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About this report
This Annual Report covers the activities of &Green that took place during the period 1 January to 31 December 2021. That said, it also covers more general themes such as the &Green investment approach and why we do what we do. The report is thus accessible for all readers, whether you have a detailed knowledge of &Green or this report is the first thing you are reading about us.
This 2021 Annual Report provides a comprehensive overview of the &Green universe, from our focused investment strategy, through our increasing portfolio of investments, up to our growing set of contributors and partners.
Compared to previous Annual Reports published since &Green’s establishment (2018, 2019, 2020), this year we wished to give a more visual and interactive experience to our readers. The digitalized Annual Report allows one to easily jump to different sections and the content has been layered to provide more detailed information if needed. A menu has been added on the left side to help navigate through the Report.
&Green’s financial and impact performance have been quantitively summarized in the 2021 Annual Impact Report and the 2021 Annual Financial Report, which can be found on chapter 12 and 13, respectively. These two documents can be downloaded as separate PDFs and provide the ‘hard figures’ behind which the narrative of the Report should always stand.
Lastly, we have defined those words that we feel are key to understanding the nature and scope of &Green’s activities; They look like this . All the defined words have been gathered in the ‘&Green Vocabulary’ chapter at the end of this Report (chapter 14).
With this Annual Report, we hope to demonstrate how &Green is bringing its purpose to life, while remaining committed to the highest levels of transparency in reporting and communicating on our progress.
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&Green's Purpose
In order to create and then maintain a truly sustainable planet that allows its people to thrive, the world needs to reach its global climate change mitigation and biodiversity conservation goals, while still being able to deliver on the growing demand for commodities.
Within that context, &Green supports the transformation of global supply chains by de-linking them from deforestation and producing a positive climate impact. &Green provides the financing to commodity businesses that are inclusive, sustainable and deforestation-free, and are commercially viable and replicable.
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2021 Highlights
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Letter from the Board
A YEAR OF ACHIEVEMENTS
We will look back on 2021 as a year of achievements which had fundamental long-term impact on &Green’s success.
We closed an investment from a leading global impact investor, FMO, the Dutch development bank. Through FMO we received additional funding from a leading climate change donor, the UK government. We expanded our geographic reach to Colombia and, early in the year, we made a strategic investment by financing the second-largest meatpacker globally in Brazil to set highly ambitious and impactful targets on becoming a fully traceable and a deforestation -free actor.
STRATEGIC PROGRESS
In the first quarter of 2021, &Green closed a landmark investment to finance an ambitious traceable and deforestation-free program of Marfrig Global Foods (Marfrig). Marfrig represents ca. 7.5% of Brazilian beef production moving through its slaughterhouses, and around 20-25% of the country’s beef exports. It is thus a significant market influencer.
&Green invested considerable time assessing and engaging with Marfrig to come up with what we regard as fair, but ambitious, targets that the company can agree to as hard contractual commitments as part of the loan agreement. This kind of transaction encapsulates what &Green is setup to do, i.e. supporting leading industry-actors in their transformation to being able to claim a sustainable and deforestation-free supply chain.
The Board is delighted that &Green is progressing beyond its initial focus countries (Indonesia and Brazil), closing its first transaction in Colombia upon the stroke of 2022.
Colombia is one of the most biodiverse countries in the world, with 60 million hectares of natural tropical forest , and is a relatively stable and growing economy. Furthermore, in &Green’s assessment Colombia’s environmental policy is progressive. That said, an informal and highly extensive cattle sector in the country drives not just deforestation but also general ecosystem degradation. We are happy to start a new partnership with a small but influential new actor in the cattle supply chain, Hacienda San Jose (HSJ). HSJ intends to disrupt the sector, bringing the best genetics, and environmental and social management from elsewhere in the globe and applying them to the local context.
COP26 thankfully went ahead, and &Green was able to conclude an investment from the Mobilizing Finance for Forests program of the UK government at the event. We are the first recipient of the program, managed by FMO, and are delighted to form a long-term partnership with the UK government. Besides this, we are happy to see the general focus shift to include a recognition of the importance of protecting global forests at COP.
More than 100 countries signed a pledge to eradicate deforestation by 2030. That is a bold objective. It is achievable, but will require significant interventions from actors such as &Green.
We intend to play our role in achieving this.
Operational Highlights
The financial performance of 2021 was in line with expectations, as &Green maintains its ability to preserve capital for investors. We are pleased that &Green broke-even in 2021, meaning costs (including initial ones when no income was being earned) have now been recouped from the proceeds of the portfolio.
Having said that, given &Green investments are long-term and the largest part of repayments from projects are paid in 8 to 12 years, the Board remains cautious about the expected financial performance of &Green and is managing the credit risk closely. &Green’s first investment, buying a TLFF Note to support Royal Lestari Utama, increased in risk during 2021, due to a lack of further investment from its shareholders.
In line with the previous year, no physical meetings were possible in 2021; however, the Board, Advisory Board and independent Credit Committee members met virtually with SAIL Ventures throughout the year.
Looking Ahead
2022 is another important year for &Green as we keep stretching for scale.
&Green is an open-ended investment approach that needs to reach a critical scale to be a relevant tool in actually achieving the deforestation-free world we want. Governments, and corporates, have increased ambition in 2021, by declaring 2030 as the date to achieve this. It will require substantial capital to showcase how this can be possible, and in 2022 &Green will be focused on growing its portfolio with its available existing funding but we also need to continue our efforts to bring in the funding needed to get to scale. Hence, fundraising is a core focus for the next couple of years.
Furthermore, in 2022 we intend to diversify the portfolio and pipeline as we seek opportunities in various new jurisdictions.
We hope that Covid will play less of an impact in 2022. Nonetheless, we exercise caution on the front and continue to work with a strong network of on-the-ground partners in relevant &Green geographies.
Finally, we remain committed to high levels of transparency. Our website and reports will allow all stakeholders to engage meaningfully with our approach and our portfolio. &Green continues to seek new ways to explain its purpose and theory of change approach and then link that to the impacts being generated by our portfolio.
We thank all the service providers and stakeholders of &Green for their dedication and support.
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The &Green Approach
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SCOPE
The amount and quality of forest and/or peatland potential of the jurisdiction is significant and highly relevant from global perspective.
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AMBITION & STRATEGY
There is a clear strategy with the targets tracking the reduction of deforestation against historic trends in the jurisdiction.
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PROGRESS
Timely progress towards milestones indicated in the strategy of the jurisdiction, on a trajectory towards the targets for reducing deforestation.
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MRV
A transparent system is operational to monitor, measure, report and verify reductions in deforestation, and where relevant forest and peat degradation, in the jurisdiction.
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SOCIAL & ENVIRONMENTAL SAFEGUARDS
The jurisdiction shows progress towards implementation of the Cancun Agreement.
Para, Brazil
Mato Grosso, Brazil
Colombia
Ecuador
Gabon
Liberia
Peru
Indonesia
Cameroon
DR of the Congo
Ivory Coast
Ghana
Lao PDR
Malaysia
Paraguay
Vietnam
Zambia
PREVIOUS KPI FRAMEWORK
HECTARES OF FOREST CONSERVED
HECTARES OF AGRICULTURAL INTENSIFICATION
HECTARES OF FOREST RESTORED
NUMBER OF SMALL SCALE PRODUCERS
NUMBER OF HOUSEHOLDS BENEFITTING
ADDITIONAL DEVELOPMENTS OF THE ESMS’ REVISION
Beyond the updated KPI framework, the key developments of the ESMS’s revision in 2021 focused on:
DIGITALIZING
BIODIVERSITY
POLICIES
MONITORING
STANDARD-RELATED ELEMENTS OF &GREEN’S ESMS
Click on the respective underlined circles to view more information:
EU TAXONOMY
During 2021, &Green and its advisors reviewed the alignment of &Green with the EU Taxonomy. The EU Taxonomy regulatory framework is still under development (expected to be finalized in 2022), and although it was determined that the regulations are NOT a requirement for &Green, it is clear that &Green’s investments are eligible activities under the EU Taxonomy framework, providing an opportunity to demonstrate &Green’s best practices.
LPP
The Landscape Protection Plan (LPP) is a comprehensive, long term land use and management plan developed by the prospective client in conjunction with &Green and key stakeholders. It provides an assessment of the baseline of the client’s operations and analyzes the potential for impact of the envisioned transaction. The Landscape Protection Plan is an integral part of &Green’s landscape approach to impact. On the basis of the LPP, impact targets and milestones are defined for the duration of the loan tenor and are laid out in an Environmental and Social Action Plan (ESAP) . The ESAP also ensures compliance with IFC Performance Standards (and where applicable, sustainable supply chain standards).
In the past year, the design of the LPP procedures has been operationalized to facilitate their application in the field for the clients. The LPP has become the ‘overarching plan’ through which clients deliver the NDPE , the Forest & Biodiversity Framework, E&S compliance and other applicable sustainable supply chain standards.
The clients’ commitments under their LPPs and ESAPs are published on the &Green website and are closely monitored and reported upon by &Green. The unique requirements set out in the LPPs and ESAPs mitigate the environmental, social, and reputational risks to &Green’s investors and enhance the long-term sustainability of the clients’ businesses.
NDPE
The No Deforestation, No development of Peatlands, and No Exploitation (NDPE) is a public commitment made by our clients to ensure that their operations are sustainable. The commitment pledges to have no deforestation, peatland destruction or exploitation of Indigenous People in the operations and supply chains of their business.
In 2021, a risk- and impact-based approach have been developed for implementing the NDPE policy:
- The impact-based approach delivers impact and additionality for the sector and the client. Building blocks of this approach are a set of requirements applied to all transactions and in the eligible jurisdictions of &Green.
- The risk-based approach ensures clients are aligned with &Green’s vision, not only within the approved jurisdictions of the Facility, but throughout their global operations.
FOREST & BIODIVERSITY FRAMEWORK
To ensure and demonstrate that the investments will lead to measurable net positive forest and biodiversity outcomes over time, &Green uses its Forest & Biodiversity Framework.
The Framework embeds the IFC Performance Standard 6 – which ensures biodiversity is not negatively impacted by investments – within & Green’s Environmental and Social Management System (ESMS), providing an industry-leading approach to mainstreaming biodiversity concerns into investment decision-making.
By applying the Framework, every potential transaction entering &Green’s pipeline will undergo standardized risk screening for both past and future biodiversity risks, such as conversion of natural or critically important habitats and management capacity of the client in mitigating biodiversity risks. The screening is informed by leading global datasets on biodiversity, capturing the extent, conditions, and significance of biodiversity.
Based on the risks identified, the Framework then defines a practical process for delivering credible and tangible biodiversity protection and compensation impacts that operationalize &Green’s NDPE policy and alignment with IFC Performance Standards and leading sustainable supply chain frameworks.
&Green will not invest in transactions not willing or able to compensate previous deforestation of natural and/or critical habitats, or livelihoods. The biodiversity-related commitments are reflected in the LPP and ESAP.
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The Investment Manager
Multidisciplinary Team
THE FACES OF SAIL
Diverse, experienced, and passionate team
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The Portfolio
OUR INVESTMENTS
With two new investments made in 2021, the &Green portfolio now comprises five transactions:
The ‘hard numbers’ of &Green’s impact journey are in the Annual Impact Report. We have purposely placed all the numbers in one place just before the financial numbers so that there is one dedicated place where you can always find them.
This Portfolio section provides the stories behind those numbers. The &Green portfolio reflects our Contributors’ wish to focus on the major sectors and jurisdictions that are linked to deforestation . In this regard, cattle and soy in Brazil and Colombia and palm oil and large agricultural concessions in Indonesia provide excellent opportunities to prove &Green’s concept. Brazil and Indonesia will remain central pillars of the &Green portfolio; however, the portfolio will extend into other jurisdictions in the coming years.
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Subsequent Events
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Fund Management
EXPECTED CREDIT LOSS (ECL) METHOD
During 2021 &Green adopted the more prudent Expected Credit Loss (ECL) method to estimate allowances for expected credit losses and impairments of &Green portfolio investments. The ECL method categorizes investments as either:
Stage 1
Performing Investments with no significant increase in credit risk since investment, and for whom the provision for impairment is equal to the 12-month ECL.
Stage 2
Investments for which the credit risk has significantly increased and the provision for impairment is increased to the Lifetime ECL for the investment.
Stage 3
Credit Impaired Investments for which the Lifetime ECL has been written off.
The 2020 annual financial statements were restated to implement the ECL for the &Green portfolio as at 31 December 2020, and all investments were assessed to be Stage 1 at that time. During 2021 the RLU investment moved from Stage 1 to Stage 2 and this constituted the majority of the Movement in provision for impairment in the Profit and loss account.
Finally, the adoption of the ECL Method also meant that the valuations of the portfolio investments was reported net of the provisions as at 31 December 2021 (and for the restated 31 December 2020 valuations).
2021 ECL APPLICATION
CAPITAL
During 2021 &Green received firm commitments amounting to USD 58,4 million from the Dutch development bank, FMO; the British government’s Mobilising Finance for Forests fund (MFF); and the Ford Foundation. All these amounts are expected to be drawn down in 2022. The Norwegian government also confirmed that the conditions for the second tranche of its investment in the Facility had been fulfilled and the NOK 300 million (ca. USD 35.3 million) was drawn down in March 2021. Finally, the second USD 5 million was drawn down from Unilever in February 2021.
The FMO finance attracted certain front-end, monitoring and commitment fees which increased the cost base of &Green but were covered by the increased investment income from &Green’s portfolio.
General expenses were well managed to remain in line with the budget set by the &Green Board of Directors.
THE EU TAXONOMY HAS SIX GOALS
&Green’s investments are anticipated to make substantial contributions to the goals highlighted in green
Climate change mitigation
Climate change adaptation
Sustainable use and protection of water and marine resources
Transition to a circular economy
Pollution prevention and control
Protection of healthy ecosystems
The parties regulated by the EU Taxonomy are required to contribute to at least one goal and to Do No Significant Harm (DNSH) with respect to the other five goals, while maintaining minimum safeguards on the social requirements of the regulations.
The EU Taxonomy provides an important information platform to communicate the degree of &Green’s alignment with the spirit and intent of the regulations. &Green’s investment locations do not have the same strong regulatory context of the EU. Some differences in documentation mean that &Green investments do not yet meet all of the EU taxonomy technical screens, but do clearly make substantial contributions to the EU Taxonomy goals of:
Climate change mitigation;
Circular economy; and
Healthy ecosystems
&Green activities contribute to adaptation by pursuing nature-based solutions, in line with the second goal of the EU Taxonomy. However, more structured and location specific climate risk and vulnerability assessment are needed for these activities to be recognized under the Taxonomy requirements. &Green estimates that its current EU Taxonomy alignment is approximately 50%, which is comparable to investments in Europe, and high for developing economy investments. With modest changes, &Green will reach greater than 70% in the short-term. To approach 100% alignment, more detailed, localized and down-scaled climate hazard assessments (linked to climate resilience) are required. The ability to achieve this is limited by data availability. As part of the revision of the ESMS Policy, &Green will address the identified shortcomings and draft an EU Taxonomy statement.
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Funding
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Governance
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Investment Outlook
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Annual Impact Report
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&Green Vocabulary
Blueprints
Blueprints are sustainable practices that our clients adopt to create impact and which are Replicable by other participants in the same market, thereby leading to Transformational Change. Replicable means that the Blueprints can be implemented by other participants in the same market/sector as our clients (and possibly other similar sectors), i.e. once our clients have shown it can be done, others will replicate. To be Replicable, projects must also be commercially viable.
CPO
Crude Palm Oil
Deforestation
Deforestation means the clearance of natural forests, including through fires, typically for the purpose of taking commercial advantage of the cleared land. Although Deforestation is often illegal, it can, in some cases, be legal (i.e. in compliance with local law).
E&S
E&S is a term used often in the development finance space referring to Environmental & Social
E&S risk category
&Green categorizes its investments into one of three categories: A (high potential for adverse social or environmental impacts); B (adverse social or environmental able to be mitigated); or C (minimal or no adverse social or environmental impacts). It uses a categorization process that identifies and scores potential environmental and social risks and is aligned with the categorization of projects under the IFC Performance Standards. The Facility’s full categorization process for projects is set out in the &Green Environmental and Social Guidelines available on the &Green website.
ESAP
An Environmental and Social Action Plan (ESAP) is a detailed plan implemented by our clients to address gaps in their practices which, when closed, will mean they comply with international standards, specifically the IFC PS. This ensures that the project’s E&S risks are identified and well managed
ESMS
Environmental and Social Management System (ESMS) is an internal system which we require from our clients to manage their E&S risks and to develop approaches to mitigate these risks.
Eligible jurisdictions
Eligible jurisdictions are those jurisdictions in which &Green may invest because they have met the Fund’s Jurisdiction Eligibility Criteria (JEC) and have been approved by the Advisory Board.
HCV/HCS
High Conservation Value (HCV) / High Carbon Stock (HCS) means areas that are important for conservation (environmental values) and livelihoods (social values) and for which it is important that no-deforestation commitments apply in order to protect biodiversity.
IFC PS
The International Finance Corporation Performance Standards (IFC PS) set out international standards for managing environmental and social risks and are recognized as the gold standard by many international investors and development banks.
IP
Indigenous People (IP) means the communities that are considered indigenous to a Landscape in which a client operates.
Jurisdiction
Jurisdiction means a country, region or province which &Green would consider investing in.
LPP
A Landscape Protection Plan Is a roadmap to Transformational Change contractually agreed with our clients to achieve Environmental & Social compliance and create impact.
Land acquisition
Land Acquisition means the expansion of the land area on which a client operates through the purchase of new land from others.
Landscape
Landscape is the Project Area from which &Green’s Environmental and Social Return are to be derived and includes areas with direct and indirect influence from the client.
MRV
Monitoring, Reporting and Verification
NDPE
A No Deforestation, No Peat and No Exploitation (NDPE) commitment is a public commitment by our clients in order to make their operations sustainable. The commitment should pledge to have zero deforestation, peatland destruction or exploitation of indigenous people in the operations and supply chain of their business.
Peatlands
Peatlands are wetland ecosystems in which waterlogged conditions prevent plant material from fully decomposing. They have the highest store of global soil carbon.
RSPO
The Roundtable on Sustainable Palm Oil (RSPO) aims to transform markets to make sustainable palm oil the norm. It is the leading global palm oil certification.
TA
Technical Assistance (TA) is financial assistance provided to a client in the form of grant funding for an expert assessment which the (prospective) client can use to improve its processes and practices.
Transformational Change
&Green’s Transformational Change entails a shift from a current system to a fundamentally new system that thereafter forms the mainstream. Transformational Change can be achieved by accelerating change, and/or inducing change which catalyzes further changes. It enables &Green to realize its vision of sustainable deforestation-free and socially inclusive agricultural commodity supply chains in the Tropics.
Blueprints
Blueprints are sustainable practices that our clients adopt to create impact and which are Replicable by other participants in the same market, thereby leading to Transformational Change. Replicable means that the Blueprints can be implemented by other participants in the same market/sector as our clients (and possibly other similar sectors), i.e. once our clients have shown it can be done, others will replicate. To be Replicable, projects must also be commercially viable.
CPO
Crude Palm Oil
Deforestation
Deforestation means the clearance of natural forests, including through fires, typically for the purpose of taking commercial advantage of the cleared land. Although Deforestation is often illegal, it can, in some cases, be legal (i.e. in compliance with local law).
E&S
E&S is a term used often in the development finance space referring to Environmental & Social
E&S risk category
&Green categorizes its investments into one of three categories: A (high potential for adverse social or environmental impacts); B (adverse social or environmental able to be mitigated); or C (minimal or no adverse social or environmental impacts). It uses a categorization process that identifies and scores potential environmental and social risks and is aligned with the categorization of projects under the IFC Performance Standards. The Facility’s full categorization process for projects is set out in the &Green Environmental and Social Guidelines available on the &Green website.
ESAP
An Environmental and Social Action Plan (ESAP) is a detailed plan implemented by our clients to address gaps in their practices which, when closed, will mean they comply with international standards, specifically the IFC PS. This ensures that the project’s E&S risks are identified and well managed
ESMS
Environmental and Social Management System (ESMS) is an internal system which we require from our clients to manage their E&S risks and to develop approaches to mitigate these risks.
Eligible jurisdictions
Eligible jurisdictions are those jurisdictions in which &Green may invest because they have met the Fund’s Jurisdiction Eligibility Criteria (JEC) and have been approved by the Advisory Board.
HCV/HCS
High Conservation Value (HCV) / High Carbon Stock (HCS) means areas that are important for conservation (environmental values) and livelihoods (social values) and for which it is important that no-deforestation commitments apply in order to protect biodiversity.
IFC PS
The International Finance Corporation Performance Standards (IFC PS) set out international standards for managing environmental and social risks and are recognized as the gold standard by many international investors and development banks.
IP
Indigenous People (IP) means the communities that are considered indigenous to a Landscape in which a client operates.
Jurisdiction
Jurisdiction means a country, region or province which &Green would consider investing in.
LPP
A Landscape Protection Plan Is a roadmap to Transformational Change contractually agreed with our clients to achieve Environmental & Social compliance and create impact.
Land acquisition
Land Acquisition means the expansion of the land area on which a client operates through the purchase of new land from others.
Landscape
Landscape is the Project Area from which &Green’s Environmental and Social Return are to be derived and includes areas with direct and indirect influence from the client.
MRV
Monitoring, Reporting and Verification
NDPE
A No Deforestation, No Peat and No Exploitation (NDPE) commitment is a public commitment by our clients in order to make their operations sustainable. The commitment should pledge to have zero deforestation, peatland destruction or exploitation of indigenous people in the operations and supply chain of their business.
Peatlands
Peatlands are wetland ecosystems in which waterlogged conditions prevent plant material from fully decomposing. They have the highest store of global soil carbon.
RSPO
The Roundtable on Sustainable Palm Oil (RSPO) aims to transform markets to make sustainable palm oil the norm. It is the leading global palm oil certification.
TA
Technical Assistance (TA) is financial assistance provided to a client in the form of grant funding for an expert assessment which the (prospective) client can use to improve its processes and practices.
Transformational Change
&Green’s Transformational Change entails a shift from a current system to a fundamentally new system that thereafter forms the mainstream. Transformational Change can be achieved by accelerating change, and/or inducing change which catalyzes further changes. It enables &Green to realize its vision of sustainable deforestation-free and socially inclusive agricultural commodity supply chains in the Tropics.