Dimensions of Impact: WHAT

Investors interested in deploying this strategy should consider the scale of the addressable problem, what positive outcomes might be, and how important the change would be to the people (or planet) experiencing it.

Key questions in this dimension include:

What problem does the investment aim to address? For the target stakeholders experiencing the problem, how important is this change?

Reducing Deforestation and Forest Degradation: In some parts of the world, the unsustainable commercial extraction of wood products from forests affects the balance of ecosystem services and threatens livelihoods in local communities. Increasing the volume of legally and responsibly produced wood and wood-based products can reduce demand for problematic management practices in the forestry sector that can result in deforestation and forest degradation. At the same time, economically viable models of sustainable forest management (SFM) and plantations following SFM principles counter deforestation by making forests worth more standing than felled.

The environmental and social impact of existing sustainable forest management operations, new logging operations, and tree plantations vary with local context, forest ecosystem dynamics, management practices, applied regulatory frameworks and safeguards, and specific distribution of revenues (1). To ensure that investments in sustainable forest management protect and enhance the social and environmental services forests provide, thorough due diligence is required to ensure companies or projects understand local community interests, regional forest ecologies, and possible ecological impacts. Measures to take include:

  • Committing to principles of responsible production, business, and investment to ensure inclusive project-planning processes, recognition of customary land rights, and the provision of adequate grievance mechanisms (2);
  • Establishing company–community partnerships to ensure that investments provide long-term livelihoods for households, including capacity building for entry into the forestry sector, fair compensation for land used, space allotted for other land uses, comprehensive benefit-sharing options, and contributions to local infrastructure (2);
  • Ensuring that managed forests and plantations protect biodiversity and their capacity to maintain ecosystem services, robustly monitor and evaluate logging activities, and create “set-asides” that can help to sustain ecological, carbon, nutrient, and water cycles and decrease the vulnerability of tree species to disease and fire (1); and
  • Ensuring that portfolio companies and projects comply with timber legality measures in countries where these already exist and supporting binding measures in markets that have not yet established effective legislation (3).

What is the scale of the problem?

Growing Demand for Wood and Wood-Based Products: From sawn wood to panels and pulpwood to biomass, wood products are ubiquitous in everyday life around the world. Wood products are used in furniture, construction, paper, hygiene, textiles, and energy—and demand is growing. To meet demand for all wood and wood-based products, the world will need around 250 million additional hectares of new tree plantations by 2050 (1). Increasing demand is driven primarily by economic growth and technological advancements that have opened new applications for wood fibers (4).

Unsustainable Forestry Practices in the Tropics: Industrial logging practice is several hundred years out of sync with the lifecycles of certain high-value timber species in the tropics (5). And in Indonesia, for instance, clearing forests and replacing them with fast wood plantations for pulp and paper accounted for more deforestation between 2000 and 2010 than palm oil plantations and coal mining (6).

Pervasive Rural Poverty and Inequalities: Despite progress made in reducing poverty, around 736 million people (or 10% of the global population) lived on less than USD 1.25 a day in 2015, with 80% of these people living in rural areas (7). At the same time, rural communities and Indigenous Peoples collectively hold at least half the world’s land, but national laws around the world recognize just 10% of all land as legally belonging to these communities (8). The disconnect between formally recognized land tenure and customary tenure must be respected when investing in forestry and land use.


Dimensions of Impact: WHO

Investors interested in deploying this strategy should consider whom they want to target, as almost every strategy has a host of potential beneficiaries. While some investors may target women of color living in a particular rural area, others may set targets more broadly, e.g., women. Investors interested in targeting particular populations should focus on strategies that have been shown to benefit those populations.

Key questions in this dimension include:

Who (people, planet, or both) is helped through investments aligned with this Strategic Goal?

The Planet: Forests, if managed responsibly, can help maintain global climate by reducing net greenhouse gas emissions. Through carbon sequestration, trees reduce atmospheric concentrations of carbon dioxide, which is responsible for the warming of the earth’s climate (9). Forests can also protect biodiversity by providing important buffers for and links between protected areas (1). Forests provide habitat for 80% of the earth’s terrestrial biodiversity, and these animals, plants, and insects are at risk of extinction if their forest habitats are damaged or eliminated (10).

Rural Communities: Those who live close to and rely on forested landscapes can be key target stakeholders of responsible investments in sustainable wood production. Around 40% percent of the global rural population living on less than USD 1.25 per day (approximately 250 million people worldwide) live in or around tropical forest and savannah and depend on forest resources for their livelihoods (11). Among other means, forests can improve the livelihoods of the rural poor by: (1) supporting current consumption or subsistence use; (2) providing valuable safety nets to respond to drought, unemployment, and health shocks; and (3) offering a possible pathway out of poverty (12). Local communities can also help to conserve forests while extracting timber, as in the case of the Maya Biosphere Reserve’s community forestry concessions in Guatemala, which boasts a near-zero deforestation rate (13).

What are the geographic attributes of those who are affected?

Current Trends: Between 2015–2017, the countries with the most deforestation were Brazil, the Democratic Republic of Congo, Indonesia, Malaysia, Bolivia, Colombia, Paraguay, Mozambique, and Côte d’Ivoire (14). Active management under responsible forest regimes and losses due to large scale events, such as wildfire, lead to significant annual losses of forest cover, but these activities are distinct from deforestation, which primarily occurs in the tropics (15). Of the estimated 250 million people living in or around tropical forest and savannah who are living in extreme poverty, 63% are in Africa, 34% are in Asia, and 3% are in Latin America (11). By contrast with tropical forest, temperate and boreal forests do not currently face large-scale deforestation; in many extra-tropical areas, forested area is stable or increasing (16). However, temperate forests continue to be fragmented by development, particularly in North America (17).

Global Opportunities: Concerned consumers, retailers, investors, communities, and governments increasingly want to ensure they make positive social and environmental contributions in buying and using wood and wood-based products (18). Pathways for generating positive impact through production forestry include certification of sustainable forest management and responsible plantation models.

  • Certification of sustainable forest management: While forest certification is not a goal in and of itself, certification provides third-party verification of the quality of forest and supply-chain management, particularly with regard to minimizing adverse social and environmental impacts and ensuring the legality of harvest. Approximately 309 million hectares of forest globally are certified through the Programme for the Endorsement of Forest Certification (PEFC), 88% of which are in the Northern Hemisphere (19), and approximately 200 million hectares of forest are certified through the Forest Stewardship Council (FSC), 83% of which are in the Northern Hemisphere (20). Investment in forest certification in the Global South is greatly needed and offers considerable opportunity.
  • Responsible plantation models: Plantations established on degraded land that may otherwise be permanently converted to non-forest uses offer opportunity for both financial return and impact. Research has shown that distributed plantations and mixed-species plantations, for instance, can particularly help to restore degraded land (4).


Dimensions of Impact: CONTRIBUTION

Investors considering investing in a company or portfolio aligned with this strategy should consider whether the effect they want to have compares to what is likely to happen anyway. Is the investment's contribution ‘likely better’ or ‘likely worse’ than what is likely to occur anyway across What, How much and Who?

Key questions in this dimension include:

How can investments in line with this Strategic Goal contribute to outcomes, and are these investments’ effects likely better, worse, or neutral than what would happen otherwise

Investments in responsible production forestry will be increasingly important alongside a growing global population, demand for wood and wood-based products, awareness of the positive climate-regulating effects of forest, and pressures on natural forests, as well as persistent, systemic rural poverty.

Investing in natural climate solutions, including reforestation, conservation, and improved forestry practices, can provide 37% of the cost-effective carbon dioxide mitigation needed through 2030 to keep warming below 2°C (21). Moreover, responsibly managed plantations can return marginal and degraded lands to productive use and protect soil from erosion (18).

With appropriate planning and safeguards, investments in the responsible production of wood and wood-based products can help to reduce rural poverty and inequalities by maintaining forests for long-term use. Investments in value-added forestry-processing operations (such as sawmills, veneer processing, and furniture manufacturing) can also create new skilled job opportunities.

Without such investments, the world’s forests will likely continue to be increasingly depleted or degraded, unsustainable plantations with negative environmental consequences will likely be established, and communities that live in and around forests will likely lose the forest resources on which they rely or be deprived of potential income-generating opportunities.

How Much

Dimensions of Impact: HOW MUCH

Investors deploying capital into investments aligned with this strategy should think about how significant the investment's effect might be. What is likely to be the change's breadth, depth, and duration?

Key questions in this dimension include:

How many target stakeholders can experience the outcome through investments aligned with this Strategic Goal?

All people and ecosystems, especially in the developing countries that are most vulnerable to the impact of climate change, benefit from forestry investments that sequester carbon.

Additionally, the wood products sector employs more than 13 million people formally and another 41 million people informally (22). Forestry companies and local SMEs can play an important role in job creation, income generation, and local economic growth. Each investment will require separate calculation of its total number of target stakeholders, which will depend on the scale and location of the project, among other factors.

How much change can target stakeholders experience through investments aligned with this Strategic Goal?

The amount and duration of change depend on the forestry project’s scale and safeguards employed. Impact investing in forestry should emphasize establishing long-term capacity to manage efficient, highly productive forestry systems, transferring technical and managerial skills, and ensuring long-term property rights (23). The following is one example of impact from a project aligned with this Strategic Goal:

  • Komaza, a Kenyan company, takes a distributed plantation (“microforestry”) approach to industrial wood production, aggregating timber supply from trees grown by smallholders on their own land. The forestry company aims to lift small-scale farmers out of poverty and has planted two million trees by partnering with more than 6,000 farmers since its founding in 2006 (24).


Dimensions of Impact: RISK

Key questions in this dimension include:

What impact risks do investments aligned with this Strategic Goal run? How can investments mitigate them?

Risks vary with project context, but the following are some common risk factors.

External Risk: Investors in the forestry sector should consider external environmental risks, including fire, tree diseases, insect outbreaks, and extreme weather events. A changing climate also affects species composition and performance, which poses risks to forestry operations. Beyond environmental and climate challenges is the ongoing problem of illegal logging, often closely associated with corruption, violence, human rights violations, and organized crime (3). Weak infrastructure and nascent plantation forestry markets in some developing countries also offer external challenges for wood production companies and their investors. Insurance can protect investors against potential damage caused by fire, tree diseases, insect outbreaks and extreme weather events. Multilateral consultations and partnerships during project design stage can also help secure community’s long-term buy-in and mitigate external risks caused by human activities (37).

Execution Risk: Inappropriate planning or inadequate knowledge of project context can lead to overharvesting, destructive logging, or planting inappropriate tree species, all of which can have negative environmental and social impacts. Among other factors, the sustainability of production and extraction depends on community goals, ecology, and forest-management practice. Transferring technology, ensuring legal compliance, and practicing responsible silviculture can help to mitigate execution risk.

Drop-off Risk: The benefits of a production forestry project may be lost after the conclusion of an investment period if long-term ownership and management of the forestland are ignored during due diligence, investment, or exit. Plantation trees might be harvested and not replanted, or secondary forests might be mismanaged and degraded. A successful wood-based product business can work with local communities to develop a responsible exit strategy aiming to transition forest to community and conservation owners (38).

Stakeholder Participation Risk: Work in the forestry sector must involve local communities, including Indigenous Peoples, in project planning to ensure their buy-in and the concomitant long-term success of a project. Opportunities to align community-development needs with forestry operations can provide long-term mitigation of this risk through, among other models, community-based forestry, outgrower schemes, and smallholder forestry programs.

What are likely consequences of these impact risk factors?

While varying with geographic location and local context, most of these risk factors could result in forest loss, damage to local ecosystems, and harm to local communities’ livelihoods. Investors in production forestry must research and thoroughly understand a project’s supply chain and partners to avoid unintended negative outcomes.

For tree plantations, further expansion should focus on degraded land while maintaining or restoring natural ecosystems in the surrounding landscape, safeguarding the rights and livelihoods of Indigenous Peoples and local communities, and promoting greater and broader sharing of benefits (1). Focusing on responsible intensification can also enable greater productivity per area of land used.

Third-party forestry certification can mitigate some potential risks, as certification schemes require that systems, policies, and procedures be in place to manage environmental, social, economic, governance, and general management risks. Physical risk insurance can cover potential damage caused by fire, tree diseases, insect outbreaks, and extreme weather events. Multi-stakeholder partnerships and informed consent from indigenous and local communities can help to secure social license to operate.

Illustrative Investment

INVESTMENT 1: New Forests, a specialist sustainable-forestry investment firm, has developed a proprietary environmental, social, and governance (ESG) and impact-management framework to evaluate forest productivity, ecosystem services, land-use planning, shared prosperity, governance, and risk management. The firm manages a total of 730,000 hectares of production-forestry investments around the world. As of 2018, 100% of New Forests’s 550,000 hectares of forestland estates in Australia and New Zealand are certified to Forest Stewardship Council (FSC) management requirements, with some estates also holding dual certification from the Programme for Endorsement of Forest Certification (PEFC). More than 120,000 hectares of forestland are managed for conservation, and all Australian investments include dedicated conservation programs that either support conservation research or improve and restore natural ecosystems and habitat. The firm’s Australia and New Zealand estates produced more than 6.3 million cubic meters of sustainable timber in 2018 for domestic and export supply chains, with a 99% certification rate by volume. New Forests’s investments across the two countries employ more than 2,000 workers through both direct and contract labor, and the firm ensures compliance with the core standards of the International Labour Organisation (ILO) (25).

INVESTMENT 2: Founded in 2010, Miro Forestry is a sustainable, commercially focused forestry company with operations in Ghana and Sierra Leone. The company plants trees on degraded land and produces plywood, sawn timber, poles, and wood biomass. Its operations are certified by the Forestry Stewardship Council (FSC). The company manages 13,000 hectares of degraded plantation forest in West Africa and employs approximately 1,600 people, 17% of whom are women and all of whom have access to medical care (26). Finnfund, a development financier with a core mission to pursue environmental and social sustainability, began financing Miro Forestry in 2014. Miro Forestry’s FSC certification—which is rare in West Africa—was a primary objective of Finnfund’s investment (27).

Draw on Evidence

This mapped evidence shows what outcomes and impacts this strategy can have, based on academic and field research.

Forest Concessions in the Maya Biosphere Reserve, Guatemala: A Decade Later

Radachowsky, Jeremy, Victor H. Ramos, Roan McNab, Erick H. Baur, Nikolay Kazakov.
“Forest concessions in the Maya Biosphere Reserve, Guatemala: A decade later.”
Forest Ecology and Management, volume 268 (15 March 2012): 18-28. https://doi.org/10.1016/j.foreco.2011.08.043.

Sustainable Forest Management as a Strategy to Combat Climate Change: Lessons from Mexican Communities

Mexican Civil Council for Sustainable Forestry (CCMSS) and the Rights and Resources Initiative (RRI). 2010. “Sustainable Forest Management as a Strategy to Combat Climate Change: Lessons from Mexican Communities.”

Rationale and Methods for Conserving Biodiversity in Plantation Forests

Hartley, Mitschka J. “Rationale and Methods for Conserving Biodiversity in Plantation Forests.” Forest Ecology and Management, Forest Ecology in the next Millennium : Putting the long view into Practice, 155, no. 1 (January 1, 2002): 81–95. https://doi.org/10.1016/S0378-1127(01)00549-7.

Thresholds of Logging Intensity to Maintain Tropical Forest Biodiversity

Burivalova, Zuzana, Çağan Hakkı Şekercioğlu, and Lian Pin Koh. “Thresholds of Logging Intensity to Maintain Tropical Forest Biodiversity.” Current Biology 24, no. 16 (August 18, 2014): 1893–98. https://doi.org/10.1016/j.cub.2014.06.065.

Impact of Forest Management on Species Richness: Global Meta-Analysis and Economic Trade-Offs

Chaudhary, A., Z. Burivalova, L. P. Koh, and S. Hellweg. 2016. “Impact of Forest Management on Species Richness: Global Meta-Analysis and Economic Trade-Offs.” Scientific Reports 6: 23954.

Forest Figures: Ecosystem Services Valuation and Policy Evaluation in Developing Countries

Ferraro, Paul J., Kathleen Lawlor, Katrina L. Mullan, and Subhrendu K. Pattanayak. “Forest Figures: Ecosystem Services Valuation and Policy Evaluation in Developing Countries.” Review of Environmental Economics and Policy 6, no. 1 (January 1, 2012): 20–44.

The Value of Forest Ecosystem Services to Developing Economies

Mullan, Katrina. 2014. “The Value of Forest Ecosystem Services to Developing Economies.” CGD Working Paper. Washington, DC: Center for Global Development.

Natural climate solutions

Griscom, Bronson W., Justin Adams, Peter W. Ellis, Richard A. Houghton, Guy Lomax, Daniela A. Miteva, William H. Schlesinger et al. 2017. “Natural Climate Solutions.” Proceedings of the National Academy of Sciences 114 (44): 11645–11650.

Each resource is assigned a rating of rigor according to the NESTA Standards of Evidence.

Define Metrics

Core Metrics

This starter set of core metrics — chosen from the IRIS catalog with the input of impact investors who work in this area — indicate performance toward objectives within this strategy. They can help with setting targets, tracking performance, and managing toward success.

Additional Metrics

While the above core metrics provide a starter set of measurements that can show outcomes of a portfolio targeted toward this goal, the additional metrics below — or others from the IRIS catalog — can provide more nuance and depth to understanding your impact.