Highlights
FMO is excited to be presenting the 2023 Annual Report of Mobilising Finance for Forests (MFF). The MFF programme was officially launched in February of 2021 with a £150 million commitment from the UK government. In 2023, the programme was expanded to £152 million, with an additional £2 million commitment from the UK Government. This funding will finance the programme’s Evaluation Framework, which consists of Programme Evaluations as well as Scoping and Thematic Studies, which provide strategic insight to help scale the sector.
In 2023 FMO approved and began implementing its new Forestry Strategy. The new strategy broadens FMO’s scope of investments beyond brownfield plantations to include a diversity of business models such as non-timber forest products. Throughout 2023, effort was put into operationalizing the strategy. As part of this effort, and in line with the UK’s Government recommendations, the programme expanded its pipeline. The market research carried out in Q1, combined with on-site visits throughout the year, resulted in the development of a pipeline that is diversified both in terms of business models and geographical scope. The expansion of the pipeline was a priority target for 2023 and lays a foundation for MFF to meet its investment ambitions. The equivalent of three additional Clearance in Principles (CIPs) and two Funding Proposal (FPs) were passed in 2023.
Contracting, however, remains challenging in the forestry sector. Although a few transactions were in advanced contracting stage by the end of the year, no new investments were made in 2023. This puts the program behind its contracting target for the year but does not come as a surprise. Contracting in forestry can be lengthy. Amongst other, effort is placed on ensuring the implementation of ESG standards and the financial feasibility of the business models. Contracting will be a priority in 2024, and the program is expected to make its target by year end.
In 2023, the value of the loan portfolio was also adjusted downwards because of a fair value adjustment for one exposure, due to 1) a decrease in expected returns due to a one off loss in client asset portfolio and 2) a low fixed rate coupon compared to current yields. This change is outlined in the annual accounts section of the report.
Despite a slower contracting rhythm, MFF catalysed public funding in 2023. &Green Fund with the support of FMO secured USD 189.35 mln concessional financing from the Green Climate Fund (GCF). This funding is part of &Green’s strategy to build a blended finance structure to mobilise private investments. In this proposal, FMO acts as Accredited Entity to allow &Green to request from the GCF. In the Development Contribution (DC) portfolio, Treevive continued its growth path and is currently in the contracting phase to secure an additional investment of EUR 2.5 mln into the company.
In line with recommendations from the UK government, MFF also continued to ramp up the activities of its Technical Assistance (TA) facilities. The MFF TA Facility (Component 1) implemented several TA projects within the &Green fund's portfolio of companies. These include an evaluation of Marfrig's supplier monitoring and control procedures to support enhanced supply chain traceability. Another project looks at the development of a deforestation-free landscape approach within Hilton Duta Lestari (HDL)’s sourcing area. Another achievement has been the addition of pre-investment TA1 to the MFF TA mandate, and the contracting and delivery of the first pre-investment TA project. The project supported the Acorn initiative in the design and establishment of the Smallholder Agroforestry Finance (SAF) fund.
Highlights for the TA Facility’s Learning, Convening and Influencing Platform (Component 2) this year included the DFI Carbon Integrity Community of Practice (CoP), which brings together investment professionals from five DFIs active in forestry to learn and discuss issues related to carbon credit integrity in forest and land use investments. Six (virtual) sessions were held across the year, all were well attended and stimulated lively engagement from participants. The CoP produced, for instance, a white paper titled ‘Implementing Approaches to Carbon Credit Integrity: How can investors put their policies into practice?’.
Stakeholder engagement and knowledge building activities were also a highlight of 2024. These activities aimed at generating awareness, sharing knowledge, and scaling investment in the forestry sector. An example of this is the FMO Investor Dinner ahead of the P4F-MFF joint event. These back-to-back events were held in London and attended by key commercial and public stakeholders for the Forestry and Sustainable Land Use sectors (FSLU). The event design enabled participants to engage pragmatically about challenges and opportunities for private investments into FSLU. The approach was well received by stakeholders, and allowed for concrete, transparent discussions to take place throughout the conference. The conference also furthered the MFF-P4F collaboration and contributed to building the MFF pipeline.
We look forward to further developing the programme throughout 2024.
- 1 Pre-investment TA provides consultant advisory support to investment prospects in the MFF pipeline to help make them ‘bankable’ for MFF, within an expected timeline of 6-12 months and ticket size below $500k. This differs from the MFF DC facility, which provides project development finance directly to prospects, with an expected investment timeline of 3-5 years and ticket size of $1-3m.