By Juhern Kim, GGGI Senior Land-Use Specialist
It was probably in August 2015, and my first time crossing a hanging bridge in the heart of a forest, except when I served in the military training in remote mountains. The very last day when I was discharged from the military service, I swore not to ever come back to a hanging bridge. Surely, this one was built for tourism purposes, so it was totally different from the experience I had in the boot camp.
Nevertheless, the problem was that the bridge swayed wildly, and my body automatically remembered the tension that I felt during the trainings. The local officer in San Carlos, Costa Rica, who guided me through the uphill roads to the rainforests explained that this bridge has never collapsed in his own town. Unfortunately, it didn’t help me to get reassurance from the local officer. I was left swinging in the wind, with nothing but unpleasant memories. To top it off, a group of tourists started to join the bridge and followed our group. And I just thought about the notice at the entrance – “to set the maximum number of persons to be admitted”. Was it 5, 10, or 12? Although I pretended to be calm, the officer could sense that I was feeling a lot of tension and gently pat my shoulder, suggesting me to look around. Half reluctantly, I stopped in the middle of the bridge.
Imagine the scene for yourself standing in the bridge rising to a height of over 30 meters, fully surrounded by rainforests. Yes, I finally found myself in the middle of the rainforests. The place was just beautiful with breathtaking landscapes. The texts that I have been reading for years on ecosystem services were popping out of the textbook, not only through visual extremes with colors but also glamourous sounds from a natural orchestra. You never imagine a spectacular view and its aura, unless you feel it for real. Giving myself to a swinging bridge, I felt myself as part of nature. Of course, the logical part of my brain knew that I was a small part of nature, but my body has not felt like this before. I have never imagined in my life that I will be ‘hanging’ in the bridge in one exotic country located in Central and South America.
And, it rained. My clothes got all wet in an instant, but all of my sense organs started to respond gradually. Although there was no particular reason, suddenly I thought about a few melody lines of Prince’s ‘Purple Rain’. This set of scenes and associated mixture of emotions impressed and destressed myself. The more rain-soaked, the better I felt. The very moment that I wanted to be there a bit longer doing nothing but standing in the rain, the officer told me with corners of his mouth turned up at the edges, “Hey, welcome to the rainforests, and welcome to Costa Rica.” It sounded like a poetic welcoming message, mixed with the landscapes, rain, and music only inside me.
In fact, I’ve always had a question about the happiness index – how countries like Costa Rica could have been at the top of its ranking for so long. When I worked in Switzerland, I asked the same question to my local colleagues. They told me it was because of Swiss chocolates! But, if I compare these two countries even quite vaguely, I could easily find out a common denominator. That was active nature conservation and eco-tourism, based on visionary and innovative policy mechanisms on forests and ecosystem management. It is quite a meager logic from a scientific point view, but anybody felt the heart of rainforests would support my view.
Setting aside the current turbulence in climate diplomacy created by the Trump administration, it was obvious that the Paris Agreement sent a strong and unprecedented message that valuing and investing in forests and ecosystems services is critically important for the new global climate regime. It was actually a diplomatic success for forest and conservation community. And, Costa Rica has been at the forefront of the discourse devising experimental but sound policies, and implementing them, even before REDD+ came into a center stage. For example, Costa Rica’s Payment for Environment Services (PES) program has been globally recognized as an innovative blend of economic and regulatory instruments. One of the many successes from Costa Rica’s experience is demonstrated by a significant increase in forest cover from less than 30% in the 1980s to 54% of its territory today. In other words, they proved that PES could provide powerful financial incentives for ecosystem services that are not usually monetized and paid for in the traditional market, such as carbon sequestration, biodiversity conservation, and water resources protection.
The system is now oversubscribed with almost half of applicants being not eligible to receive the PES fund managed by the National Forest Financing Fund. Part of this success of program with high-demand has been due to willingness to get underway and experiment. Entrepreneurial incrementalism helped reduce risks, allowed policymakers to tailor programs for their social, economic, and political conditions, and permitted regimes to evolve along with the changing global landscape for financing. This is a crucial lessons learned that can be shared with other countries for them to put some value on ecosystem services and develop similar incentive mechanisms. (Costa Rica has its own initiative called the Green Hub to disseminate the country’s stories about what has worked and what has not. Aside from the conservation frontier, it is also important to note that Costa Rica is known for its bold move on sustainable development, with 99 percent of energy production comes from renewable sources.)
However, even for Costa Rica’s own PES program, current financial dependency on tax revenue makes the program vulnerable to changing political and macroeconomic conditions with national fiscal deficit, which led Costa Rica to look for new sources of investment. This is a typical problem of conservation finance in many tropical countries. It is obvious that international and private sector capital resources are key potential funding sources for them to fill the gap. So, the next obvious question is how to attract investors to this conservation realm. In reality, the uncommitted amount of private capital for conservation stood at USD 3.1bn in 2015, since investors did not find opportunities that offer attractive return profiles with risk-mitigation instruments, according to the latest analysis by the Ecosystem Marketplace.
The message is clear. There is a lack of good ‘bankable’ projects in the conservation sector that has probability of generating financial returns with robust measurement of social and environmental performance in place. This sector is among the new, emerging sources of ecosystem financing that, if tapped properly with an innovative business model, could result in benefits for the environment and marginalized along with profits for businesses. So, now is the time for Costa Rica to think and act beyond conservation, creating a new marketplace in the forestry/agroforestry sector that contributes to income generation and job creation. And, in order to unlock dormant private capital, it is important to rightly leverage dedicated public capital through developing solid bankable projects attractive to investors.
But, projects that are based on conservation, sustainable agriculture or forest products, payment for ecosystem services, ecotourism, or some combination of the above, are either costly or have much smaller markets than the competitor. This means it’s difficult to find projects that can scale to appropriate capacity. In such a thin market, structuring good projects requires enormous efforts and collaboration among all relevant stakeholders including government officials, project developers, service providers, financial intermediaries, and traditional and ‘impact-first’ investors. For instance, the existence of an offtake agreement with a credit-worthy counterparty is one of the most important factors to gaining access to finance ensuring bankability. This requires a significant intervention of ‘arrangers’, who encourage entrepreneurs/farmers to identify commercially viable sustainable products to produce and/or support buyers to find reliable suppliers of goods. This does not only necessarily mean that brokering sales arrangement, but also developing a strategy or creating an enabling condition (e.g. marketplace) whereby sustainable and innovative projects can be developed.
The Global Green Growth Institute (GGGI), where I work as a project manager for Costa Rica, would like to take that role filling the gap in the market. That’s why we have recently started to join forces to scale up Costa Rica’s Environmental Bank Foundation (FUNBAM) to become a dedicated vehicle for financing sustainable development – whose business areas are sustainable productive landscapes, water resources projection, biodiversity conservation, and sustainable cities. The plan is to support FUNBAM to become more independent entity in a few years, capable of managing projects, making investments, and designing innovative financial mechanisms. This task will eventually help Costa Rica achieve national targets established in the Nationally Determined Contribution (NDC) to the Paris Agreement, and the country’s domestic 2021 Carbon Neutrality target.
We hope many forward-looking and savvy public and private investors interested in making impact and stories in conservation finance come and join us to experiment together to structure projects with this platform. If you remember what Costa Rica has been doing from 1987 with PES policy architecture, and its still vibrant sprit of entrepreneurship beyond conservation, you might get more bang for your buck.
Well, I finally crossed the bridge safely. And yes, I thought I overcame from the trauma of the hanging bridge, perhaps because of the rain on that day, the ‘purple rain’, if I may call it. Pura Vida!
Juhern Kim is a Senior Land-Use Specialist in the Investment and Policy Solutions Division at the Global Green Growth Institute. He has been a project manager for Costa Rica since August 2015.