 So what's my proposition if we can't do this and land use is a perfectly good place to look at it? I want to suggest that the incentives for change at scale, not in small projects, but at a scale that can manage climate risk are not going to come from policies or international transfers. They're going to come from the real economy. That is the way we produce food and the way we produce fuel. And it's in those changes which are not being driven by policy but by much more fundamental economic changes that are occurring at a much more structural level that I think the answers to the problems we're facing are going to be found. So if the Indonesian president says all the time we must be pro-growth, pro-poor, pro-jobs, and number four is environment. Or as another friend said the other day, it has to be bottom line first, poverty reduction second, sustainability third. The first point to understand is that these things have to be done together in a way that is self reinforcing or self interested at the national level. And secondly, that it is not just climate that is changing. The fundamental nature of the agricultural economy is changing. In other words, how you get to the bottom line is changing. And labor markets 20 years down the road jobs are not going to look anything like labor markets are today. They're changing for reasons that are quite determined in the broader economy. Now we can see if we look at agriculture around the world some of these changes are already taking place just because they're more productive and just because markets are driving them. But the basic problem we face is that structural change is slow and it's uneven. And so what we really have to do is to understand the direction of the economy and think about how we can actually accelerate these changes which are occurring. The presenting problem we see all around the world has to do with resource productivity. Whether it is land, water, fuels, the chemicals we derive from fuels through petrochemistry, all of these things are becoming more expensive. They can't be treated any longer as effectively close to zero cost. And what we are seeing are fundamental changes at the systemic level, meaning technology, organization, finance, and risk management that are have to be associated in moving systems from one form of organization, industrial organization to another. Now what we call production and protection is simply a program to accelerate in the agricultural sector and in the management of our capital stocks. These changes that we think are already underway but can be done much more quickly with much reduction of the damage we would incur in this transition period if they can actually be nurtured and moved ahead. If Andrew I'll just take one more second, what are the main things we think are the sources of these productivity gains? I'm going to list five and happy to talk about them in much greater detail in the conversations that follow. One, the past production processes have led to enormous waste of resources. They have been resource intensive so there is great opportunity to convert land or other resources that have essentially been used up and wasted but are still perfectly capable of production if they are returned with knowledge and organization to operations. Number two, we have tremendous increases in the applications of information technology, material science to increasing production in the agricultural sector. Many of these are upstream but most of them are downstream. They are in the way we organize things, the way we bring credit and finance to it, the way we manage risk whether it's price risk or supply risk and the biggest point is these value gains that can really improve the productivity are largely available at scale. In other words they are not accessible to small disaggregated production units, small holders if you will, by themselves but they can be delivered if we think about shifting the organization of the sector to arrangements that bring together organizations at scale with small holders whether organized in collectives or other forms to do that. So conversion, productivity which is largely at scale and downstream, environmental integration, people are talking about landscapes. I think that's absolutely right. You can only enforce a landscape to hold down costs but more important is the fact that we are probably talking when we think about the value of environmental assets in the flows from those assets, ecosystem flows. I think we'd be a lot better if we talked about capital stocks rather than capital flows and we are talking about managing a national portfolio in which natural capital is the way that you get at the two things good portfolio management demands, liquidity and diversity. So I think we have to change the frame in which we are doing things and the last two things that I would point out it must be done through positive incentives. This is not going to work by threatening people including if you don't do X we are not buying your products. Simply not an effective way of dealing with incentives in general. I think there are ways to use national budgets and the way that you tax and redirect the incremental revenues from productivity that are the ways that we can create these incentives. My last point, the delivery has to be public and private. You cannot do this without public authority but the public does not have the expertise to deliver these sources of productivity value and I apologize Andrew for taking so long. No problem Tom we need to give the other panelists the chance but that's great. I think Tom has given us much food for thought in questioning many of the assumptions that still underpin the debates around the potentials of carbon and forest carbon markets and I'm sure we'll come back to that discussion but also a set of options in terms of some alternatives in terms of ways forward. So this is very encouraging. Tom also raised the whole issue of risk management and the question of access to credit and finance. So it's my pleasure now to introduce Lou Mundan and Lou will explore a little bit more some of the ideas that are emerging around the idea of something called the landscape fund. Lou. Thanks. First off I associate myself with pretty much everything you said. I think that that provides a tremendously helpful overall context. I'll get a little bit more specific. One of the questions that we wanted to address in this panel for everybody is how you stimulate investments in small holders and landscapes for green returns. Now let's be blunt about this. If I had all the money and inclination in the world you could not currently convince me to do this. And the reason is because you lack evidence that it works and you lack the proper financing schemes for me to deploy my capital in an effective incredible way. Those two problems must be addressed. I'll start by the evidence. Simplified example most agriculture forestry things like that run on the basis of credit. Let's imagine that all of you are soybean farmers come to me I'm a bank looking for an operating loan. In other words you're looking for credit credit from the Latin verb credere to believe. So when you come to me I must believe that your proposition is going to work out and I'm going to end up with more money at the end of this but then I started with right. Now as a soybean farmer I can do that on the basis of the historical evidence which conventional forms of agriculture have compiled over decades showing your performance. I have a basis quantitatively to price your credit properly and know that I'm going to generate a return. Very easy transaction for me to make. Now let's imagine that you all have a very different sort of profession and you come to me for the same sort of loan. Let's imagine that you are clowns in a circus. Okay so you come to me you say I want this operating loan I need to buy a new red nose maybe some white makeup learn to make some different balloon animals all that sort of stuff. You are going through from a business standpoint the same process I'm giving you capital you're taking that and investing in what it is that you know how to do right and you're going to give me more money at the end of this then I started off with but that's an absurd transaction. Now it's an absurd transaction not because of what you do it's only observed financially because you lack the evidence to present to me to give you the money. I'm a banker I have very few taboos I'll lend to the clowns I'll lend to the guys you shoot out of the cannons I'll lend to trapeze artists I'll lend to anybody if you can present me with a quantitative basis upon which to make that decision and that's the problem right now whether you're talking about landscape approaches whether you're talking about small holders and any number of different things that you talked about in your speech you do not have the numbers to show me to say that this will work and therefore you will not get my money that's all there is to it. Now it's a real pity in my opinion that a lot of folks have spent so much time trying to think about how to constitute new asset classes in order to get capital moving things like carbon or environmental services or things like that where you cannot even answer the fundamental question of why anyone would buy this stuff in the first place instead of focusing on the guys that have the money and trying to figure out what would get them to buy what you are selling. Now from that perspective it seems to me far more productive for us to focus our time on processes in agriculture and forestry, agroforestry systems which result in tangible saleable products whether commodities or some other thing but things that people already will buy because they intend to use or consume them. Those processes it seems to me are capable of generating the types of cash flows that we need to be interested in. I'm going to talk about one way to do that which is a C4-led effort that we're a part of called the Landscape Fund but I don't mean to imply with these remarks that it's the only way to get at that. There are any number of different ways that we can that we can approach these and similar problems but this happens to be one that I know pretty well and think pretty highly of and I'm optimistic about the about the future potential of. In really simple terms what you can think of as being the Landscape Fund is a fusion between two concepts. One is C4's tremendous work on rigorous sustainability requirements and verification processes and that sort of stuff which comes from a lot of work that Andrew has done a lot of work that Peter Holmgren has done over the decades. Combined with the stuff that my company does which is a very different financing vehicle for forestry, agriculture, agroforestry systems which are sustainable and predominantly run by small holders. That's why we have to wait for politics also. But while we're waiting for politics I think there's a number of other things that we can be doing. So Louis depending with his credit on the Indonesian government for example. Let me take this discussion to the next level by linking the presentation that Pat Bassa made with the one you just made. And again I'm going to be a little bit provocative. What was clear from your presentation is that just in one country in one of the slides there were at least if I can recall five, six, seven and there may be many more institutional arrangements which are being established to manage different types of funds. Now the obvious question that comes with that is what are the transaction costs associated with multiple funding mechanisms in terms of an overarching ambition to try and reduce the costs and the transaction costs of doing business in the interest of small holders and whether this is based on carbon financing or other sources of finance is immaterial. Simly Moritz for you, I mean one of the lessons we've learned in the last few years since the 2005 COP is the multiplicity of the different standards that have been established which is left I think the market a little bit confused about which standards do we follow. There are huge technical and financial barriers of entry to comply with these standards and what we don't see in terms of the actors who are involved in this we rarely see any of the small holders involved in this process. So I wanted to pass it for you and Moritz could just respond to that before we go on to talk a little bit more about some of the aspects that were raised by Tom and Bruce. Thank you Andrew. I think this is the problem of the developing countries actually now in Indonesia how to reduce the transaction costs but I think we committed if we can make it what I could good for its government for example we can reduce it because of the transaction. Since we learned so much from the process that we already have had experiences until now. Defend song how perspective of the government but the business. If the government still thinking that they will creating good income for the business not from the normal system, the existing system maybe the transaction cost will increase but if we agree that all right we have to open the business environment rather than take it I put the cost for every transaction. I believe that we can be reducing the transaction because this is very important for us. That's why I'm the the next hopefully we in line with the prone to this issue of the proliferation of standards. Just for you to know like there is FSE or PFC or others and in the forestry world and the carbon world there are different kind of standards. In matter effect they are all very similar to each other but yeah there is then this diversity. We as both standard we're pretty much the only standard trying to really join forces. We are in cooperation with FSE with Fairtrade with Rainforest Alliance now and we are talking also with with VCS on the table of the UN. The UN invited us to sit around the table and to join forces so we're trying to go down this way but it's not easy. Let's put it this way. On the other hand I would encourage also governments which are currently creating carbon markets not to recreate their own rules please. Of the rural economies that we are talking about where the forests are now the World Bank Group knows this problem already for a census inception in the 40s and the United Nations knows this problem as well. Now my question is how come that there is no focus on formalizing the economy of the developing countries. Formalizing the economy. I know that there is an initiative of us of doing that. Now many of the negative perceptions that are being built in the West for not being for excusing we are not going to buy from you in Asia are that perceptions not based on evidence. Thank you very much so I would like to have a response. Why is that all? Continue to tension on what you mentioned on formalizing the economy of the societies. Thank you. Thank you very much. Yelmas do you want to make a stop at that? I'd like you to take the first on the formalizing economies and then I'll take it from you. I think the experience at C4 that has done research on processes of formalization has recognized that there are trade-offs. I would agree with you to a certain extent that I think perceptions aren't always... Hang on, Yelmas. Sorry, I didn't see you saying that last week. Sorry, I didn't know if you had Yelmas on. Just quickly, Peter, thanks for the question. I would say that if you look at the whole situation fairly and honestly, perceptions, negative perceptions have come from some evidence as well that you have to give that some... you got to believe that. It's a fact. And as we transition from evidence of negative to evidence of positive, equally there needs to be independent evaluation of transition to positive. I think APP is starting to take this path and ask external independent entities to look at commitments and validate that those commitments are unfolding in a positive way. And I think that's exactly the journey we need to be on. That's the way you get over the negatives of the past by proving the positives of the future. I think this is a really interesting point. And if I could return, I know some of you may have been in the plenary this morning to what Mr. Vijayas said, for example, in another party of C. Narmas, about the loans that were being made to small holders in this very interesting program that he has worked through with Kadeem. And I think that's absolutely the right way to go, but I'll point out that works because the risk is being taken in guarantees by Golden Agri. No one's going to lend it to those small holders, whether or not they have formal title to the lab. On the other side, we heard maybe if it's securitized, we'll talk about that. We also heard the gentleman from Ola who talked about the fact that he could get a formal permit from the central government, but he couldn't cover the risk of the community, which was the real problem. And I think that's true, whether it can be a completely informal situation that give communities in Mozambique, where we work, the right to disrupt investment. And I'm talking about investments that have a long period of return. I'm saying that agriculture has to move to be knowledge-intensive, organization-intensive, infrastructure-intensive if you're really going to see this growth occur. Nobody's going to invest unless they're facing some kind of a risk profile that they feel really secure about. And so what's the answer? The answer is that we can't avoid politics. If we're going to do things, we just have to really start to work in managing the risk from the ground up within the political realities that exist, whether it's in Kalimantan or somewhere else. The formalization would help, but it won't solve problems. An old lawyer's advice about that. Two extremely quick points. The first is that the purpose of the landscape is primarily formalization. It's a way to compete with informal credit markets, which we think are dysfunctional. Informal credit markets price things so high because their risk really is that high, because they're lending to a very limited pool of people. We'll come up with a better product, a better product by, you know, making it a more international sort of scheme. Get people into formal lending relationships. That's a functional thing that you need to do. The second thing is, why do you work with research institutions? It's because of evidence, interpretation of evidence. If you look at a lot of existing data that we have on default rates from lending schemes to small numbers, that sort of stuff, you see absolutely horrific numbers. And the immediate reaction of somebody from my background is going to be, these people are dead beings. No way. I'm not doing it. But instead, if you work with folks who actually understand the full context of realities on the ground, they'll show you a lot of other evidence to go along with that, which says the reason that they default is because they're getting a product that they can never possibly afford. And then the immediately counterintuitive answer of lengthening out the time in which they have to pay actually is the right one. That's why we've got to have more relationships like this where we're kind of working together. Thanks. There was a gentleman in the front and then let it back in another one, please. Hi, thanks Andrew. My name is Ekka Kinting from Jagarimba. Our subsidiary is Rimbaraya Conservation, who've been founding our heads for the last five years in Indonesia to create the first forest conservation project in Indonesia that has actually delivered credits last year. So we hope that should be satisfactory to the concern of showing us one path of the money as an experience. Now, I have two questions. First is for the financiers of friend. If I want to replicate this exercise, now I have three more projects to $4 million each to maybe 2 million hectares, meaning $200 million. Now, how would you advise me about doing that, given that we've done the first one, we're now the largest producer of this RATD carbon-related project in the world? And the second question to everybody on the panel is about demand. That's one thing that we've been hearing, and this is also related to our effort to raise financing to replicate the exercise, is that can you show me demand? Now, I'm sure there are probably 1,000, 2,000 people attending this conference, half a home flight from the US, from Europe, from Australia, etc. Each probably generating about four to five tons worth of carbon footprint. Are we all offsetting our footprints? Maybe that's one way for us to create demand just amongst ourselves. But in relation to what the gentleman from Office Depot is saying, one company like Singapore Airlines last year announced their carbon footprint is about 34 million tons. That should be enough to support 10 projects like ours, be they out of the concern or consideration of the company itself, or maybe forced by the government or the customers. And you can pass it on to the customers. I would like to congratulate some companies. Out of the US are now here in the market buying carbon credits from us. So I definitely like to talk to Office Depot about that, take my real demand for the projects. We can see clearly there's some new bridge. This is like very simple. Red plus coming, money coming. But they never know what is the requirement to get the money itself. They think that it's making it easy, but this is very, very difficult to ask. That's why I say that why don't we start with the improving our forest government first and then most type by type going to the market. The bar is already making the business. The other also making business. But again, you have so many obstacles because we are already not only on the government, but also on the private sector, also for the community itself. Thank you. Thank you, but was there was another question? Please. Yes. Hi, I'm Sheila, but the I'm with the overseas development Institute of Formalization, particularly in the context of finance and borrowing. And I was wondering what the challenges were actually not just changing the finance sector's practices, but also borrower's practices, because I'm imagining that smallholders are used to borrowing in the formal market. There's also needs to be some kind of a sales pitch for them to borrow differently. And I was wondering how you undertake that and how much less is there might be microfinance and microcredit in terms of what you're doing. Couple of very direct answers to that question. First is that we don't know enough about how to do this yet. There's not enough existing evidence that we have. So we got to go out there and make the evidence. And we're gonna have to go out there and make some mistakes. Our predisposition is to think about this as an aggregation problem. That the counterparty to any facility like the landscape fund should not be all the way down at the individual smallholder level, but rather some sort of entity. It could be a producer organization, or it could be a local credit institution that manages that book, essentially, manages those those relationships. It seems to us that in the process of making test loans, we're probably going to be a lot smarter than we are right now. And there may be some distinctions between the types of institutions and the types of lending relationships that you want. So, for example, if you're doing a loan for equipment or that sort of stuff, you may have a preference for a certain sort of institution. Whereas they're making an operating loan, you may have a preference for a very different type of institution. All of these things we do not know. And I would point out that one of the major reasons that we do not know this stuff is because everybody's been focused on answering very different questions about how to constitute new derivatives markets. So, we've got some catching up to do. Thanks very much. Another question? The gentleman in the front. Hi, my name is Sam Raimann, I'm an Adulter of Global Developmentalizers. I've heard kind of three different themes come through. So, first is there's very much a recognition of climate change and deforestation as a challenge, and that the private sector needs to be part of it. The second is some frustration about multilateral political actions, while recognition that there's some really important national and subnational level activities. And then the third is that within the private sector practices, there's very much a vision to continue with using existing approaches. And that could be kind of the need for an evidence base, that could be the decide to be able to sell sort of products at a premium, but certainly not to take a loss. That could be kind of a real focus on liquidity around kind of how you develop financial products. But kind of given this kind of, on one hand, a recognition of a need for a private sector role. On the other hand, a recognition that the public sector might not be able to do it alone. And third, a recognition that the private sector wants to continue to kind of operating using standard practices. What's a realistic expectation for the private sector to really participate in helping find a solution? Okay, I'll put that to Boris. Individual side, I can't see a movement in terms of having the power to push in the right direction. So it's sent a question if the, if the organizations have the right CEO in place to be moving in the right direction. And this depends on, on the media. And then the media, again, certain journalists, if they have the right thoughts and move in the right direction. So here I can see in some countries where the media, again, reflecting the views of society, are very active. You can see a lot of movement also within the companies. And then media is also controlling then the government. And also here you see in certain countries that the green parties are growing. But in matter of fact, what I, what you see here is eventually it is in my legal of the government to be trying to, to set the rules. Because later on, the companies are always thinking about money and, and the competitiveness to, to other, to other companies. So on an international scale, that's a little bit difficult because with, as we, as we're hearing the international agreements that's hard to agree on. But if they are really only having national competitors, then within the, within the country, you can really create a green growth in this regard when the government is acting. Can I just read one, I think what, one thing you said is that the private sector wants to work only within certain structures and basically not, my interpretation of your question is not evolve very much. But I would say if there are signals created that allow the private sector to act, to make decisions that support positive improvements towards sustainability, then many, many significant private sector actors are willing, willing to play. Use FSC as a, as a, as one example, that's a simple, simple of improvement. And in just one company example, from zero percent to 23 percent FSC volume in North America in a few years, we can still go much further. But that's an example of a simple, simple signal that the market offers of a better practice that we can support. Yes. And just, just to echo that, I think if I'm not mistaken, have some in the audience can correct me. I think within the Asian region, we only have four percent. There's actually been so many. Most of that link to supply chains rather than maximum sustainable forest management. So there's still a huge scope to expand that. John, just one last question. These are really good questions. Make something out of wall. So come back to the river ride question for a moment. I assume you're selling into the voluntary markets at the present time. You say, what would we advise you to really expand the scale moving up by four or five? That's going to come. That can't be done through the voluntary markets. It's going to have to come because you have some regulatory structure set up by the Indonesian government that can expand the scale. And that depends on the negotiations about which I am relatively not optimistic. But let me just flip your question into the energy area for a second. If we're talking about renewable energy, which costs three or four cents a kilowatt hour more than whatever is being used, coal, whatever, then unless the privates, unless the public sector basically comes up with some kind of a policy, either to bear those costs on the tax base or to force the consumer base to buy it, the private sector is not going to come along. But if the government does that and it's a credible policy, then the private sector is going to come in with usual 80% leverage rates. So there's not a general answer to that, to the question. It depends on the structure. What I would say is, look at the speed with which the private sector has essentially eliminated coal from the U.S. electricity base. It happened in a couple of years. An enormous change. Why? Because the price has shifted. The relative price has shifted and there the public, the private sector, is fantastic. And taking these things up. But if you ask me the question, gee, is that going to happen in China? Even if we bring down those gas coal spreads, the answer is that unless the Chinese government takes on the system costs of building out gas pipelines, it's not going to happen. So I can't give you a general answer to those questions and it all depends on the scale we're talking about. As long as we're talking about small scale, the private sector can do a lot in the context that is currently there. But if we're talking about the scale that will do something about the climate risk our children are facing, that cannot be done by the private sector alone. And the question is what's going to drive the change in public policy? Changes in the international negotiations? Or changes in the fact that from a competitive standpoint, some governments decide that in the end it's going to be cheaper to use zero marginal cost fuel. The air, the tides, the sun, then it is to continue against the risk of rising variable cost fuel. And so there's no general answer, but scale matters a lot even in the question of who has to do what. Thanks Tom. We haven't yet addressed the issue of perverse incentives in terms of the panel presentations, but this is clearly one aspect where governments can play a role. We look at Indonesia, I think if I'm not mistaken, 12% of the annual budget is actually approved for fossil fuel substance. This is an elephant in the room in mind. There is one last gentleman who had a question, sorry, one last question, because we are coming to it, so please. Yeah, I'll try to make this quite quick. My name is Luke Richard and I'm with the Governors Climate and Forest Fund. I have a question for Lou about the landscape fund. Certainly the ideas that you were talking about is something that GZF has explored in some of our jurisdictions, looking at different financing mechanisms to encourage deforestation free commodity production, and particularly we're looking in Brazil and providing preferential grants to producers that take on various environmental commitments, particularly registering in the rural environmental registry and taking other commitments. One thing that I didn't get from your presentation was what the link is between this new asset class that you're talking about, and the referential loans and environmental performance. So what are the environmental performance requirements and how is that going to be monitored as this new asset class is deployed? Very quickly, the counter party to the fund is an aggregator which has a number of different loans under that aggregator. The aggregator has a condition under which it can expand that loan book via access to capital from the fund. That access is turned off if they don't comply with environmental requirements, sustainability requirements. Sustainability requirements again are on the C4 side, so I can't give you a detailed explanation of precisely how they work. But the idea is that there is a conditional access to an expanding capacity to make loans. That's how you do it. Maybe you can follow up on the preliminary work that's been done on the finding of the system. Let's give you, because everyone's still sitting in their seats, you obviously can wait a bit longer for your coffee. So would you like to ask another question? Thanks, Chris Day from the Berlin Challenge Corporation. I'm finally very excited when somebody talked about perverse incentives and public policy. And one of the assumptions, it seems to me, has been that we need external financing by whatever means, be it through political action, be it through the private sector, but we do face public policies that undervalue the resources which we're trying to provide additional financing for. I'm thinking particularly of public policies which reduce demand for timber and non-tempor forest products, such as in Indonesia and other countries, export bans on logs, timber, export bans on sawn timber, export bans on raw and semi-finished Rotan, all of which undervalue the resources which we're trying to find additional finance to increase the value of. And there's a contradiction here. And I wonder to what extent the panel thinks that we should also work on rectifying these policies that provide perverse incentives that undervalue the resources we're trying to find additional finance for. Thank you. Thanks very much, Chris. I think Lou wants just to quickly respond. Very quickly. Two things. First is that one of the major obstacles to making these sorts of investments is the proliferation of these regulatory sectors and trying to understand what they do and do not allow operational to do. That's a big part of the diligence process. And that can get handled. If you can have clarity around that sort of stuff, that actually make things a lot simpler, particularly in developing countries. The second thing is that there's a different sort of, I don't know if it's a perverse incentive, but there's a different sort of public policy decision which is made which causes a number of problems, which is that from a regulatory standpoint, there are a number of different systemically important banks, large corporations, that sort of stuff who should probably take climate risk into account in terms of making long-term projections. They're not currently required to do so by their regulators. Seems to me that the introduction of such a requirement would force them to ask a number of questions which they do not currently ask, not in a particularly honorous way, and probably have the dual benefit of increasing the stability of those companies over the long term, and at the same time incentivizing them to invest in a couple of exploratory processes so we can understand these risks. Thanks for talking to me one last quick. Coming out, we just finished a big piece of work that will be out in June.