Economic, Stock markets & Investing :: World finance

Businesses urged to help communities adapt to climate change

´╗┐PARIS, Dec 7 (Thomson Reuters Foundation) - From coconut growers in the Philippines whose trees were wiped out in Typhoon Haiyan to palm oil prices squeezed by El Nino-linked droughts, the bottom line of consumer products giant Unilever is taking bigger hits from extreme weather. With storms, floods and droughts hiking its business costs by an estimated 300 million-400 million euros ($325.44 million-$433.92 million) a year, it is moving to deal with those impacts, which are becoming more severe with climate change. In the Philippines, Unilever has provided storm-hit communities with tree seedlings. In Tanzania, the multinational is restoring degraded land and supplying higher-yielding tea plants to growers, as well as setting up a factory to buy excess production that is currently thrown away."This is not us doing charity, this is not us doing corporate social responsibility," Pier Luigi Sigismondi, the company's chief supply chain officer, told the Thomson Reuters Foundation."We can secure the supply of our business for the long-term, as we make a positive impact on the smallholder farmers and protect the environment at the same time."But do companies call work like this adaptation to climate change? If not, should they?There is pressure, both inside and outside the U. N. climate negotiations in Paris, for more private-sector involvement in adaptation efforts to enable people and economies to adjust to worsening extreme weather and rising seas as the planet warms. Businesses are increasingly moving to protect their own assets - and in some cases, their workers - from floods, extreme heat and other threats. But this has been a lower priority than reducing their emissions through using more renewable energy and energy-efficient technologies, said Lila Karbassi, head of environment and climate at the U. N. Global Compact Office, which works with the private sector on tackling climate change."The issue of adaptation is lagging a little bit behind," she said. No matter how far governments agree to curb global warming at crunch talks in Paris this week, "there will be unavoidable impacts" companies need to prepare for, she said. While this message appears to be filtering through to boardrooms, there is debate about how far corporate efforts on adaptation should go. In a report issued at the Paris climate summit on Monday, the U. N. Global Compact said companies increasingly recognise climate change as a critical factor for business continuity and competitiveness. But a narrow focus on risk management is not enough, it said.

"Companies depend on the health and resilience of the communities in which they operate, source materials and sell their products," it said."Corporate adaptation strategies that do not coordinate with public adaptation efforts or acknowledge the vulnerabilities of these communities are incomplete and will not ensure business continuity."RESPONSIBLE ADAPTATION The report lists 17 case studies of what it calls "responsible corporate adaptation". They range from Israeli company Netafim introducing a new rice cultivation strategy to decrease water use in India, to Sompo Japan Nipponkoa Group developing a "weather index insurance" programme to protect against climate change-induced crop damage in Thailand.

Karbassi noted it had been hard to find many case studies that fitted all the criteria for inclusion in the report. One problem is that companies have been taking measures to protect their supply chains from extreme weather for years, including impacts on food and water supplies. That started before such activities were branded as climate change adaptation. Pieter Pauw, a researcher with the German Development Institute, pointed to the complications of identifying which elements of a project to use less water, for example, actually count as climate adaptation rather than just water efficiency. And while some commodities firms may be working to help the small-scale producers that supply them with tea, cocoa, coffee or tobacco, that leaves many other subsistence farmers struggling to keep up their yields of maize or beans without any kind of help, he said. Even reaching the million or so farmers in Mars' global supply chains is challenging, Barry Parkin, the confectionery giant's chief sustainability officer, told a discussion on corporate adaptation in Paris on Monday. The company is working to strengthen its farmers' resilience through "dramatically improving" their yields and livelihoods. To achieve wider reach, Mars is collaborating with four of the world's other biggest chocolate brands and five major raw materials suppliers on the ground to pool knowledge in a common platform called "CocoaAction".

Getting the best adaptation strategies to millions of farmers requires "uncommon collaboration" in the market, as well as time and money, he noted. POOREST NOT PROFITABLE But action by companies that produce and use commodities can only be a partial solution to helping the poorest people cope with climate change impacts, said Tim Gore, climate change and food policy head with Oxfam International. Helping poor farmers adapt to climate impacts for the most part "are not profit-making investments", he said."Whether it's a subsistence farming community in Africa, or people living below sea level in Bangladesh that are out of reach of the private sector, how are we going to make sure those people are getting any kind of support?"That is why developing countries and aid agencies have been pushing for a commitment on government spending for adaptation in the new global climate deal due at the end of this week in Paris, where wrangling over responsibility for climate finance is fierce. Yet more collaboration between governments and business will clearly be required to adapt on the scale needed, with tens of billions of dollars needed each year, experts say. Policy makers should provide information and guidance, look for common areas of interest, fund research and development and provide subsidies for things like micro-insurance, the Global Compact report said. The U. N.'s Karbassi said there was much work to do to build good partnerships to boost adaptation for the poorest."I think it will be a huge trend in the next five to 10 years to see how businesses can be associated with governments to help the most vulnerable people affected by climate change," she said.

Islamic finance a boost for usaids afghan farm fund

´╗┐Feb 7 Economic instability and legal obstacles have slowed the introduction of modern forms of Islamic finance in Afghanistan. But sharia-compliant loans are beginning to play a role in the farm sector through a U.S.-funded aid programme. The Afghan government is using Islamic financial contracts to extend credit to farmers in areas where conventional banking has not fully satisfied demand for funds. The Agricultural Development Fund (ADF), set up in 2010 through a $100 million grant from the U.S. Agency for International Development (USAID), offers both conventional credit and Islamic financing. About $11 million of its loans approved between May 2011 and April 2012, or 70 percent of them, were sharia-compliant, the ADF says. Islamic finance obeys a religious ban on payment of interest and instead pays lenders with returns on real assets. Demand for such financing has been particularly strong in rural communities because people there tend to be conservative, said Juan Estrada-Valle, acting chief executive of the ADF. In Afghanistan's conventional banking sector, official lending rates hover around 15 percent, according to the World Bank, and farmers have been forced to buy agricultural inputs from traders on credit at inflated margins that in some cases exceed 40 percent.

"Credit has the potential to revolutionise Afghan agriculture, enabling commercial farmers and other agribusinesses to grow at a rapid pace and contribute to the growth of rural communities," Estrada-Valle said. PERCEPTIONS The ADF has had to overcome perception problems with its Islamic contracts. Some customers and their religious advisors were under the incorrect impression that Islamic loans should be free or cheaper than conventional ones.

While customers already knew of Islam's prohibition on interest, borrowers had to be educated about other principles including the fact that non-payment by a solvent borrower is a sin, Estrada-Valle said. The ADF's loan portfolio includes an all-women saffron association in Herat, apple farmers in Wardak province, and an industrial-scale producer of agricultural machinery in Jalalabad. As of October 2012, the ADF had provided loans to more than 15,000 farm households in 30 of Afghanistan's 34 provinces; it says it expects to reach 60,000 farmers by the end of 2014.

Its Islamic contracts follow the Hanafi school of thought, the predominant version of Islamic law in Afghanistan. The fund has so far developed five sharia-compliant contracts which cater to specific needs, said Natalie Schoon at British-based financial consultancy Formabb, who was involved in the project. One contract incorporates a down payment to allow hiring of labour and tools for the harvest period; others are designed bearing in mind crop cycles. Estrada-Valle said the ADF initially intended to make funds available to local financial institutions for on-lending to agricultural enterprises, but the financial institutions appeared not to have any appetite for this. So the ADF changed its focus to lending through non-financial institutions to farmers as well as agriculture-related enterprises; typical intermediaries include associations, cooperatives and large-scale farm stores. A law covering independent Islamic banks has yet to be approved by Afghanistan's parliament, and this is hindering the overall development of Islamic finance in the country. But since the ADF was set up as a fund, it is not subject to banking regulations, Schoon said. Last May, the central bank said it was considering issuing short-term Islamic bonds, or sukuk, to help the government raise money and develop the financial markets.