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About this report
Welcome to the &Green Annual Report covering activities from 1 January to 31 December 2023. This report is designed to be accessible to readers with varying levels of familiarity with our organization and investments, whether they are well-versed in our operations or encountering us for the first time. In addition to a comprehensive overview of our activities and expanding our investment portfolio, we include information about why we do what we do, our investment approach and our growing network.
For clarity, we have defined those words and abbreviations that are key to understanding the nature and scope of &Green’s activities; they look like this . All the defined words and abbreviations have been gathered in the section below ‘&Green Vocabulary’.
The special focus in this years’ Report is our approach to Natural Capital and Ecosystem Solutions investing, expanding further on our unique Transformational Change approach which we highlighted in the 2022 Annual Report. &Green has been investing in this manner since its inception in 2017, supporting agri-commodity businesses that protect forest and biodiversity, empower communities and optimize production systems.
The Portfolio section discusses our investments in agri-commodities and explains why we consider them to be of paramount importance. &Green’s impact performance is captured in the same section, the financial performance of &Green can be found in Fund Performance
We are excited to present how &Green continues to bring its purpose to life.
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&Green's Purpose
We envisage people thriving on a sustainable planet.
&Green, a Foundation established in the Netherlands in 2017, was created within this context to finance the transformation of global commodity supply chains so that they can have positive climate and biodiversity impacts while still delivering on growth targets. The &Green Fund focuses on the tropical forests and peatlands that are in most need of protection and invests in the most active commodity sectors in those ecosystems.
DEMONSTRATING &GREEN’S BIODIVERSITY POSITIVE APPROACH
Biodiversity is a complex concept that seeks to describe the variety and variability of life on Earth, encompassing the diversity within species, between species, and of ecosystems. Genetic and species biodiversity within ecosystems is a vital component of a stable environment. In the face of the current biodiversity crisis, the value of this complexity in ecosystem dynamics is recognized beyond the ‘ecologists` niche’ because biodiversity plays a crucial role in sustaining environmental and human health.
Our &Green strategy aims to conserve, restore, and build resilience in tropical landscapes. A direct consequence of our investments and processes is the significant benefit to biodiversity. Biodiversity is, however, scientifically complex which makes identifying and developing credible and transparent metrics to accurately measure our positive impact challenging. We aim to convey the effects of our investment – from enhancing soil microfauna resilience to wildfire control to managing human-wildlife interactions – to demonstrate our commitment to environmental stewardship.
BIODIVERSITY – FROM STASIS TO STEWARDSHIP
2022 was an important year for biodiversity, with the Taskforce for Nature-Related Financial Disclosures (TNFD) publishing their first beta framework; the EU reaching (provisional) agreement on an EU Regulation on deforestation-free supply chains; and, of course, it was the year of the historic adoption of a global biodiversity framework at the UN Biodiversity Conference of the Parties in Montreal (COP 15).
In 2023, &Green translated this global dynamic into tangible actions. We are one of the early adopters of the TNFD framework, with this annual report marking our first-time reporting against it. In addition, we initiated work to provide our borrowers with the necessary tools to use the NDPEs implemented in collaboration with &Green, enabling them to demonstrate evidence of EU Regulation on Deforestation-free Products (EUDR) compliance in their commercial engagements, deriving value from action plans. We persist in implementing our proprietary Forest & Biodiversity Framework in our investments, working on Biodiversity Action Plans to address legacy biodiversity challenges of our investees.
&GREEN METRICS
We design our biodiversity metrics by considering both the risk context and impact objectives for each transaction. We identify relevant data collection points, for example simple indicators like crown cover and ecosystem intactness for forest protection within a landscape, that offer us insights into biodiversity trends. Metrics are tailored to support business decisions, integrating seamlessly into investment processes and borrower operational management. We establish a comprehensive set of nature and biodiversity disclosures for each transaction, complemented by metrics specific to a transaction and in the broader landscape in which a borrower operates. This aligns internal processes and streamlines data collection and reporting to demonstrate our investments “do no harm” and contribute to a net biodiversity gain.
An example of this in practice is our work with PT Dharma Satya Nusantara Tbk (DSNG) in Indonesia. As part of the loan agreement, DSNG has designated a forest area of 3,148 hectares to implement a program that prioritizes biodiversity and ecosystem service, local economic empowerment, and forest management capacity building. In collaboration with other partners, DSNG has a policy of comprehensive monitoring and protecting biodiversity, as well as implementing an integrated landscape approach to the conservation of key species. Read more about, and enjoy photos of a diversity of Indonesian birds, mammals, and reptiles here.
We view our efforts as a prime opportunity for us to showcase our biodiversity impact to the investment community. We continue to actively explore ways to strengthen these outcomes in our portfolio.
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2023 Highlights
&GREEN Highlights
USD 30 MILLION NEW LOAN TO ETG
USD 180 MILLION OF ADDITIONAL CAPITAL FROM THE GREEN CLIMATE FUND
USD 156 MILLION TOTAL CAPITAL DEPLOYED AS AT YEAR END
> 1 BILLION tCO2 CARBON STORED
> 3,100,000 HECTARES PROTECTED
> 13,200,000 tCO2e OF CLIMATE BENEFITS
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Letter from the Board
A YEAR OF GROUNDWORK
2023 laid the groundwork for future scaling. Our work in building fundament protocols and the right structure for scale is not particularly rewarding in the short-term but we do think we are setting up &Green for scale and long-term success. In 2023, the &Green Fund doubled its raised capital with a breakthrough USD 180 million contribution from the Green Climate Fund, the world’s largest climate fund. With this investment &Green can move from ‘proof of concept’ stage and set itself up for real scale, as we aim to attract private institutional investors into our strategy.
The &Green portfolio now encompasses eight transactions across three continents: grains, cattle, and soy in South America; coffee and palm oil in Asia; and in 2023 we closed and disbursed our first transaction in Africa, and again in a core focus sector, cocoa.
Bayu Krishnamurti and Eric Soubeiran both reached the end of their term on the &Green Advisory Board at the end of 2023. On behalf of the other Board members and the &Green Team, I warmly thank them both for their valuable contribution and wish them every success.
NANNO KLEITERP
Chairperson of the &Green
Board of Directors
STRATEGIC PROGRESS
The &Green Fund is positioned to attract scalable capital and actively support the transition towards low-emission, climate-resilient tropical commodity supply chains in the most-relevant countries. EU regulations became more concrete on deforestation-free products during 2023, mandating compliance with relevant laws in the country of origin, including human rights and land-use rights, validate our theory of change. This is, and will continue to, provide a tailwind to the &Green proposition.
During 2023, &Green added the Ivory Coast as a new jurisdiction to our portfolio as we closed a corporate transaction with Export Trading Co. Ltd or ETC Group, focused on their cocoa value chain in Ivory Coast. The Ivory Coast is the world`s largest producer of cocoa with smallholder farmers dominating cocoa production. Our aim is to support a landscape-based approach to manage cocoa supply chain impacts and risks, eliminate deforestation, and protect forests and biodiversity by including smallholder farming communities.
Our ambition to turn agriculture into a force for forest protection is gaining momentum with many of our deals now working through &Green transition plans and meeting specified milestones. For example, PT Dharma Satya Nusantara TBK (DSNG) achieved all their ESAP milestones during 2023, and within the first three years of our loan, marking a crucial step towards transformational change for the company and setting them aside as a sustainability champion in the Indonesian palm oil sector.
Operational Highlights
While the financial performance of 2023 was impacted by heightened credit risks across the portfolio, the main concern was the first Non-Performing Loan (NPL) &Green has had and the resulting chapter 11 process that this borrower, Mercon Group, entered into at the end of the year. As the Board of a credit fund, we understand the inevitability of losses. However, we were disheartened to see the speed of the decline of such a strategically relevant actor (top-10 globally) in the coffee sector. We are nonetheless comfortable that the team has managed the process well, and we take important lessons from the process which we can apply going forward. &Green is set up to make bold investments, however as an evergreen fund we also want to be sure that we are constantly learning and improving processes and decision-making as we go. Related, as carrying costs for all commodities have amplified with interest rate increases, the financial results of FS and Marfrig as at the end of the year also resulted in the credit risk on those two borrowers increasing sufficiently to warrant material increases in their provisions for impairment. These are expected to reverse in the short term, given the subsequent performance of both businesses and the trajectory of the related commodities. Besides these transactions, the rest of the portfolio remains performing and in line with expectations.
Operating costs were effectively managed, coming in 9% under budget, demonstrating our commitment to financial discipline and efficiency. This contributed to a 41% increase in the Fund’s operating result to USD 3.7 million, before financing costs of USD 1.8 million and the changes in ECL provisions. The increases in the ECL provisions are the major contributor to the negative net result of USD 18.1 million which resulted in the negative net asset value of USD 5.4 million at the end of the year. The volatility in ECL provisions was expected when this IFRS 9 compliant approach was adopted in 2021 as the most prudent option. These 2023 increases in the provision are reasonably expected to reverse in the short term, thereby returning the NAV to positive territory and retaining the Fund’s commitment to preserving the value of the Contributors capital.
We continue to manage credit risk closely. While operational performance improved in 2023, the significant increase in impairment provision negatively affected the Fund’s financial performance. We could expect a full impairment of Mercon Group during 2024, but outside of that our outlook for next year remains positive with new transactions coming onboard.
The Board met quarterly throughout the year and had the pleasure of meeting twice in person (February and May) and continues to work strongly together.
Looking Ahead
With the strategic groundwork laid, &Green is able to step up its outreach to private investors in 2024. The next steps for 2024 involve building out our market presence further in preparation for a scale-up of capital and working with the Green Climate Fund to appropriately allocate their funding.
In 2024 we will focus on demonstrating to the investment community how our investments generate positive biodiversity impact exactly where it is needed. Although biodiversity is difficult to quantify due to the complexity and variability of ecosystems interacting in intricate ways, our approach through our Forest and Biodiversity Framework is well-positioned to show an actionable way to manage risks and quantify impacts when investing in these critical landscapes globally. Our biodiversity metrics are designed with both the risk context and impact objectives for each transaction in mind to bring tangible impact to the market.
We will continue diversifying our portfolio in 2024 and hope to add new relevant supply chains and countries where our thesis is relevant.
Finally, we remain committed to the highest level of transparency. Our website and reports, most of which are publicly accessible, will continue to offer stakeholders the opportunity to engage meaningfully with our approach and portfolio.
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The &Green Approach
WHERE we invest
Our focus sectors, Geographies & Borrowers
&Green’s target global sectors are linked to land degradation and deforestation. Sectors include agriculture (palm oil, soy, coffee, cocoa among others), cattle/dairy, and plantation forestry (such as rubber).
CATTLE
PALM
RUBBER
SOY
FORESTRY
COFFEE
We concentrate in selected geographies where globally significant commodity value chains are active and there is a clear risk of them being a driver of deforestation , today or in the near future. &Green finances transactions where there is a clear investment rationale for how our financing will play a demonstrative role in de-linking deforestation and land degradation from commodity production in a way that is commercially attractive. This investment rationale leads to blueprint transactions, which the industry can scale.
Our current investment portfolio – geography and commodities; at the end of 2023.
&Green’s portfolio is spread across 5 countries (Indonesia, Brazil, Colombia, Vietnam and Ivory Coast) and five sectors (Coffee, Palm Oil, Cattle, Cocoa and Soy). To mitigate portfolio concentration risk and minimize the potential impact of sector or country volatility, &Green aims to diversify its geographic exposure in the coming years. This strategy aligns with the principles of best fund management practices.
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SCOPE
Volume and quality of forest and/or potential of the jurisdiction hold substantial importance on a global scale.
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AMBITION & STRATEGY
Jurisdiction has a clear strategy with targets to track deforestation reduction against historical trends.
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PROGRESS
Jurisdiction’s strategy shows timely progress towards milestones on the path to achieving deforestation reduction targets.
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MRV
Jurisdiction has transparent monitoring, measuring, reporting, and verifying deforestation reduction systems. Forest and peat degradation systems where applicable.
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SOCIAL & ENVIRONMENTAL SAFEGUARDS
Jurisdiction demonstrates progress implementing the Cancun Agreement .