Over 20 years ago you saw the need to use market forces to protect forests and other natural resources. This concept is so relevant today when Amazon fires bring forests to the headlines of all global publications. Can you tell us about the inception of the Forest Trends?
I was working at the MacArthur Foundation, focusing on protecting tropical forests and other ecosystems in places with incredible biodiversity that were at risk. And it became increasingly clear that we had the financial equation wrong. The traditional conservation model of putting up a fence and creating a protected area wasn’t enough.
I remember a meeting in Papua New Guinea with a minister, where we offered $5 million over three years for conservation. We thought it would be a big deal, but the minister was unimpressed. And I had the realization that we were being outcompeted by illegal logging, which was much more lucrative. We weren’t able to make a counter-offer that matched the value of the illegal timber coming from the places we were trying to protect.
Forest Trends was founded on the idea that we need to make tropical forests just as valuable, or more valuable, than the things that threaten them, whether that is illegal logging or soy or cattle ranching. In the same way that you can value an acre of soy, you can also value the clean water or carbon storage that forests provide. By marketing those values, you create an incentive to keep the forest standing.
I also wanted to create a different kind of organization – one that deliberately stays small, nimble, and committed to coalition-building. We seek to build partnerships in the places where we work, and to build capacity in those local organizations, rather than becoming a large organization ourselves with many offices. That means our projects are sustainable in the long run even if Forest Trends leaves, and it allows us to be more entrepreneurial and to pivot quickly when new opportunities arise.
Today in the Amazon we’re seeing, very dramatically, that the financial equation is wrong. Agriculture is the primary driver of deforestation in tropical forests. There are a lot of incentives to burn and clear the forest, and not many incentives to keep it standing. That’s because many of the things we all know are valuable about the Amazon – its biodiversity, its carbon storage, its role in creating rainfall across South America – are not being valued correctly in our economic system. And so we end up with a deforestation-based economy in the Amazon when what we need is a forest-based economy. It’s terribly short-term thinking.
Business and investment community thinking about the value and risks related to natural resources and forests specifically, has evolved significantly over the last two decades. Please share with us some of the highlights and milestones of the Forest Trends journey.
We are in the middle of a paradigm shift in the business and investment communities. When we first launched the Business and Biodiversity Offsets Program (BBOP) in 2004, that was a very unusual coalition at the time. We’ve had 60 companies, more than 90 financial institutions, and more than a hundred governments all come together around the idea of “No Net Loss” or “Net Gain” of biodiversity. That means all new infrastructure and development projects happen hand-in-hand with new conservation projects. It’s replacing the old paradigm of “environment versus growth” with a new approach.
We’ve seen the environmental markets and finance space mature in the last ten to fifteen years, although it is still not in the mainstream as much as I’d like. In the United States, for example, the ecological restoration industry is a $25 billion-a-year sector that supports more jobs than logging, coal mining, or iron and steel. But your average policymaker or investor has never heard of it. Our Ecosystem Marketplace platform was launched to be a kind of “Bloomberg of environmental markets.” We think that growth requires better information about how these markets and investments are performing. Ecosystem Marketplace tracks these vehicles and publishes data and analysis free-of-charge. We cover carbon markets, wetland and species banking and offsets, water markets, and most recently the conservation investment space with our State of Private Investments in Conservation report.
One of the most exciting things that has happened recently are companies looking at how their supply chains are inadvertently driving deforestation, and taking action to address that. We launched our Supply Change initiative in 2015 to be a centralized platform tracking corporate commitments on deforestation, and progress in implementing those commitments.
Companies are taking deforestation and climate risk seriously. In some places where we work like Vietnam, it’s industry pushing for sustainability, even harder than regulators. They’re concerned about accessing markets, about reputational risks, and about investor pressure.
How do you see the road ahead in preserving the global value of forests, bio-mass and resources such as water. How do you see the role of the financial sector in leading preservation initiatives?
We just released a report this summer specifically for investors on how they can push companies to design, implement, and report on zero-deforestation commitments for their supply chains. We’re hearing a lot of interest from the investment community in better understanding how to move forward. I think the trend is going to go from demanding transparency, to traceability, to full sustainability.
This isn’t just a risk management play, either. Investors are starting to hook onto sustainable forestry and agriculture as a very interesting new asset class. When you manage land sustainability, you can market not only timber or agricultural commodities but also emissions reductions, clean water, habitat, and so on. We are beginning to see mainstream investors and not only impact investors, because the returns are there.
Of course, sometimes you need “leap of faith” or concessional finance. Forest Trends has worked to convene private investors with multilateral banks, bilateral donors, and the philanthropic community to figure out how to deploy blended finance at scale.
We also collaborate with strategic partners to demonstrate new and innovative financing models. In Brazil we’re working to deploy a major new green forest bond with the World Bank, the Brazilian Development Bank, commercial banks, and government ministries. Brazil needs to restore 12 million hectares of forest; there is an opportunity to bring global capital to the table to do that.
What is your advice to business community, and specifically to global supply chains re: preserving the value of natural resources?
First of all, businesses need to follow through on the zero-deforestation commitments that have already been made. Supply Change has documented hundreds of pledges to change the way businesses produce or procure the “big four” commodities that are closely linked with deforestation: palm, soy, cattle, and timber & pulp.
A lot of companies are struggling with how to meet those commitments and define progress. We’ve been working with the Accountability Framework, which is a cross-sector effort to get consensus across the field on metrics, guidance, and what we consider best practice. There’s no time for companies to reinvent the wheel. We think collaboration and better industry alignment will speed up implementation progress and improve accountability around commitments.
Companies can also do more to provide funding and support to change commodity production practices. We’re seeing consumer-facing companies failing to help carry the cost of switching to sustainable production on the ground. Producers, especially smallholders, need investment capital and technical support. Just excluding bad actors from supply chains is not going to work.
Corporate leaders committed to eliminating deforestation should also consider how they can link their supply chain actions to climate action. We’re working on a financing model where businesses back up their zero-deforestation commitment with a pledge to buy REDD+ credits through a public-private fund structure. Having those pledges in place would allow countries and jurisdictions in forested countries like Brazil to be much more ambitious in their climate action. Right now they don’t have the confidence that if they protect their forests, the global community will come through with the funding.
Investors can do their part by seeking out investment products aligned with the Sustainable Development Goals or zero-deforestation, or requiring sustainability certifications from traditional investment products.
Investors can also make direct investments in sustainable forestry or agriculture that include a conservation component. The Tambopata-Bahuaja REDD+ and Agroforestry Project is a good example of this.