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:
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.
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).
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.
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.
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.
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:
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.
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.
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).
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This mapped evidence shows what outcomes and impacts this strategy can have, based on academic and field research.
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Each resource is assigned a rating of rigor according to the NESTA Standards of Evidence.
Area of land directly controlled by the organization and under sustainable cultivation or sustainable stewardship. Report directly controlled land area sustainably managed during the reporting period.
Organizations should footnote details about the nature of the direct control relationship and all assumptions used. See usage guidance for further information.
This measurement will depend on the definition of “sustainably managed.” Asset owners and managers should clearly outline their management approach. Third-party certification systems, such as the Forest Stewardship Council (FSC) and the Programme for the Endorsement of Forest Certification (PEFC), are a primary way to ensure sustainble forestry practices.
Due to the many problematic forestry sector practices, focusing on the amount of land that has been brought under sustainable management is key to measuring a wood products strategy’s impact. Project developers and managers will need to clearly outline their forest/plantation management practices (and monitor biophysical changes overtime) in order to demonstrate environmental sustainability.
Area of land indirectly controlled by the organization and under sustainable cultivation or sustainable stewardship. Report indirectly controlled land area sustainably managed during the reporting period.
Organizations should footnote details about the nature of the indirect control relationship and all assumptions used. See usage guidance for further information.
This measurement will depend on the definition of “sustainably managed.” Asset owners and managers should clearly outline their land/forest management approach. Third-party certification systems, such as the Forest Stewardship Council (FSC) and the Programme for the Endorsement of Forest Certification (PEFC), are a primary way to ensure sustainble forestry practices. Monitoring the management of land that is indirectly controlled can be more challenging than monitoring land that is directly controlled by organizations. To ensure success, it is important to invest in forest/plantation management training and monitoring systems.
For companies that employ an outgrower scheme (or distributed plantation model), monitoring the amount of land that participating smallholders/land owners sustainably manage can help to illustrate the overall environmental impact of the project. Project developers and managers will need to clearly outline third-party management practices (and monitor biophysical changes overtime) in order to demonstrate environmental sustainability.
Indicates whether the organization implements a forest management plan.
Organizations should footnote the relevant details about their forest management plan. See usage guidance for further information.
See metric usage guidance for information about typical information included in a forest management plan.
A forest management plan is important for ensuring the application of appropriate technical forestry principles, practices, and business techniques to the management of a forest to achieve the landowner’s objectives. Moreover, in cases where third-party forestry certification is not currently feasible, robust forest management plans with clearly defined sustainability principles are key to ensuring socially and environmentally responsible practices.
Describes third-party certifications for products/services sold by the organization that are valid as of the end of the reporting period.
Organization should footnote the certification name, certifying body, and date since the product/service has been continuously certified for all product/service level certifications obtained by the organization.
The main third-party forestry certification systems include the Forest Stewardship Council (FSC) , the Programme for the Endorsement of Forest Certification (PEFC), and the Sustainable Forestry Initiative (SFI).
Certifications help to differentiate projects that employ ethical and environmentally sutainable practices from those that do not. FSC, PEFC, and SFI are rigorous, third-party systems that help to ensure responsible forestry managenement practices, and can help investors and project managers to validate and monitor core metrics.
Amount of certified product produced by the organization during the reporting period.
Organizations should footnote all assumptions used as well as details about the certification.
The volume of certified wood products produced should be relatively straightforward to measure by analyzing a business’ production data. This metric focuses on wood products that have been certified through a third-party system such as the Forest Stewardship Council (FSC), the Programme for the Endorsement of Forest Certification (PEFC), and the Sustainable Forestry Initiative (SFI).
Certified wood products help to differentiate products that have been produced responsibly from those that have not.
Amount of greenhouse gas (GHG) emissions avoided or sequestered during the reporting period.
Organizations should footnote relevant details on the assumptions/methodologies used in calculating the emissions avoided or sequestered.
The amount of greenhouse gas emissions is calculated through a carefully monitored process, and should include all emissions avoided, reduced, or sequestered. For details on how to calculate all the emissions avoided or sequestered refer to the regulations for compliance markets or certification standards such as Verra’s Verified Carbon Standard, Climate Action Reserve, Gold Standard, Plan Vivo, or American Carbon Registry.
Climate mitigation can be a key reason for impact investors to finance sustainable wood production companies. For both natural forest and plantation projects with a carbon focus, the amount of greenhouse gas emissions avoided or sequestered should be measured to determine the carbon-related impact.
Number of full-time equivalent employees working for enterprises financed or supported by the organization as of the end of the reporting period.
Organizations should footnote all assumptions used. See usage guidance for further information.
This metric should be relatively easy to measure by analyzing a business’ daily operations. This metric focuses on formal jobs provided by the business. Employee working conditions should also be considered and described.
Bringing new jobs to local communities can create new prosperity at the local level, encouraging less rural-urban migration and more community satisfaction. Since employment is generally easy to measure, it functions as a proxy for the development of shared prosperity between the business and the community, and can help determine the long-term involvement and interest of the community.
Units/volume purchased from smallholder farmers who sold to the organization during the reporting period.
Organizations should footnote all assumptions used.
Organizations that work with local suppliers to source wood should monitor the volume of product purchased from smallholders, along with payments made.
Purchasing wood from smallholders through outgrower schemes, and providing fair compensation, can be a key contributor to local economic growth.
Indicates whether the organization implements a strategy to manage its interactions with local communities affected by its operations.
Organizations should footnote the relevant details about their community engagement strategy, and how it is being implemented. See usage guidance for further information.
One way to consider which communities to engage is to look at historical land titles. LandMark (http://www.landmarkmap.org/) provides data on indigenous and community land rights.
Production forestry projects often require involving traditional landowners, or others from the community who rely on the land. The forestry project should take care to ensure the community’s support for the project.
Area of land that has been reforested by the organization during the reporting period.
Organizations should footnote all assumptions used.
The total reforested area should be carefully measured using GPS data points to measure progress over time.
If pursuing a sustainable wood production strategy focused on degraded or deforested land, this metric can show the area of land that benefited from additional trees.
Indicates whether the organization has undertaken biodiversity-related assessments to evaluate the biological diversity present on the land that is directly or indirectly controlled by the organization.
Organizations should footnote details about what the assessments evaluate. See usage guidance for further information.
Depending on what kind of biodiversity the project is interested in measuring, a variety of different resources can help with biodiversity assessments, including the Integrated Biodiversity Assessment Tool (https://www.ibat-alliance.org/).
A biodiversity assessment helps to identify which flora and fauna species are supported by the project. This type of an assessment can help to determine which tree species to plant, which harvesting techniques to employ and which sections of a forest to conserve with the goal of maintaining or increasing local biodiversity.
Number of individuals who received training offered by the organization during the reporting period.
Organizations should footnote the type and extent of the training provided as well as who the training was provided to. See usage guidance for further information.
The metric captures the number of individuals who received training services (of any type) provided by the organization. Examples of training types, which should be footnoted, might include enterprise or business development and use of new technology or service. This metric should be disaggregated by gender, income level, and indigenous affiliation.
Organizations that include knowledge transfer, training, or follow-up support to local community members, including suppliers, employees or clients, should consider using this metric. Trainings and follow-up support can increase an investment’s positive social and environmental impact.