FEATURE: Private sector emerges as key potential funder of sustainable forest management

As countries around the world struggle to find the necessary funds to sustainably manage their forests, the private sector is emerging as a key source of financing that, if tapped properly, could result in benefits for the environment along with profits for businesses.

“The private sector is among the new, emerging and innovative sources of forest financing,” Under-Secretary-General for Economic and Social Affairs Hu Wongbo said during the tenth session of the United Nations Forum on Forests (UNFF10). “Private sector financing has the potential to play a major role in the implementation of sustainable forest management.”

The Forum’s two-week session in Istanbul is expected to conclude this Friday with a number of key decisions, including on financing. An estimated $70 to $160 billion in global funding will be needed for sustainable forest management, or SFM, according to a 2012 study cited by UN Secretary-General Ban Ki-moon in his report to the Forum.

“Most countries are unable to raise adequate public funds for the forest sector, and reinvestment of revenues in forest management has been minimal,” Mr. Ban says, adding that the private sector, including forest communities, smallholders, industry and other investors, is a key source of financing.

While funding continues to be sought from traditional sources such as government budgets at the national level, and official development assistance, or ODA, at the international level, Mr. Wu noted that decision-makers are increasingly aware of the “changing landscape” of forest financing.

“Large companies are, undoubtedly, one of the least tapped sources of forest investment and financing. Yet they are also among our most important partners in the implementation of sustainable forest management.”

Experience on the ground has shown that there are win-win opportunities for all in sustainable forest management – for private companies, for local communities and for the environment, he stated, citing his own country, China, where businesses, farmers and local governments work together to fight soil erosion, land degradation and to promote reforestation.

“In many cases, companies have been able to secure returns on their investments in resource conservation; local farmers have continuously improved their sustainable livelihoods; and local economies have flourished,” he said.

The private sector can help in many ways, including through large-scale investments using direct financing or carbon credits; through public-private partnerships aimed at reliable provision of health, education and transportation for remote, forest-dwelling communities; or through government-regulated sustainable practices for forest management on timber concessions or private lands.

“However, we must also take a hard look at the impediments that discourage private investment in many countries,” Mr. Wu added. “To attract them to invest, we must all work side by side. It is the only way forward.”

Tuukka Castrén, Senior Forestry Specialist at the World Bank, agreed that the money needs to come from different sources. “ODA will play a role, and often it can play a catalytic role.

“But for genuine scaling up, we need to engage the private sector,” he said, adding that businesses, which have a legitimate interest in making money, can make a profit through sustainable forest management.

The World Bank Group provided close to $490 million in financing for forests in fiscal year 2012. Forest resources are crucial to the Bank’s mission of eradicating poverty because of their contribution to the livelihoods of the poor, the potential they offer for sustainable economic development, and the essential environmental services they provide.

While the Bank does not have data on the growing interest by the private sector in investing in sustainable forest management, “we have the feeling that the wind is blowing in that direction,” said Mr. Castrén.

He added that the largest investor group in sustainable forest management is the millions and millions of smallholder farmers who plant two or three trees on their farms to provide shade, fuel wood and provide watershed management functions.

“They are also investors and play a fundamental role in the whole system, even though we are not able to capture their contributions in our statistics.”

Another key source of financing for sustainable forest management is the UN-backed Global Environment Facility (GEF), which announced during the Forum that its financial support for forest management programmes recently hit the $500 million mark.

Ian Gray, Senior Forest Specialist at the GEF, noted that there are so many different demands in sustainable forest management that it is necessary to have a broader approach to financing.

“I think we’ve been hearing this week from many of the delegates that SFM is such a broad topic that you actually need a suite of funding processes and mechanisms. Some of those will be from national funds. But there is also a need and a call for the private sector to be able to contribute to that.”

In attracting the private sector, Mr. Gray stressed the need to ensure that the environment in recipient countries is conducive to investment and that sound policies are in place to ensure that sustainable forest management can fulfil its objectives.

The GEF is supporting projects such as one in Burundi that uses a certification process for coffee to help coffee growers move from open-grown coffee to more shade-grown production methods that would allow for reforestation. “By using the power of the market, we’re able to incentivize growers in that region to adopt sustainable practices for forests but also for growing coffee,” said Mr. Gray.

“The ideas are derived from the countries themselves,” he added. “Our key role is to try and make that process of accessing the funding that the GEF has as simple as possible.”

There is a growing interest from private sector investors, as well as from other public sectors given the multiple benefits and services provided by forests, said Tim Christophersen, Senior Programme Officer with the UN Environment Programme (UNEP).

“We see increasing interest from public sectors such as transport, water, energy to invest in forests as the green infrastructure that they need for their objectives,” he stated.

Among the ways UNEP seeks to make the case for investment in forests is through the UN Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation (REDD+), which seeks to create financial value for the carbon stored in forests, offering incentives for developing countries to reduce emissions and invest in low-carbon technologies to sustainable development.

“A lot more money is needed. There is no doubt about that,” said Mr. Christophersen, adding that large-scale investments by the private sector have not happened due to factors such as high transaction costs and associated risks.

“We are helping the private sector to work through those challenges to be able to invest more into sustainable, productive, resilient landscapes that can take up more carbon, produce more food, have more biodiversity, and produce more jobs and livelihoods.”

Working with the private sector will be crucial, he stressed, given the billions of dollars that will be needed to sustainably manage the world’s forests.

“That kind of money is not going to come from ODA,” he stated.