A market in ‘forest bonds’ could offer a vital means of raising the finance necessary to protect the world’s tropical forests, WWF says in a report published today.
The conservation group joins the Global Canopy Programme and the Climate Bonds Initiative in calling on governments to help underpin the issuance of bonds whose revenues are directed towards forest conservation, in exchange for payments from sustainable timber, carbon and other payment for environmental services markets.
“The alarming rate of forest loss around the globe is releasing billions of tonnes of CO2 [carbon dioxide] and destroying irreplaceable biodiversity,” said Don Kanak, chairman of insurance group Prudential Corporation Asia and advisor to WWF’s forest and climate initiative. “The world needs to increase forest finance by tens of billions of dollars in the current decade just to halve this forest loss.”
“Forest bonds may be a promising way to close that short-term gap in financing so our forests don’t slip away while we sort out how were going to fund their long-term conservation,” he added.
The three groups have today published a report based on a workshop held earlier this year, supported by Goldman Sachs and Foundation 1796, the philanthropic arm of Swiss private bank Lombard Odier Darier Hentsch & Company.
Unlocking Forest Bonds notes that not only do the bond markets offer the large-scale of upfront financing needed, but they are also already used to finance public-private partnerships in infrastructure, development and health.
It says that, while the carbon markets offer one potential revenue stream, they are “not yet reliable enough” and will need to be supplemented by “sustainable timber and agricultural markets, regulation (eg taxes, liability regulation), and forest-friendly lending (eg to ecosystem-dependent small and medium-sized enterprises).” It argues that public policy support will be needed to create many of these revenue streams.
The report also suggests that the public sector should step in with “risk mitigation” tools, such as political risk guarantees.
It urges that the benefits from any bond issues should be “equitably shared amongst all stakeholders, rather than accruing to the private sector alone”, and notes that disconnects remain “between the international investor community … and the projects on the ground” and between the public and private sectors.
“Communication between the private and public sectors must be increased if public funding is ever going to catalyse a much larger scale of forest preservation than it can achieve on its own,” it says.
