Leveraging Policy Tools to Improve Impact of Financial Instruments in Sustainable Agriculture, Forestry and Other Land Use (AFOLU)

The document analyzes three case studies from the Global Innovation Lab for Climate Finance to demonstrate how linking financial instruments to policy tools—such as national land-use regulations, insurance subsidies, and subsidized rural credit—can stimulate demand, identify project pipelines, and attract private capital. It provides specific design considerations to mitigate risks like market distortion, political instability, and 'leakage' of deforestation.

• The Responsible Commodities Facility (RCF) in Brazil leverages the Brazilian Forest Code and the Cadastro Ambiental Rural (CAR) registry to provide credit to soy producers using cleared or degraded lands, thereby discouraging further agricultural expansion into native vegetation.
• Linking financial instruments to national regulations like the Forest Code helps overcome barriers by simplifying the identification of a project pipeline, gaining government buy-in, and providing a framework to demonstrate avoided deforestation and emission reductions.
• The Blockchain Climate Risk Crop Insurance instrument, piloted in Kenya, uses a weather index and blockchain to automate payouts for droughts; it identifies government premium subsidies as a tool to lower costs for smallholders and stimulate initial demand.
• To prevent market distortions and politicization, the document recommends that insurance subsidies be used temporarily with a clear exit strategy, and that the net cost to farmers remains higher than the actuarial pure risk premium.
• The Conexsus Impact Fund aims to 'green' Brazil's Pronaf subsidized credit line by directing working capital loans toward sustainable, forest-based production systems, helping cooperatives build credit history to eventually transition to private financing.
• Leveraging subsidized rural credit lines can de-risk instruments by improving the likelihood of loan repayment and can strengthen weak value chains by providing financing to underserved sustainable practices.
• A significant finance gap exists in the AFOLU sector; while annual climate finance for the sector was USD 21 billion in 2017/2018, the estimated financing needs for small-scale agriculture alone are USD 240 billion per year.
• The document identifies 'leakage' (deforestation shifting to other areas) and 'laundering' (illegal products sold as legal) as primary unintended impacts when conditioning loans on land-use practices.

APA

Chiriac, D., & Byrd, R. (2021). Leveraging Policy Tools to Improve Impact of Financial Instruments in Sustainable Agriculture, Forestry and Other Land Use (AFOLU). Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2021/10/Leveraging-Policy-Tools-to-Improve-AFOLU-Impact-Oct-2021.pdf

Chicago

Chiriac, Daniela, and Rosaly Byrd. Leveraging Policy Tools to Improve Impact of Financial Instruments in Sustainable Agriculture, Forestry and Other Land Use (AFOLU). Climate Policy Initiative, 2021. https://www.climatepolicyinitiative.org/wp-content/uploads/2021/10/Leveraging-Policy-Tools-to-Improve-AFOLU-Impact-Oct-2021.pdf.

Wikipedia

{{cite report |last1=Chiriac |first1=Daniela |last2=Byrd |first2=Rosaly |title=Leveraging Policy Tools to Improve Impact of Financial Instruments in Sustainable Agriculture, Forestry and Other Land Use (AFOLU) |publisher=Climate Policy Initiative |date=October 2021 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2021/10/Leveraging-Policy-Tools-to-Improve-AFOLU-Impact-Oct-2021.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{chiriac2021leveraging, author = {Chiriac, Daniela and Byrd, Rosaly}, title = {{Leveraging Policy Tools to Improve Impact of Financial Instruments in Sustainable Agriculture, Forestry and Other Land Use (AFOLU)}}, institution = {Climate Policy Initiative}, year = {2021}, month = oct, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2021/10/Leveraging-Policy-Tools-to-Improve-AFOLU-Impact-Oct-2021.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }