In the pursuit of a green economy, how we address the role of the private sector in contributing to deforestation and degradation, and its role in achieving REDD+, is currently very muddy. We need some tweaks in how we conceptualise the private sector and its actions to dig ourselves out. But if we can do this, we create scope to influence huge sums of money towards achieving REDD+ and green economies.

In a green economy, environmental friendly decision making must become the norm. The whole economy will need to be shaped such that everyone acts and invests in this way and that action goes further than it does today. It will not be feasible to continually ask for financial compensation for extra costs compared to business-as-usual actions on such a scale.

With public purses already squeezed, there has been increasing attention to ‘mobilising’ and ‘leveraging’ private climate finance, something reflected in REDD+ discussions. For example, the UK government is planning to focus most of the remaining $450 million earmarked for REDD+ in the ICF towards work with the private sector. The UN-REDD programme has recently begun to unpick the private sector actors in REDD+, as well as identifying options for assisting its partner countries to convene and catalyse private actors. However, on-going research by ODI into private climate finance has shown that there is little private finance related to REDD+, little in the world’s poorest countries, and really not much has been mobilised at all. We currently have little idea what engaging the private sector in this way really means, or how best to do it.

So, in order to be successful here, we need a crucial shift in thinking. Especially considering the scale of the challenge in terms of economic significance of these practices (global producer values for palm oil, beef and soy were  $92 billion in 2011) and the wide range of actors involved (from multinationals to small-holders and forest dependent people). The way to have the biggest positive impact on the impact of the private sector spends is to influence all their investments to be made in pro-REDD+ direction, not to fund new activities on top of business-as-usual. We must both incentivise these changes (pulling), and create a policy framework to do this (pushing), not just ‘convene’ and ‘coordinate’ them. But if we can do this in a few targeted areas, we can affect sectors that make huge contributions to deforestation and degradation – the agriculture sector alone is the proximate driver of 80% of deforestation.

In a paper we wrote in advance of the UN-REDD’s symposium on REDD+ in a green economy (happening this week in Jakarta), we noted that greater engagement from the private sector is likely to depend on demonstrating and enhancing the opportunity presented by green economy transitions and responding to policy reforms and price signals. This also emerged from today’s session at the symposium on private sector involvement. Possible ways to ‘pull’ the private sector along was neatly summarised as: Long term commitments, Loud signals of the direction to be taken, a workable Legal framework and relatively Light regulation that companies can navigate. We also see examples of how meeting legal, social and environmental standards reduces reputational and operational risk for businesses, and the corporate social responsibility incentives to invest in REDD+ through the voluntary emissions markets (~$200 million in 2011).

In parallel there is also a need to turn our attention towards how the national economy shapes all private sector actions and investments through the existence of economic policies, instruments and incentives, or subsidies. ODI research into fossil fuel subsidies showed that consumer subsidies alone dwarf approved climate finance by 75 times. We can easily imagine that the amount of money being directed on activities contradictory to REDD+ and green economy principles is similarly huge in comparison to new finance available for REDD+. Only 9% of fast start finance was spent on REDD+, only about $1 billion per year. We know that changing a range of regulatory and economic instruments can have positive impacts. For example reforming property and land rights is a regulatory instrument seen as a pillar of implementing REDD+ in 84% of countries establishing REDD+ plans. Reforming rural credit policies, an economic instrument, in the Brazilian Amazon prevented $1.4 billion of loans being made between 2008 and 2011 and led to a 15% decrease in deforestation. What we must do is identify the subsidies that influence activities that drive deforestation, calculate their scale, and ensure instead that investments are ‘pushed’ towards those activities that can reduce deforestation and degradation, as well as meet other necessary principles such as social inclusiveness and equitability.

We must not simply shy towards softer interventions such as information provision, coordination and voluntary agreements if we are to address deforestation or transition to a green economy. To ‘mobilise private finance’ towards REDD+, we must get a better handle on how to influence private investment and spending away from destructive activities and towards good ones, by some active pushing and pulling.

Bio: Will McFarland is a Research Officer at ODI in the Climate and Environment Programme. He works on green growth, natural resources and forests.