|Country/Location||Indonesia, Malaysia, Papua New Guinea|
|Size||£1bn over 30 years|
|Revenue Model||Payments from companies for sustainability claims|
|Private Investment/Finance Structure||Upfront funding followed by performance-based payments|
|Public/Philanthropic Investment||Co-funding from Partnerships for Forests|
Forest protection and conservation
Improved livelihood of local community
Companies whose supply chains suffer from high deforestation risk are facing increasing regulatory and consumer pressure to make their supply chains more sustainable. In Southeast Asia, the challenge of deforestation linked to commodities is particularly pressing – roughly 70% of deforestation in the region is commodity-driven .
The Rimba Collective – a private sector-led mechanism for conservation finance – was founded to channel funds from companies utilising palm oil into conservation and reforestation projects in Southeast Asia. The Collective links payment levels to the amount of commodities these companies procure and aggregates these payments towards a portfolio of conservation projects in Southeast Asia.
“While there are a lot of corporate commitments to deforestation, we need a tangible way for these companies to contribute to a nature positive agenda. And, while a company’s singular impact might not be significant, we have developed a model that enables companies to act collectively,” says Michal Zrust, Co-founder and Executive Director at Lestari Capital.
Zrust started developing the idea for the RImba Collective in 2020 alongside his work with the Roundtable on Sustainable Palm Oil (RSPO). He identified the need to move the industry towards more forward-focused commitments that support nature and local communities. Initial seed funding was provided by Partnerships for Forests, however the majority of the required funds to develop the concept was provided by corporate partners. Lestari Capital conceptualised, developed and launched the Rimba Collective with the corporate Founding Partners and manages the mechanism.
The Rimba Collective’s model channels payments from companies that use palm oil within their supply chains, including plantation owners, palm oil traders and consumer goods manufacturers. Currently, there are four companies within the Collective: consumer goods manufacturers Nestle, Unilever, PepsiCo and Proctor & Gamble.
Members of the Collective enter long term contracts of over 25 years that commit them to annual payments, with their terms reviewed every five years. These payments vary each year according to how much palm oil the company procures. All partners of Rimba report their palm oil usage in their website or in the RSPO annual report of progress (ACOP), as all partners are RSPO members.
Zrust comments on the importance of this payment feature: “If we really want to support long term delivery of conservation and evolve from the traditional Corporate Social Responsibility (CSR) approach, we need to integrate conservation financing into the cost-of-good and procurement payments as part of business as usual.”
A Special Purpose Vehicle (SPV) receives these payments and distributes funds to a portfolio of projects in Southeast Asia that focuses on forest and peatland restoration and conservation. This portfolio is managed by Lestari Capital, which keeps track of the environmental and social outcomes (validated by external auditors) that the projects deliver. Both the payments and the projects are aggregated on either side of the SPV.
When these projects deliver their target outcomes, such as hectares of forests restored, the companies are assigned the right to claim these quantified outcomes in their corporate reporting, proportionate to the amount they have paid to date. For example, a member could claim a number of hectares of forest restored. Upon outcomes being claimed, they are then ‘retired’ to prevent any double counting, much like carbon credits.
The Collective SPV’s aggregation of payments and projects offers two advantages. Firstly, aggregating the payments into a single fund allows Lestari to build and de-risk a portfolio of projects that individually may not receive sufficient financing. Secondly, the portfolio’s outcomes give a wider choice to companies compared to single project financing. The Collective aims to build a portfolio covering 500,000 hectares over the next six years, followed by $1bn of private financing over 30 years to conserve or restore these hectares.
*CPO = Crude Palm Oil *CGM = Consumer Good Manufacturers
Portfolio of Projects
Lestari is targeting projects across Southeast Asia and the Papua New Guinea. These include both reforestation activities and protecting existing forest areas, as well as peatland restoration. Once a project is onboarded, it receives up-front funding for the first year from the Collective, followed by yearly payments that are dependent on the project meeting its delivery plan.
Lestari Capital sources projects for the portfolio by working directly with non-governmental organisations (NGOs) and local communities which manage the projects. These actors determine the conservation activities based on their knowledge of the area’s specific needs, to make sure that the project designs are fit for purpose.
The Rimba Collective expects to face some outcome delivery failure driven by factors such as climate change, economic pressure and project management risk. To mitigate this, the team builds in a 10% buffer (an extra 50,000 hectares overall).
Measurement and Verification
Project outcomes are measured in three key areas:
- Biodiversity benefits – related to the number of threatened and endangered species in the area being targeted for restoration or conservation
- Social benefits – such as the number of households impacted, and children educated
- Area-based benefits – such as hectares of natural forest and peat under restoration or conservation
- Climate Impacts – carbon emissions reduced with restoration work
This provides the range of outcomes, which are verified using separate standards such as the Climate, Community and Biodiversity Standard, Verra’s Verified Carbon Standard, and the Plan Vivo Standard.
Zrust comments that it is a challenge to find enough conservation projects to channel finance at scale, and supports the provision of project development finance from philanthropic donations or public grants. “The demand for projects is clearly there – we have up to 30 years of demand for example. The mechanism for linking demand and supply just needs to be well structured,” remarks Zrust. The Lestari team is identifying donors for project development finance and is also seeking to build capacity internally and externally to help with this early-stage project start up.
Another challenge Zrust highlights is the development of the frameworks and processes that the Collective uses, which required consensus from the four companies. Differences in their legal, risk, procurement and ESG policies meant a resource-intensive design phase of matters such as their government engagement model and standard contracts with projects.
The Rimba Collective will build up the project portfolio of 500,000ha over the next five years, starting in 2022. It also continues to identify opportunities for much larger impact through further project pipeline development with demand for robust and credible projects continuing to grow.
The Lestari team believes that the Rimba Collective is scalable, and is now looking at other areas in Asia, Latin America and Africa to target deforestation linked to coffee, cocoa, coconut, rubber and soy. Zrust comments that the detail in the mechanisms will need to be different based on the different commodity types and how their markets function.
- ‘Forests in South-East Asia; Can they be saved?’, European Parliament Briefing, 2020
- Interview with Michal Zrust, Co-founder and Executive Director of Lestari Capital