Hi, I'm Helen Avery with the Green Finance Institute and
you're listening to Financing Nature.
Today. I'm joined by Vanessa Garcia of
Terra Sauce to talk about how regulated mechanisms like
mitigation banking for unlocking investment into nature and
communities in Colombia. Compliance market, they create
real demand, they are a way of anchoring biodiversity finance
to legal obligations and they are able to ensure that you have
predictable revenue streams for conservation.
So with voluntary market it shifts based on corporate
priorities, whereas compliance market, they are there because
governments, companies, civil society, we acknowledge that
nature it's part of the businesses and and we
acknowledge that nature it needs to be accounted for.
It cannot be an externality. Hello and welcome back.
We took a brief hiatus over London Climate Action Week where
we saw, I think it's fair to say, nature firmly on the agenda
actually, and a lot of discussion specifically around
private sector investment. It was a really busy week.
I'm sure if you were there you'd feel the same as us.
You're still recovering over 700 events, I believe.
Not sure how many of those were nature, but I know that there
were many, many, many nature events.
What we didn't hear discussed so much throughout the week though
was actually the role of compliance or regulatory models
and markets in moving private sector investment forward into
nature restoration and protection.
And that is what we're going to discuss today.
And in fact, we are going to be revisiting this government LED
model a few times in the coming weeks because I think it's
really, really important. But today I am joined by Vanessa
Garcia at Teresos in Colombia to hear specifically about their
work in establishing habitat banks and selling biodiversity
units into the regulated market there.
And we'll also be touching on where else in the world this is
being looked at and also the role of local communities.
So welcome, Vanessa. Thank you for joining us today.
Thank you, Helen. So we're gonna be talking about
mitigation banking compensation regulatory models today.
But Vanessa, before we get going, would you mind telling us
a bit about Terra Sauce for those who may not have heard
about your great work yet? So thank you for having us here
and being part of this podcast. The resource is a company that
structures and implement biodiversity conservation
mechanisms, including habitat banks and biodiversity credit
systems that was founded in Colombia and our work it's based
on the intersection of conservation finance and policy
to enable large scale environmental outcomes.
So some people are saying today might not be familiar with what
mitigation banking is or what habitat banks are.
So would you mind just walking us through the basics so that as
we drill down into your work in Columbia, we're all fully up to
speed? Sure.
So habitat banks are basically areas in which conservation
actions take place in the long term and they issue biodiversity
units. So they are market based
mechanisms that allow projects to compensate for the year for
their impacts by purchasing those biodiversity units.
Our view is that habitat banks are ensuring ecological gains
that are following the mitigation hierarchy.
So they are basically areas in which companies that are causing
impacts are able to purchase units to compensate for their
impacts after they have applied the litigation hierarchy.
And typically these companies are what kind of companies?
They are companies in very different sectors, so you can
find companies from the energy sector, mining companies,
infrastructure and so on. So any type of companies that
has any licencing requirements and that are causing any impacts
to the environment are able to use habitat banks as a way of
compensating for their impacts. And and just to confirm, this is
all driven by regulation, that's that's a clear demand driver
that requires companies to offset their impacts and
therefore purchase biodiversity units from habitat banks.
Yeah. So habitat banks are mostly used
for compliance purposes, but they are also a mechanism that
is used for voluntary purposes, so for doing voluntary
investments as well. But most of the demands for this
type of units is coming from the compliance market.
Right. So could you talk us through
that regulation that sits behind mitigation banking, Colombia,
and perhaps even before that, why?
Colombia has been the pioneering country, I think I can say, in
Latin America when it comes to mitigation banking.
So Terrasus is a Colombian company, but we operate in
different countries, especially in Latin America.
We are currently working in Mexico, Brazil, Peru, Chile, and
we are exploring opportunities in other regions in Southeast
Asia and in some countries in Africa.
So the Rasos was founded in Colombia and our CEO is
Colombian. And it was an intentional choice
to start working in Colombia because it is one of the most
biodiverse countries in the world.
But it also has a lot of pressures from infrastructure
development, from projects that are required to compensate for,
for their impacts and so on. It is also a country, as you
might know, that faces a lot of pressures because of illegal
deforestation. So 30 years ago, maybe the
country allowed for like, for like biodiversity compensation,
but that system faced serious challenges.
So it was very expensive for companies.
It had limited ecological impact.
And at the end you didn't have any permanence in the outcomes
that you were looking for through those type of
mechanisms, right? Because basically each company
that was causing an impact was doing their own compensation in
the best way they could, right? So in 2012 we had some changes
in the legislation and we allowed third parties to fulfil
compensations for companies. That was a very important shift
because it allows Terrazos to establish how the banks as a
compensation mechanism for companies that were doing this
type of inputs. And then in 2017, the Ministry
of Environment issue the Habitat Banks Regulation.
And since then, we have been able to register more than 10
habitat banks. And there are other companies
that are participating in this type of markets.
And currently, I think in Colombia, we have around 18 to
20 habitat banks from different providers, from different
companies operating in different ecosystems.
So you're establishing habitat banks in Colombia to fulfil
those compensatory requirements from, as you said, could be
infrastructure companies, energy companies.
What does that process entail? So to start Habitat bank, we use
a multi variable analysis to determine where they should be
allocated. So we evaluate ecosystem values,
regional conservation needs, and we also evaluate the demand from
companies that are needing the offsets.
And this is possible because this information is available
for us. So licencing like environmental
licence are available through the National licencing Agency.
So you're able to see where those projects are taking place
or will take place. And from there we're able to
analyse where it's suitable to establish a habitat bank so that
those companies that are in the in the same area are able to buy
the biodiversity units from that bank, right?
That's a very important shift from previous legislation.
So once we find the area, we start a negotiation process with
the land owners. So land owners are investors,
they're part of the investors of habitat banks.
And land owners are we, we don't usually purchase the land, but
we our aggregated value is that we engage land owners through
this type of mechanism and they're able to keep the land
and they're able to receive payments for 30 years because of
the services that nature is providing within their land.
So when we find the areas with resources from investors, we
structure the banks, we establish a financial vehicle,
we establish contracts with the land owners, and then we've
registered the bank with the Colombian Ministry of
Environment. It's kind of like a step forward
into recognising habitat banks as part of the national
protected Area system. And in each of the banks, we
have a set of indicators that we measured during the 30 years
that we manage the banks. And we need to provide updates
to the Ministry of Environment every six months so that they're
able to understand what's happening in each of those areas
and how those areas are supporting the accomplishment of
national goals. So for example DMV, SAP and
after the registration we start selling the units to companies
and companies they usually after they get their licence they need
to start a compensation plant. So we established a contract in
which companies pay us per results.
So having the banks are are an outcome based mechanism in which
the bank only receives payments when we accomplish management
and our biodiversity goals. And could you give a sense of
what a management plan would entail?
And you also mentioned KPIs there.
Could you share a bit more about how those outcomes are measured?
Obviously, in the UK, we're familiar with our own mitigation
banking metric, the Defra metric as it's called.
Is there something similar in Colombia?
It varies between between the different ecosystems that you
have, like each bank is located in different areas.
So we have banks that are located in the tropical dry
forest, we have banks that are located in Sawanas.
So the management and the actions that you develop in
those areas are very different. But basically what we do is that
when we find the areas, we establish A baseline, we develop
a management plan that allow us to understand where do you need
to preserve natural ecosystems and where do you need to restore
to a those ecosystems. And then from there, from that
baseline, we establish indicators that are assessing
biodiversity, habitat quality and and some other variables.
We also engage local people in the management, local
communities in the management of the of the habitat banks.
So we also have indicators associated with social impact.
And when we when we've registered the banks, we provide
the information that we collect in the baseline.
And then from there we start monitoring throughout the 30
years that the bank is is managed.
Right. Oh, that's super clear.
Thank you. So you mentioned local
communities and the social impact, which I think is really
fascinating and not something I'm seeing in other mitigation
banking models at the moment. I mean how what's that been
like? What's the reception bin of
local communities? It has been very positive.
So traditional habitat banks, we were engaging private land
owners and these people, they were very excited to be able to
have resources to keep their land and to continue working in
rural economies. So usually what was happening
before is that families and people because of the prices to
support and because the cost associated to support having
farms or having areas for conservation was too high.
So having incentives to maintain their lands and to conserve and
restore forest, it was a very important shift.
And being able to maintain the property of the land was also
very important for for these families.
Couple of years ago we started working with a collective
territory. So it's an Afro Colombian
community called Asokasan. They're located in the Choco, so
in the Pacific side of Colombia. And they are a very strong
community with a very interesting governance
structure. And they have been taking care
of around 60,000 hectares of forests.
And actually the that area, it's a biodiversity hotspot.
So we started talking with Asoka San in regards of how are we
able to bring resources to the conservation of this land.
And that area is suffering a lot because of illegal gold mining,
because of of the violence that we suffer in Colombia, because
of climate change and so on. So with Azokasan and with the
local leaders, we were able to propose a habitat bank to
maintain and to restore around 1500 hectares.
And those resources going to that area will be able to
provide support not only to the area, but also to the families
that are around that area that are part of the collective
territory. So it's it's super interesting.
That's something that we want to continue doing.
We're actually structuring a project with local communities
in Brazil in the state of Para. And those communities are part
of local economies. They are harvesting non timber
forest products. So being able to develop this
type of incentives with those communities and having them as
investors in in habited banks, it's super interesting.
But also it's something that give us a lot of joy because
habited banks are not only a way to maintain ecosystems and
maintain our forest and our biodiversity, but they are also
a way of incentivizing local economies.
And that for us is is very, very important.
So it's a really important point you make and I think one that
can also help make the case to governments to introduce these
statutory models. So I imagine just from our own
experience in the UK that the development of habitat banks in
Colombia may have been quite challenging.
So it has that been the case? Now we have around 10 habitat
banks in different ecosystems protecting more than 15,000
hectares more or less. And those banks are located in
very different geographies. And if you know the Colombian
context, you you can see that each area has its own
challenges. So not only environmental
challenges, but also social challenges.
So there's a lot of uncertainty in some, in some areas, in some
jurisdictions. And we need to continue
providing awareness among buyers.
That's that's a constant challenge that we face.
And then there's also technical complexity because of the long
term monitoring and the land tenure arrangements.
In regards to plant tenure, we usually work with private
owners, but we've recently started working with collective
territories and land tenure for collective territories is very
different to private ownership because you need to have a very
clear governance structure in place when you're working with
local communities and with collective territories.
So that's that's a challenge, but we continue working to
understand what's the best, best way of of developing this type
of initiatives. So it sounds like definitely
some challenges around both supply and demand.
As you shared on specifically the demand side, you mentioned
that previously companies were able to set up their own
conservation projects to compensate for their actions.
So to what extent is that now changing with this sort of
introduction with the parties like yourselves that enable
companies to purchase units from Habitat Banks?
Companies are realising and they have been in the last couple of
years of this in Colombia that is easier to buy biodiversity
units from habitat banks because their business is not restoring
or preserving nature. Their business is building
roads, energy infrastructure and so on.
So they see biodiversity units and habitat banks as so as a way
of the risking their operation of doing cost efficient and
durable interventions. And they also see how it advance
as a way of supporting local economies, right.
Some companies are still doing their own compensation
programmes, but that's happening less because for them I guess is
they need to have the internal capacities and the internal
structure to be able to manage those areas and those assets.
And if they end up buying land, for example, it's very difficult
to manage in the long term. So as companies, as Terrazzos or
other companies in in the sector are developing this type of
initiatives and this type of mechanisms.
Companies that are in need of compensation schemes are
realising that it's cheaper to have someone that are experts in
this area instead of doing that on their own.
So that's kind of supply and demand.
You mentioned earlier investors and I'm assuming there is some
upfront financing required to make the interventions that are
needed on those in the Habitat banks.
Can you tell us how that works in particular and if there are
any challenges with that financing piece?
OK. So the first habitat bank that
we established was established with resources from the IDD and
that was through grant that we received from them because it
was a pilot project. So it was the first project of
its kind that was developed in Colombia.
But then once we started developing more habitat banks,
we are trying to access different type of resources, not
grant money, but investors. And that's the challenge because
the risk associated with this type of projects is higher than
other sustainable projects such as renewable energies for
example. So the risks are higher and
usually investors they want to have, they want the Russians to
have off takers for each of the banks that we are developing.
And that's that's hard because the processes for companies to
get a compensation plan approved by the national agency and the
processes that entail hiring a third party to do those offsets
are still very slow. So we can get the resources from
investors very easily, but getting those biodiversity units
issued and getting the buyers, that will take us around two
years. Wow.
OK, yeah. So, gosh, I mean, yeah.
Obviously if you have. Finance to step in unless they
see that contract done. I mean, presumably is that just
an issue of? I hate to use of a bureaucracy,
but I mean. Government.
Yeah, it's, it's because in a way it's still a new mechanism
for for the Colombian government.
So there's a lot of bureaucracy in place.
Buyers of these biodiversity units, they need to get approval
on their compensation plan and they need to get approval within
their companies to engage in this type of alternatives.
So it's still a little bit slow. So that gap between the time
when you receive the resources and the time where you start
getting revenues from selling day by diversity units is still
long for for some investors and that's, that's, that's something
that is not so interesting for them.
So that's one of the challenges. And then the other challenges is
that this type of projects, so doing restoration, doing
conservation, it is not providing yields that are
comparable with other type of businesses.
And but I think impact investors and with the hotel banks are
understanding that this is an issue that goes beyond raising
funds or getting profits. It's an issue beyond that.
So I think that's changing and it's it's improving.
Right. And you could imagine that
Colombian habitat banks might be quite an attractive investment
for European or or even North American impact investors.
Is that where the investor interest predominantly lies?
Yeah, we're we'll see another of investments from European impact
investors, but more and more companies are understanding that
this type of businesses are worth their time and their
money. And we have a couple of Habitat
banks that are receiving local investments.
Which is probably the better option because I would think
that is the cost of capital lower from local investors.
Yeah. It is.
I mean, I know you're familiar with the US mitigation banking,
what's going on in the UK with BNG and other markets.
Are there any sort of major differences that you see between
the way Colombia is working versus others, any sort of
lessons learned from others or that Colombia is doing in a way
that that others can learn from? One of the main difference
between the US and the UK markets with the Colombian
markets is that the US and the UK markets are highly
standardised and they have centralised registry systems and
they also have a broader option. So as I was mentioning, in
Colombia we have different alternatives for companies.
So they can do offsets themselves, but they can also do
payment for ecosystem services, They can also do investments in
national protected areas and so on.
So how it depends is not their their only option.
Whereas in the UK, for example, you have a very clear step by
step and the options are very well established.
One of the main differences between the US and Colombia is
that in the US habitat banks, Oregon mitigation banks are
operating in perpetuity. In Colombia, because of legal
constraints, the maximum duration is 30 years, which is
long. But it's not.
Forever. Yeah, even though the Colombian
model is, it's grounded and we have legislation, it's still
evolving and we need to have better enforcement and
institutional capacity to be able to understand what
companies are trying to do through their investments,
inhabited banks. So, yeah, there are there are
many differences, but still I think Colombia is thriving in
this type of mechanisms. And what we're seeing as cerasos
is that these models can be used in different countries.
So as I was telling you before, in Perdue, for example, they
recently approved new policy for habitat banking.
So we are working with the Ministry of Environment in
Perdue to be able to understand what's the most suitable way to
implement habitat banks there and what are the changes that
need to be done to legislation in order to have habitat banks
that are useful for for their context.
We are also seeing that Chile, Argentina, Paraguay, Brazil,
Mexico, the Dominican Republic are places where habitat banking
or aggregated compensations would be very useful because of
the type of impact that they can have.
And because in those countries you see that there's companies,
large scale companies that are willing to invest and that are
willing to outsource their their compensations.
And just to clarify, that's companies that are willing to
pay for Habitat banks, not necessarily investors.
Yeah, they're, they're willing to pay.
Yeah, that's, that's what I meant.
So companies actually companies that are working not only in
Colombia, but also in Peru, Ecuador, Brazil, such as ESA,
for example, who's the company building the transmission lines
for energy. They were early adopters of
habitat banks in Colombia and now that they're developing
infrastructure in those other countries, they might be
suitable kind for for this type of mechanisms in in those areas.
Yeah. So it's, it's amazing, isn't it?
So Colombia and the work that you've done there is kind of
leading the. Way for habitat.
Banking mitigation banking to be rolled out across the whole of
Latin America. You also mentioned Southeast.
Asia, I believe, yeah. So we're currently analysing
different options in the Philippines, Indonesia and
Thailand, Cambodia. So we see many opportunities to
expand and we have many lessons learned from the application of
habitat banks in biodiversity rich countries such as Colombia
that also has many challenges associated with conflict and
social issues and so on. So we we think that if you have
a clear regulatory framework that allows third party
compensation, if you have enforcement mechanisms for this
type of policies and if you have clear technical standards and
monitoring and evaluation standards, these type of markets
so habitat banking or aggregated compensations are able to
thrive. So Southeast Asia is very
interesting, but also countries in Africa such as Mozambique,
Uganda, Kenya are also very interested in learning what's
happening in Latin America and seeing how they could adapt
habitat banks to their context. So it really feels like
governments around the world are considering these compliance
markets as a means to get private sector investment into
nature restoration and protection.
I mean, how important do you think they are these these
regulated models? I think compliance market, they
create real demand. They are a way of anchoring
biodiversity finance to legal obligations.
And they are like with compliance market, you're able
to ensure that you have predictable revenue streams for
conservation. So with voluntary market it
shifts and they fluctuate based on corporate priorities.
Whereas compliance market they are there because governments,
companies, civil society, we acknowledge that nature it's
part of the businesses and and we acknowledge that nature, it
needs to be accounted for. It cannot be an externality.
And and that's very important because through compliance
markets we're able to acknowledge that if you impact
and if you use nature, you need to compensate for that.
So confines markets are very important and we are sustained
that being able to provide support into improving local
legislation, into streamlining different mechanisms, not only
habitat banks but also other type of mechanisms into national
and sub national legislation. And also being able to work with
the private sector into understanding what's interesting
for them. Because it's not only a matter
of what governments think, but it's also important to
understand what companies are thinking in regards of their
impacts, in regards of their resources, in regards of the
type of projects they're willing to pay for and how they see
themselves as companies that are doing this type of investments
in nature. So you mentioned.
Earlier that. In Colombia, the original setup
was like for like, but that has shifted.
Obviously. In the UK we've got a net gain
of 10%. Do you think that's where we
need to be going towards what and where are we in Colombia in
terms of that sort of positive uplift that net the net gain, if
you will? Yeah, I think we need to shift
from that life for like policies or status, because what we're
seeing is that when you cause an impact in nature, it will take
many, many years to be able to go back to the same place.
And also, nature doesn't recover at the speed that we're
expecting. So in order to have that, you
cannot have like for like systems.
It doesn't work. You need to provide a positive
uplift, as you were saying. And Colombian legislation is
pushing that. And it's still very difficult to
measure. If you're providing gains in
biodiversity, it's still difficult to measure and it will
take time, but we are convinced that we need to go towards that.
Well, it's been fantastic. Thank you so much, Vanessa for
all your insights today and sharing with us the work that
you're that you're doing. We've talked about a lot that
you are working on here across that in America and Southeast
Asia and the work that you've just explained in Brazil as
well. But is there anything else that
is coming up for Terra Source that you want to leave us with
today? So we are continuing working
with the governments in understanding how these type of
mechanisms are suitable for their context.
We have issue a protocol for for biodiversity units, for issuing
biodiversity units, they're called Tibos.
So the Rasos biodiversity units and our protocol, it's free and
if anyone can use it and, and what's next for us is to be able
to continue supporting local land owners, continue supporting
communities into developing real businesses where they can
maintain their land, their property of the of their land,
and also being able to conserve some of the most beautiful
places in the world. So that's that's what's coming.
Wonderful. It's been such a pleasure having
you on. Thank you so much for your time.
Looking forward to continuing to follow all the great work that
you do Thank you. Thank you, Helen, for having us
here. Thank you.
Well, that is all from us this
week. You can actually find a whole
guide book on the Columbia mitigation banking model on the
Revenues for Nature site. As I mentioned all the time,
it's a very lengthy URL. So just Google GFI or UNFFI,
another partner alongside UNDP Biophin and Revenues for Nature
and it will all come up. So definitely head there if you
want a really detailed guide on how the Columbia market was
developed. As mentioned, we are going to
look at mitigation banking. Again, Tim Male at the
Environmental Policy Innovation Centre, Epic in the US is going
to be joining us to discuss those markets there.
And also the folks at The Nature Conservancy are going to be with
us to run through biodiversity net gain in the UK and also this
shift across Europe actually to more regulatory models.
But next week, actually, we'll be dropping back to a supply
chain model with Tom Curtis from Landscape Enterprise Networks,
which is really exciting. And then in the coming weeks, we
also have the TNFT and FSD Africa joining us as we start to
wrap up this current season of financing nature.
So lots on and do. Stay tuned and we hope you have
a great week.