves, and electricity generated from decentralized sources, including small hydro power plants and biomass gasifier systems.

About this Report: Informing Investors

The goal of this report is to inform investors about the market potential of the clean energy industry serving India’s rural BoP market, by looking at its opportunities, challenges, and potential paths to growth. The purpose of our report is to present an overall picture of these growing clean energy sectors, rather than to provide investment advice on individual companies.

The potential opportunity for investors in the Indian clean energy market for the rural BoP is significant. We estimated the aggregated potential market for the four sectors studied in this report to be INR 97.28 billion (US$2.11 billion) per year, including INR 94.06 billion (US$2.04 billion) for decentralized renewable energy services and INR 3.22 billion (US$70.1 million) for energy products per year.

Our analysis shows that clean energy services and products may require an upfront investment three to ten times greater than that for conventional energy sources such as kerosene and firewood, which often are subsidized or free to India’s rural consumers. Yet despite these and other drawbacks, the average annual gross revenue of the companies profiled in this report has grown 36 percent since 2004.

On the Frontiers of Finance: Scaling up Investment in Sustainable Small and Medium Enterprises in Developing Countries

Tim Herzog — Fri, 28 Aug 2009 14:24:09 -0400

Report Contents

Why invest in sustainable SMEs?
Financing sustainable SMEs in developing countries: An overview
Investor challenges
Bridging the finance gap: Recommendations

What Are Sustainable SMEs?

This report defines sustainable SMEs as those whose core business produces a triple bottom-line return—that is, social, environmental, and financial gains—and therefore contribute to dynamic, healthy economies and societies. Such enterprises tend to be of two types: those that use natural resources responsibly, such as organic agriculture, sustainable forestry, and ecotourism; and those that offer substitutions or solutions for otherwise resource-intensive products or services, such as clean technology, renewable energy, and new materials. In this report, SMEs refer to enterprises that are legally formed and operate within the formal economy. As defined by the International Finance Corporation (IFC), a small enterprise employs between five and 49 people, and a medium enterprise employs between 50 and 250 people.

Sustainable SMEs: The Future for Emerging Economies

Small and medium enterprises (SMEs) play a critical and well documented role in both developing and industrialized economies. They drive innovation, spur economic growth, create jobs, and facilitate the provision of goods and services.

Sustainable SMEs are those that manufacture and market environmentally friendly products and/or serve low-income communities and generate additional benefits for society and the environment. Financing such value-added businesses in emerging economies makes sense for both business growth and sustainable development. In developing countries, however, sustainable SMEs face major barriers to growth and success, most notably access to finance and business development support.

Over the past decade, specialized financial intermediaries—generally, those that are international, often with a non-profit organizational structure—have emerged to provide finance and business development support to sustainable SMEs in the developing world. This investment community has grown significantly in recent years, along with the rising interest in green investment, clean technology industries, and market-based approaches to poverty reduction and sustainable development.

On the Frontiers of Finance provides an overview of the current landscape, lending practices, and principal challenges of financial intermediaries providing capital to sustainable SMEs in developing countries. The objective is to help stimulate greater and more effective sustainable SME investment by better understanding how the sector can best be supported and expanded.

Investment Leaders Survey

In 2007, WRI and Boston College, with support from the International Finance Corporation (IFC), gathered together and interviewed 20 leading sustainable SME investment fund managers from Africa, Asia, Eastern Europe, and Latin America. Our discussions focused on challenges, opportunities, best practices, and pathways to sectoral growth, which forms the basis of this report. Section 3 and the appendix are overviews of these funds and their investment models.

In reporting our findings, we have divided the interviewees into two broad categories:

Blended Capital Intermediaries—investors with a primary focus on creating positive economic, social, and environmental impact by supporting sustainable SMEs and generating financial returns for investors. These are mostly non-profit entities with an international focus, and tend to be based in the U.S. or Europe;
Venture Capital Funds (VC Funds)—investment vehicles that are for-profit, commercial entities that provide market returns. This report examines VC funds in developing countries, those that are tapping into opportunities in green or socially oriented markets, such as cleantech funds.

Our survey revealed the intermediaries face three major challenges: raising funds for what remains an outlying frontier of the finance and development mainstream; justifying to the intermediaries’ investors the high costs of technical assistance for businesses; and finding ways to capture the “added value” of positive social and environmental impacts both cost effectively and consistently across the sector.

Recommendations

Improve Capital Allocation: Educating commercial investors and grant funders about the business models and performance of SME financial intermediaries, combined with high standards of accounting transparency among the intermediaries would greatly improve the efficiency of the fundraising process. Compiling information about the financial viability and success of different intermediaries and highlighting the growing track record of commercially viable investments is crucial in order to attract further capital to the sector.
Promote Financial Innovation: Long-term approaches and innovative thinking focused on system-wide barriers are needed to move the sector toward the status of both a recognized investment class and a strategic priority area within the development community. Sector-wide initiatives, angel investor networks and experimentation with social stock exchanges are efforts in the right direction that need to be supported and where successful, replicated and scaled.
Capture the Triple Bottom Line: As more investors and donors enter the impact investing space, they will focus even more on demonstrable results and measurable effects. Smart, comparable metrics would facilitate the investment decision-making process by providing a clear picture of which intermediaries’ activities are best aligned with the priorities of impact-driven donors and investors. For this reason, comparability is paramount when measuring and communicating impact. Dedicated resources and a collaborative effort among leading intermediaries, investors, donors, and other stakeholders is required to move toward a shared standard methodology for impact measurement and reporting. Over time, aggregate results will help validate and evaluate the efficacy of the enterprise development community’s market-based approach to socioeconomic and environmental issues.

Both development and investment trends are leading major advances in sustainable SME financing. The scale and speed of these advances are not, however, meeting either the demand of local entrepreneurs or the urgency of the social and environmental challenges facing the world. Opportunities to achieve development and environmental goals while delivering financial returns are being missed.

We hope this report will inspire investors, financial intermediaries, the philanthropy and donor community, and enterprise development organizations to increase capital flows and improve capital deployment to sustainable SMEs in developing countries.