Good Business: Making Private Investments Work for Tropical Forests

Good Business: Making Private Investments Work for Tropical Forests

the Netherlands - 03 January, 2013

Private finance is currently the most significant source of investment for forestry. Estimated to total around US $ 15 billion per year in developing countries and countries in transition, private-sector investment in the forestry sector far outstrips the combined investments of governments and development agencies. Although broad sectoral investment parameters are generally well understood, the exact shape and weight of domestic and international flows remain to a large extent unclear. The United Nations Forum on Forests, among others, has called for better mapping of the forest finance landscape to create a clearer understanding of the types and potential impacts of complementary public and private investment on future forests.

With growing needs for forest products, there is increasing agreement that there is a significant gap between the levels of financing which are available from both public and private sources and the funding required to meet expected future demands. The private sector is well positioned to help fill this gap, and private flows are expected to continue to grow as investors explore new investment frontiers. The challenge for entrepreneurs will be to manage both the impact and long-term viability of their supply chains as competition over forest land for food, fibre and fuel production becomes increasingly critical.

While the availability of private money is good news, particularly when official development assistance is coming under increasing pressure, there is also cause for concern. Private-sector interests are often misaligned with local and global public interests, and social and environmental concerns are sometimes far less important to investors than their primary interest in profitability. A crucial challenge for policymakers will be to somehow reorient, increase and incentivize private finance to make it flow in adequate amounts towards sustainable, environmentally sound, and competitive forest management practices that can support responsible and profitable forest entrepreneurship.
Partnerships between public and private actors, various types of investors, communities and intermediaries can make a big difference by creating synergies that build on shared interests.

ETFRN News 54 brings together 23 articles that present and analyze concrete examples of various private actors along the tropical forest-finance chain (small, medium and large forest entrepreneurs and intermediary and advisory organizations). The experience of these frontrunners presents a compelling case for revisiting business as usual. As policy-makers and private actors refine their strategy for seizing opportunities and managing the risks associated with emerging forest-related markets, these articles demonstrate that overall economic, social and environmental benefits can be reaped if investments are targeted correctly.

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