Companies and investors are increasingly expected to find a response not only in their mission statements and strategies, but in their business-as-usual.
We know that any of the pathways that can reach the Paris goals or the SDGs must be tree-lined – with abundant and intact tropical forests; a near-immediate halt in forest conversion and significant forest restoration is needed over the coming decades.
Reputational pressures are stirring the investment community towards a focus on natural assets, with many private investors now choosing to invest in natural capital to reduce risk and boost the resilience of their portfolios. Yet action has been slow and beset by the difficulty of aligning investor appetite with investible deals: opportunities at scale which effectively balance risk and provide clear returns.
A new investible sector
A diverse, innovative and evolving set of businesses are proving that protecting and restoring forests can provide real financial returns, create transformative social impacts and deliver many environmental benefits.
The Prosperous Forests report, published by the Food and Land Use Coalition, showcased a series of regenerative business models already being established across the tropical belt. Recognising that natural systems are already deeply impacted, these models are going beyond sustainability – to actively renew valuable and vulnerable landscapes.
In three distinct categories, these businesses respond to different landscapes and appreciate their competing land-uses and users: they create value from standing forest, forest regrowth, or enable sustainable agricultural production. (See figure below)
From novel financing mechanisms in Indonesia to premium coffee out of Ethiopia’s old-growth forests, every business model involves a unique human and environmental story and contributes to creating diverse, productive and climate-resilient forest economies.
Enhancing the value of standing forest
For the 380 million hectares of primary forests that remain, successful regenerative models include creating markets for niche wild forest products.
In the heart of Borneo, where most of the villages are surrounded by oil palm plantations, and local people are under pressure to also convert their land, Forestwise is supporting collectors to secure a more reliable livelihood from the forest’s illipe nut.
Extracting the nut’s rich butter provides a forest-friendly alternative to shea or cocoa. And having first overcome the challenge of the illipe’s irregular fruiting cycle (which can be as long as five years), innovations in factory storage meant Forestwise could extend the illipe’s shelf-life outside of harvest season.
By unlocking the value of the nut, the company is bringing a high-end ingredient to national and international cosmetic markets – with companies like Lush among its buyers. And vitally, collectors – who are trained in processing the finest nuts – can see the clear benefits of protecting the forest, enjoying as much as six times their annual incomes from illipe harvests.
Producing while protecting
Where forested areas have given way to agricultural activities, regenerative models are improving production efficiency, reducing the environmental impact on forest boundaries and other surrounding natural vegetation.
In Ghana, cocoa has been responsible for more than a quarter of the country’s forest loss. Here, French cocoa trading company Touton is aiming to make the 240,000-hectare Juabeso-Bia landscape sustainable and deforestation-free.
Working with a consortium of partners that includes the Ghana Forestry Commission and Ghana Cocoa Board, Touton has set up a licensed buying company to purchase beans directly from farmers. In linking its supply to a specific sourcing landscape, Touton is able to oversee production to certify its cocoa as ‘Climate-Smart’, which it markets to buyers like Mars, Mondelez and Ferrero.
The partnership also gives ground-level support to cocoa farmers, offering training and premium payments in exchange for commitments on sustainable land-use and forest protection. A Landscape Management Board, with active participation from communities, is a key part of enabling and monitoring sustainable practices across the landscape.
In taking this landscape view, Touton breaks a historic cycle of environmental degradation to establish a highly productive system that improves livelihoods and protects 160,000 hectares of surrounding forest reserve.
Creating value from forest regrowth
Over 140 million hectares of restoration commitments have been pledged across the global tropics, where unsustainable use and extraction of natural resources have left land degraded. But restoration can be prohibitively expensive.
Under its Forest Code and Nationally Determined Contributions, Brazil has ambitious targets to restore up to 12 million hectares of forest by 2030. Rising to meet this demand, the Xingu Seeds Network (ARSX) has pioneered a model of selling sustainably collected restoration seeds from more than 200 native tree species.
The ARSX matches requests for native seeds with groups of collectors it employs from different communities based near Xingu Park – an indigenous territory home to 16 different tribes. The 500-strong network – Brazil’s largest – has hubs across indigenous villages and rural settlements.
The collected seeds support a novel restoration technique called Muvuca (a ‘rowdy gathering’ in Portuguese). Involving directly planting a seed mix, Muvuca is a lot cheaper that traditional methods of seedling-planting and mimics the forest’s natural regeneration process; the bustling forest ecosystem it reproduces is much denser, with far greater biodiversity.
Since its inception, the ARSX has already recovered around 6,000 hectares of degraded forest along the Xingu and Araguaia Basin and in other regions of the Amazon and Cerrado.
A new asset class that must grow quickly
These represent just a snapshot of the models that, taken together, are driving early growth of a new asset class of investment opportunities. The challenge now is to take this nascent sector and massively and urgently scale it up.
More than 300 million hectares will need to be brought under regenerative management within the next decade if we are to close off the 600 million-hectare ‘forest frontier’ by 2030. Creating these sustainable businesses that will halt deforestation and protect the forest beyond, will require more than 20% annual growth in regenerative models from 2020 onwards – and a substantial, proactive and sustained commitment by businesses and investors.
Such opportunities for business actors to connect directly with pioneers to create diverse, productive and transparent supply chains; to invest in ecosystems to hedge against risk, increase resilience and generate new value streams; and uncover untapped value through nature-based innovation cannot be overlooked.
Some of the most scalable and cost-effective solutions to climate change that we have – that we will ever have – are provided by nature. And as we dive into this landmark year, it is up to all of us to choose them.