Research supported by FAPESP underpins financing mechanism for climate action in São Paulo

Scientists from the BIOTA Synthesis project helped develop the strategy that uses blended finance to promote the restoration and conservation of ecosystems in the state.

By Pedro Alves Duarte  |  Agência FAPESP* – Launched in June by the São Paulo State Department for the Environment, Infrastructure and Logistics (SEMIL), the Finaclima-SP program aims to finance actions to restore ecosystem in the state. It was proposed to facilitate the raising and management of funds for actions to reduce greenhouse gas emissions and to support the implementation of the Climate Action Plan (PAC) and the State Plan for Climate Adaptation and Resilience (PEARC). The creation of this instrument, as well as part of the two plans, was based on research carried out at the Nucleus of Analysis and Synthesis of Nature-Based Solutions at the University of São Paulo (USP), a project known as BIOTA Synthesis and funded by FAPESP through its Research Program on Characterization, Conservation, Restoration and Sustainable Use of Biodiversity (BIOTA-FAPESP).

Established by Decree 68,577/24, Finaclima-SP allows for the combination of public and private funds. This strategy, known as blended finance, is recognized as the most efficient way to attract private capital within a state-supervised environment, thereby increasing the budget for ecosystem restoration and conservation projects. Despite providing various environmental and social benefits, restoration projects are costly and take time to generate the expected returns, which makes financing them unattractive for the private sector.

“When you finance the restoration of ecosystems, the cost is very high,” says Fernando Henrique de Sousa, a specialist in economic instruments for conservation and restoration and a postdoctoral researcher at the Luiz de Queiroz College of Agriculture (ESALQ-USP). “So the proposal is to bring together these capitals, public resources with philanthropic resources [for example, from NGOs or philanthropic funds] and multilateral organizations [such as the World Bank], as well as private investors, reducing the possible risks.”

As part of the BIOTA Synthesis project, the researchers studied possible arrangements that could be implemented as public policy to make the blended finance practice viable for raising funds for restoration.

“We set out to study the potential sources of funding,” says Sousa. “So we listed more than 20 international and national sources that could support restoration in the state of São Paulo, such as funds from the BNDES [National Bank for Economic and Social Development] specifically for restoration, and even international funds that have restoration as part of their agenda.”

The researchers realized that regulation was a bottleneck to making this type of financing viable. “When the Payment for Environmental Services [PES] strategy began to be discussed in the state of São Paulo, the group led by [agronomist] Helena Carrascosa of SEMIL saw the possibility of having a financing mechanism that went beyond PES,” recalls ecologist Jean Paul Metzger, professor at USP’s Institute of Biosciences (IB) and scientific director of BIOTA Synthesis.

The discussions on PES financing were expanded with the proposal to implement the logic of blended finance to support restoration in the state of São Paulo. “In these synthesis sessions, we designed an architecture of what this governance should look like in a more transparent, isonomic way that could meet the challenge of blended finance in the case of the state of São Paulo,” reports Sousa. The Technical Note prepared by BIOTA Synthesis served as a proposal for SEMIL, which in turn hired legal counsel from FIA (Fundação Instituto de Administração) business school to help draft a text for the decree.

The new instrument is also in line with the Global Biodiversity Framework, published in 2022, which stipulates the practice of blended finance as a fundraising mechanism. For Sousa, who contributed to the BIOTA Synthesis project by collecting and analyzing the information that underpinned the creation of Finaclima-SP, the main point of the new mechanism is to create the figure of the technical manager of resources.

“The state is going to put out tenders to invite entities to act in the management of these resources. But it has a public governance made up of state actors, civil society actors and market actors,” he explains. “This whole mechanism is designed to meet the public interest of restoration and conservation in the state, in order to achieve the goals of the Climate Action Plan, which calls for 1.5 million hectares to be restored.”

The return on investment is linked to the different types of restoration. “One thing we work a lot on at BIOTA Synthesis is the logic of multifunctional forests, which are also productive,” explains Sousa. “You can have agroforestry systems and native vegetation systems with economic use within this logic.”

Co-production efforts

The creation of Finaclima-SP began in 2022, when SEMIL researchers and technicians joined forces to contribute to the drafting of the Climate Action Plan. “The main demand was to promote carbon capture through the [program] Refloresta-SP, in addition to the goal of restoring 1.5 million hectares using the Forest Code,” recalls Metzger. “In addition to implementing the Forest Code in the state, how could we, through economic incentives, stimulate the forest economy to go beyond what is required by law?”

Based on discussions that took place to contribute to the formulation of the PAC, and the realization that it was necessary to establish rules for the financing of these programs, the members of BIOTA Synthesis formed a working group to study the topic of blended finance.

“We brought together our researchers and some guests from partner organizations, such as The Nature Conservancy, the SOS Mata Atlântica Foundation, the World Resources Institute, and also the BNDES,” recalls Sousa. “This is the main tool of BIOTA Synthesis: this model of bringing together minds with different repertoires to think synthetically about a public policy proposal.”

In the two synthesis meetings on the subject, the team drew up a structure for implementing the practice of blended finance, outlining the purposes of the resources and the type of funding that the state of São Paulo would raise from multilateral organizations or private investment; in addition to drawing up the proposal for the instrument and its governance. The proposal to promote blended finance was presented in the technical note Ecosystem restoration: financing through Blended Finance and Biodiversity Funds, signed by Fernando Henrique Sousa, Rafael Chaves (deputy director of BIOTA Synthesis and environmental specialist at SEMIL) and Alexandre de Gerard Braga (environmental specialist at SEMIL).

After the FIA drafted a text for the decree based on the technical note, a third synthesis session was held in May 2024 to review the text proposed by the legal consultant. As a result, new contributions were made and the Finaclima-SP decree was finalized.

According to Sousa, this decree is the product of discussions among these researchers. “I think that if we hadn’t brought all these experts together to discuss these insights to make things more operational and more effective, [Finaclima-SP] wouldn’t have happened. So I think this is a great highlight of the potential that BIOTA Synthesis brings as an agglutinator of scientific knowledge in different fields.”

Metzger recognizes that the main purpose of the project is to address the demands, concerns and needs for public policy formulation put forward by government managers and institutional actors. “How can we act? By being present, by matching data with public policy demands. It’s by acting at this interface between science and policy, providing credibility, support and consistent data.”

* Pedro Alves Duarte is a FAPESP science journalism scholarship holder associated with the BIOTA Synthesis project.