Last week The Global Mechanism (GM), a financial facility of the United Nations Convention to Combat Desertification (UNCCD), announced it was seeking expressions of interest from asset managers to partner on a new multi-billion dollar fund dedicated to land restoration globally: The Impact Investment Fund for Land Degradation Neutrality (LDN Fund).
On Tuesday 14 July, Simone Quatrini, LDN Fund founder and coordinator at GM, UNCCD, will present the fund at a symposium on the sidelines of the International Conference on Financing for Development in Addis Ababa. The symposium’s objective is to carry out a high-level advocacy for land degradation neutrality as a key sustainable development and discuss options for funding.
Land degradation is an issue that has been taken up by a few agri investment management firms and they are pursuing regenerative agriculture strategies. These include Australian livestock fund manager SLM Partners, French investment company Soil Capital, US real estate investment trust manager Farmland LP and US investment manager Grasslands LLC.
And LDN Fund is not the only global initiative attempting to bring funding into a large-scale land restoration initiative; impact investment firm Aurora Impact is working with the Savory Institute – a key organisation in the regenerative agriculture movement which has taught its holistic planned grazing methods to various organisations globally including some of the aforementioned fund managers – to raise a $1 billion fund to restore 1 billion hectares of degraded grasslands globally.
Here Quatrini tells Agri Investor some of the history behind the LDN Fund, what it’s seeking to achieve, the investors it’s targeting and how it will make returns.
What is the LDN Fund?
The LDN Fund is a multi-stakeholder impact investment fund designed for blended investment in land restoration by the public and private sector. It is currently being established under the auspices of the United Nations Convention to Combat Desertification (UNCCD) with a view to providing a structured portfolio through which private and public actors can engage with achieving Land Degradation Neutrality (LDN) at an appropriate scale. The fund is intended to provide the financial means to support sustainable business models across all land-use sectors, with a focus on large-scale land restoration and rehabilitation projects.
More specifically, the fund is being designed to support, with long-term financing and technical assistance, the sustainable and productive use of rehabilitated land. It will operate as a Public-Private Partnership among institutional investors, impact investors, development finance institutions and donors. As such, it aims to be an accelerator and amplifier of viable business models on rehabilitated land. It adds value to existing international commitments through a landscape approach which considers and manages trade-offs among all land use sectors and engages all relevant stakeholders, from investors to landowners.
When was it first planned and why?
The LDN Fund emerged in 2014 as a collaborative initiative among several institutions engaged in the identification of sustainable solutions to the issue of land degradation. We presented a first concept note at the Global Investment Forum in Geneva in October 2014. The GM had had discussions with key stakeholders and potential investors for a couple of years leading up to this point.
A number of on-the-ground projects are showing that a sustainable landscape management approach is not only the key to achieving LDN, it is also more profitable than the unsustainable alternative. The main reason for creating this fund is that the scale of such efforts is still small compared to the areas of land already degraded.
With a growing global population and climate change impacting our natural resource base, there is great urgency in changing this equation. Not addressing land degradation will make it more difficult to deal with future demands for crucial resources – especially productive land for food, fuel, fibre and water – and address environmental and societal challenges. Funding is urgently needed to scale-up current efforts and this is where the LDN Fund contributes.
How much are you hoping to raise and in what time frame?
As a co-ordination investment platform, we aim to raise $2 billion annually to enable the rehabilitation of 12 million hectares of degraded land, which corresponds to the annual land footprint of the global economy. Over a time span of, say, 20 years we hope to collectively mobilise as much as $50 billion. This would allow for the rehabilitation of up to 300 million hectares of degraded land with multiple associated benefits such as revenues from sustainable land use for investors and land owners, increased food and water security, and the sequestration or avoidance of up to 20 Gt of CO2.
Is it a closed-end fund or open-ended?
The fund is evergreen, i.e. it will operate for an unlimited duration. The investment period will be between 5-10 years, with a possibility for investors to exit. The fund will be structured as a multi-layer fund with different share classes in order to accommodate the levels of protection and return required by different types of investors.
How are you going about selecting an investment management firm to manage the fund?
We have just opened a call for the identification of internationally-recognised asset management firms who will be invited to bid for management of the fund. We expect to select the fund manager in September, and then gradually identify specialised investment advisors to cover specific sectors and geographies.
What types of investors are you targeting?
The LDN Fund provides investment opportunities for a wide range of investors, public and private. We are primarily targeting qualified institutional investors (including pension funds and insurance companies), impact investors, development finance institutions, foundations and public donors.
The Fund will mainly offer debt financing to companies for the rehabilitation of degraded land assets and for sustainable business models on upgraded land. In addition to direct investments into large scale deals, we expect the Fund to operate via financial intermediaries and like-minded investment funds through co-investments into LDN-related business operations.
How will investors make returns?
The Fund will target average market returns that are in line with the risk/return profile of its different investors. The returns will come from the value that will be generated by upgrading and repurposing land for sustainable production and use. Essentially, the Fund will enable landowners and land users to establish or expand profitable and sustainable business models on land that was formerly degraded, underperforming or abandoned. In other words, it will turn stranded land assets into productive ones.
What kind of support have you received for the fund already?
We are collaborating with a number of organisations which provide us with different types of services and support, either financial or in terms of advice, promotion and expertise, complementing those coming from the UNCCD. They include government ministries, financial services organisations, sustainability funds, universities and environmental NGOs. We have received significant interest and expect the “team” to grow considerably in the weeks ahead. We will publish a full list of partners and supporters in the weeks ahead, as we approach the fund’s launch at 2015 Paris Climate Conference.