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Eco bonds, the way to go

According to reports, billions of dollars are required every year to protect the world’s biodiversity.

Hence, the ground reality is that the paltry annual amounts the states receive as part of Project Tiger are clearly insufficient to address the scale of protection needed by our forests. Moreover, in view of the deficit situation in the country, the prospects of sufficient funding for future forest conservation efforts look bleak.

Like everything else in life, time is a concern here because the longer we wait, the more forests we lose. We cannot wait for the last tree to be cut before thinking about conservation.

To obtain, in a timely manner, the scale of finance needed to combat climate change, protect and manage forests, and maintain the country’s natural capital, a mutually beneficial engagement with the private sector is a must.

That engagement can come in many forms — bonds are one option. By using public funds to support private sector investment in forests, bonds could leverage additional finance from global capital markets.

The Climate or Green Bonds are suited for providing the capital for the long-term environmental infrastructure required to build a low-carbon and climate-resilient economy in areas such as urban transport, renewable energy and waste management. The extra upfront investments are often balanced by much lower operating costs, particularly in the building, energy, industrial and transport sectors.

Similarly, an established market for forest conservation bonds helps better protect the forests by raising the necessary funds from institutional and other investors, such as pension funds, in return for a steady stream of revenue from forest conservation projects.

Given that the international bond market is estimated to be worth around $80 trillion, forest bonds could be another weapon to wield in the fight against deforestation and poaching. Borrowing allows significant up-front investment in conservation-centric, financially viable projects that create jobs and give people better opportunities than felling trees.

Though links between ecosystem services and potential forest bond incomes are a key opportunity, the demand, in the Indian context, is uncertain. Although reducing emissions from deforestation and forest degradation (REDD)+ and forest carbon markets are an important source of cash flows that could be used to back these bonds, at the present time they are neither reliable nor standardised enough.

Mainstream investors require both liquidity and commoditised products in order to participate in this market. The investment proposition must have tangible and attractive returns to investors. Governments or other prospective issuers of forest bonds will need to convince investors that the cash flows they plan to pay the bond back with are sufficiently secure, sustainable and predictable.

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