The private sector has an important role to play in improving management of natural capital. The scale of financing needed to address climate change and other environmental challenges requires private sector involvement. A lot of good work has already been done by the private sector and the IDB itself supports private sector investment in natural capital.
However, despite positive steps, businesses have not fully taken advantage of the opportunity of integrating natural capital into their decision-making process. Just one example from the region is the Caribbean fishing industry, which has overfished fisheries and damaged fish nurseries, hurting the industry’s own long-term productivity.
Much of my work at the IDB has been with the cattle industry, which is still struggling to take advantage of natural capital opportunities. Cattle dominates the Latin American landscape. It’s hard to travel much in Latin America without seeing endless pasture and grazing cows. In Brazil alone, an estimated 170 million hectares are used for cattle and other livestock production, an area that is larger than Peru and Ecuador combined.
In a recent trip to Paraguay and Brazil, I learned about how damaging heat can be to cattle. With temperatures often in the 90s, 100s, and higher, cattle really suffer with serious consequences for their productivity, whether beef or dairy. This has always been a challenge for cattle ranchers, but climate change and the increased use of European cattle-breeds (which are less heat resistant), means that the problem is increasing.
Our project is promoting silvopastoral systems as a response. In a silvopastoral system, cattle graze in forested land. With less light, grass productivity decreases, but this can be offset by increased comfort for the cattle. Plus, the planted trees can be harvested for timber, creating a second income stream for the farmer.
Silvopastoral systems are an excellent example of how natural capital management can be implemented by the private sector. By investing in reforestation, the cattle rancher improves the local climate, an ecosystem service, to benefit his or her business. There are “grey” infrastructure responses to heat, such as constructing shade shelters, but in this case the “green” infrastructure response is much more cost-effective.
Despite their potential, however, silvopastoral systems are not widely used in Latin America. The reasons that cattle ranchers have not adopted this approach explain why private sector in general has not widely adopted natural capital management. I see three primary barriers:
1. Distrust of a new system. Cattle ranchers tend to be conservative and I can understand why they would be skeptical of planting trees. There are not enough successful examples of silvopastoral systems in order to convince people of their effectiveness.
2. Technical knowledge. Managing trees is completely different from managing cattle and if a rancher makes a mistake with his or her trees, it could dramatically affect their livelihoods. For silvopastoral systems to be effective, a technical partner is necessary. In Paraguay, forestry companies are partnering with ranchers to jointly manage silvopastoral systems. And in Brazil, Embrapa (a Brazilian agricultural research group) provides technical assistance to farmers.
3. Access to finance. Implementing a silvopastoral system requires a large investment and there are a number of reasons that green infrastructure investments are difficult to finance. Planting trees that won’t be harvested for years requires long-term financing. Ranchers often have poor credit history. And banks are unfamiliar with this type of investment, making them risk-averse. All of this means that there is less money available to invest in silvopastoral systems.
Despite a proven and profitable solution, ranchers continue to persist with traditional methods. The same can be said for businesses in other sectors: distrust, lack of technical knowledge, and access to finance are serious barriers for other natural capital investments as well. It’s up to natural capital advocates to demonstrate that their system works for business, provide technical knowledge, and unlock creative financing solutions.
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