Investing for impact in the Peruvian Amazon

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Workers plant seedlings for reforestation near Paucartambo, Peru. Photo: Reuters

Workers plant seedlings for reforestation near Paucartambo, Peru. Photo: Reuters

Brazil and the Amazon are almost synonymous in the world of sustainable finance, but the planet’s greatest rainforest spans the borders of many other Latin American countries: Bolivia, Peru, Ecuador, Colombia, Venezuela, Guyana, and Suriname.

Given the highly political and difficult regulatory environment in the Brazilian part of the rainforest, some impact investors, such as Amazonia Impact Ventures (AIV), are focusing their efforts elsewhere. The company is active in Peru, which has forest covering nearly 60% of the country’s surface and is home to the most distant source of the river Amazon itself.

Pajani Singah, co-founder of AIV, has been working with local producers’ organizations to encourage local communities to develop their businesses alongside protecting and regenerating the standing forest.

“The idea is to support and incentivize local communities in the Amazon to protect the forest,” he says.

Singah explains that at current rates of deforestation, the Amazon biome will be lost by 2030 and a large portion of the Amazon will become tropical savannah. The Amazon absorbs two billion tons of carbon every year, which is 5% of global annual emissions. It also houses at least 10% of the world’s known biodiversity.

He says that many pro-environment organizations are created through the disbursement of new grants but there is often little follow-through.

He adds: “A key bottleneck is funding that goes directly to producers’ organizations and indigenous communities. Indigenous communities face major challenges when producing their goods as the working capital is not easily available to them compared to conventional farming.”

The idea is to support and incentivize local communities in the Amazon to protect the forest

Pajani Singah, AIV

Brazil and the Amazon are almost synonymous in the world of sustainable finance, but the planet’s greatest rainforest spans the borders of many other Latin American countries: Bolivia, Peru, Ecuador, Colombia, Venezuela, Guyana, and Suriname.

Given the highly political and difficult regulatory environment in the Brazilian part of the rainforest, some impact investors, such as Amazonia Impact Ventures (AIV), are focusing their efforts elsewhere. The company is active in Peru, which has forest covering nearly 60% of the country’s surface and is home to the most distant source of the river Amazon itself.

Pajani Singah, co-founder of AIV, has been working with local producers’ organizations to encourage local communities to develop their businesses alongside protecting and regenerating the standing forest.

“The idea is to support and incentivize local communities in the Amazon to protect the forest,” he says.

Singah explains that at current rates of deforestation, the Amazon biome will be lost by 2030 and a large portion of the Amazon will become tropical savannah. The Amazon absorbs two billion tons of carbon every year, which is 5% of global annual emissions. It also houses at least 10% of the world’s known biodiversity.

He says that many pro-environment organizations are created through the disbursement of new grants but there is often little follow-through.

He adds: “A key bottleneck is funding that goes directly to producers’ organizations and indigenous communities. Indigenous communities face major challenges when producing their goods as the working capital is not easily available to them compared to conventional farming.”

Results-based finance

Singah, is based in London and works with partner and managing director, Aldo Soto, a specialist in rainforest community-based conservation. Singah says that local communities are usually marginalised and can’t access local bank funding, in part because of prohibitively high interest rates (typically over 20%). They also lack collateral.

Singah says: “We work with local cooperatives and use a result-based finance approach to offer lower rates and structure repayments so that lenders receive a rebate on their loan repayments if they use their land in a sustainable way, stopping deforestation and protecting the forest.”

About 1.7 million indigenous people live within indigenous territories covering around one-third of the Amazon land area and have a critical role in conserving the rainforest. The Amazon’s indigenous territories and protected areas store an estimated 58% of the region’s aboveground carbon.

AIV works with partners such as Rabo Foundation to share information about the cooperatives and how best to make finance more accessible and provide the technical assistance that farmers need.

It works with the off-takers – typically European and US companies – that are increasingly interested in the source of the commodities. Greater transparency and sustainable farming and land-use practices can also lead to price premiums and longer-term purchase agreements.

The off-taker, typically a Western coffee or cacao buyer, also benefits from the cooperatives having enough funding to fulfil its orders.

AIV is also adding rigidity to its investments by taking equity stakes in the companies that acquire locally produced goods: coffee, acai and other forest-sourced products.

The fund has already made an investment in California-based Imlak’esh Organics, an ethical functional foods company promoting regenerative agriculture with its suppliers, and taken a seat on its impact advisory board.

Singah says that he believes AIV’s holistic approach to financing sustainable development within the Amazon is a strategy that could also be applied by others: “By offering the complete picture – from working with coops and producers to incentivize sustainable practices, financing their working capital and infrastructure, to buying equity in ethical and impact-driven off-takers – we become trusted partners and can create positive changes.”

Effectiveness

As well as offering better financing terms, the fund’s technical assistance works to increase producers’ competitiveness and resilience, and ultimately to increase the income going to local Amazon communities.

Part of demonstrating its effectiveness is to show that relatively small amounts of capital can have demonstrable impacts on a large amount of rainforest.

Singah says that AIV has invested a little over $1 million in the area in the first year of operation, which has influenced economic activity – and therefore cut deforestation rates (which he says tend to be reduced by two-thirds) – in around one million hectares.

Other sustainable goals include protecting biodiversity and restoring degraded land.

The fund hopes to raise another $25 million to expand its activities to incentivise the protection of much larger areas of the forest, as well as expand its operations into Brazil and Ecuador.

“To have a significant positive impact and address the SDGs [United Nations’ Sustainable Development Goals] by 2030, you need to also have a commercial angle, building resilient businesses that provide a consistent return on investment over time while positively contributing to protecting the forest and improving livelihoods,” he says. “We need to act now, as we only have a few years to lower our emission levels to limit the global temperature rise to 1.5°C.”