Using Debt Investment to Link Livelihood Improvement and Incentives for Environmental Stewardship
The rural poor’s most valuable assets are often intact environmental resources. A fundamental gap exists between the conservation and extractive value placed on those assets. Environmental mortgages narrows that gap by melding innovative microfinance approaches with incentive structures that encourage environmental stewardship. It does so by explicitly linking a lending program focused on livelihood improvement to the quality of an environmental asset, resulting in long-term incentives for stewardship.
We have developed a framework that leverages debt investment as a tool for value transfer in environmental conservation. Debt investment, modeled after microfinance initiatives, is a tool to sustainably protect environmentally resources by responsibly transferring value to low-income communities and individuals. Microfinance approaches to poverty alleviation have been successful over the last two decades; those approaches have also been cost-effective and financially sustainable. Building on those approaches, debt investment could be used to simultaneously address environmental conservation and poverty alleviation. Environmental mortgages combine a performance-based scheme with a microfinance approach of economic development. In the many cases when direct equity investment is not strategic or socio-politically feasible, debt investment is a means to transfer value to environmental assets in low-income nations. Intergovernmental agencies and conservation organizations could develop programs to offer lines of credit based on and linked to a community’s intact environmental assets.
A Forest Example
There exists a fundamental gap between the value high-income nations place on pristine tracts of land in low-income nations, and the value that the owners of that land place on it, driven in part by the necessities of economic activity. Currently transfer of these values is difficult. For instance, because of regulatory and bureaucratic hurdles, as well as social equity and land rights issues, funds available in low-income nations from carbon offsets often cannot be spent efficiently on land conservation, which is the most effective mitigation strategy. Loss of any environmental asset has both local and global impacts: deforestation results in increased nutrient inputs to waterways and in reduced carbon sequestration and biodiversity. For example, the draining and deforestation of peat swamps in Asia accounts for approximately 8% of global carbon emissions annually. Given the low economic value of those lands, protecting them is a strategic way to reduce carbon emissions globally. Thus, investment in preserving standing forests and peat bogs in low-income countries can deliver local economic and environmental benefits, as well as monetary and non-monetary dividends to other nations.
In low-income nations where communities are clearing peat bogs or forests to expand agricultural practices, a conservation lending trust could be established. Community members could qualify for low interest lines of credit, with the total credit available directly linked to the environmental asset: standing hectares of pristine peat bog. The asset would be independently audited annually, and the terms of the loan would be revised accordingly, including loan termination if necessary. The loans could be used for a range of pre-approved ventures, from improved agricultural production on existing cultivated lands to alternative economic activities to educational programs.
ACS’s environmental mortgages program was chosen as a finalist for The Marketplace on Innovative Financial Solutions for Development Competition held by the World Bank, the Bill & Melinda Gates Foundation, and Agence Française de Développement.
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