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Why Sustainable Forestry Is a Good Investment

A decade ago, 100,000 volunteers from the Senegalese villages of Casamance and Siné Saloum joined together to replant 80 million mangrove trees, the world’s largest mangrove restoration program. Ten years later, the mangroves have sequestered more than 160,000 tons of carbon, the equivalent of taking more than 100,000 cars off the road every year. The restored coastal ecosystem better supports wildlife and local livelihoods, bringing villagers an additional 4,200 tons of fish, shrimp and oysters yearly. About 95% of villagers believe that the project has had a positive impact on their lives.

Local NGO Oceánium led the project, but impact investor Livelihoods Carbon Fund provided the financial backing. Ten companies—including Hermès, Danone and Michelin—have invested in the Livelihoods Carbon Fund with the dual goal of offsetting part of their carbon emissions and improving livelihoods in the developing world. The encouraging results of the mangrove restoration project show how investing in sustainable forestry projects can yield huge benefits.

Impact Investing for Sustainable Forestry

Impact investments, such as the ones supported by the Livelihoods Carbon Fund, are investments made with the intention of generating measurable social and environmental benefits alongside a financial return. The Global Impact Investing Network (GIIN), one of the world’s largest and most influential impact investing networks, has collaborated with investors for 10 years on how to increase the scale and effectiveness of their practice. Now, in partnership with WRI’s Global Restoration Initiative, the GIIN has developed guidance for sustainable and responsible forestry investments through its Navigating Impact project, a component of its larger IRIS+ system. This partnership enables investors to select sustainable forestry strategies and access evidence and metrics that measure progress toward their goals.

Conservation and Restoration Can Yield Big Results

As forest cover around the world continues to decline, many communities—especially their poorest members—continue to depend on land and forests for their livelihoods. As these benefits become better recognized and valued, investors in sustainable forestry are seeing financial returns that outperform investments in conventional timber.

Investors have already started putting their money into innovative forestry, land-use and other tree-based projects. These projects focus on making a profit while reducing greenhouse gases, strengthening local economies and increasing incomes, or improving ecosystem services like water quality, air quality or soil productivity.

The GIIN and WRI identified five main impact investing opportunities in the sustainable forestry space. Each offers examples of investments that are already yielding impressive results:

  1. Reducing carbon emissions from forestry and land use: Livelihoods Carbon Fund’s mangrove restoration program illustrates this first strategy. Mangroves sequester carbon, while also yielding bigger catches for local fishers.

  2. Increasing the conservation of forests and forest resources: Ecotrust Forest Management protects more than 100,000 acres of forest land across Oregon, Washington and California, providing vital habitat for wild salmon and trout while producing timber certified as sustainable by the Forest Stewardship Council (FSC).

  3. Increasing the production of sustainable wood products: Finnfund co-finances Miro Forestry’s operations in Ghana and Sierra Leone, which produce plywood, sawn timber, poles and wood biomass on 13,000 hectares of plantation forest. Planting 14 million trees has helped restore the previously degraded landscape and injected $7.6 million into the local economy in 2018 alone.

  4. Increasing the production of sustainable non-wood forest products: Root Capital works with an organic fruit farm cooperative in Costa Rica. In addition to reducing chemical fertilizer and pesticide use, the cooperative has raised average incomes per farm from $650 to $4,360 per year.

  5. Increasing the sustainability of local economies and communities through forests and land use: The Moringa Fund offers credit access, technical and management knowledge, and market access to smallholder farmers in Nicaragua through its investment in an outgrower program for Cafetalera Nicafrance, which produces high-quality coffee and timber on 1,800 hectares of land. Since 2015, the outgrower program has helped strengthen the local community by generating $3.4 million in value and providing 880 jobs.

Impact investments in sustainable forestry can also help meet global sustainability and development goals. In restoration, for example, impact investors have signed on as official financial partners to the African Forest Landscape Restoration Initiative (AFR100), which aims to restore 100 million hectares of degraded land by 2030, and the Latin America and Caribbean-focused Initiative 20x20, which aims to restore 20 million hectares of land by 2020. Through these initiatives, private sector partners have earmarked more than $480 million for restoration in Africa and $2.4 billion for reversing land degradation in Latin America.

How to Ensure that Sustainable Forestry Investments Are Successful?

However, sustainable forestry isn’t free from risks. Environmental challenges like pests or fires and socio-economic challenges like illegal logging can be considerable setbacks for any forestry project. Beyond these external risks, unsustainable forestry practices—such as overharvesting, destructive logging, or planting inappropriate tree species—remain a challenge.

Investors should perform thorough due diligence to understand the possible ecological impacts of a project and the interests of the local communities involved. One of the most meaningful ways to mitigate risk and generate positive impact is to ensure that local communities are engaged in the sustainable forestry project. For example, Livelihoods Carbon Fund said that villagers acting as principal agents of change were and continue to be vital to the project’s success. (Interested investors can find a sample due diligence questionnaire in GIIN’s latest report on Scaling Impact Investment in Forestry.)

As more investors explore sustainable forestry as a compelling financial and impact opportunity, it will be critical for them to understand how to navigate the complex sector to drive greater results for people and the planet. Check out the GIIN’s new Sustainable Forestry Navigating Impact project theme to learn more.

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