Forest Sector Investments in a Changing Climate

Abstract

Forestry sector is at the highest priority of the climate change policy discussion, now focusing on REDD+. The developed countries pledged large funding flows for actions to mitigate climate change in the forests of the developing world during the COP-15, and confirmed them in COP-16. Their total amount is set to gradually reach $100 billion per year by 2020, outmatching other forms of public funding and foreign direct investments in forestry and industry by a huge margin. The international investors hold an estimated portfolio of $60–70 billion in forestry worldwide, which is far from the potential capitalization of the available forests. Considering its compounded future value in the future supply of wood fibre, biomass, environmental services and non-wood forest products, the forestry sector is under-invested and sub-optimally productive. Many forest corporations have relinquished forest ownership from their core industrial business to remain more profitable. Private and local control over forests outside the industry is on the increase.

Investing in forestry is at best offering counter-cyclical, predictable long-term rates of return, and serves for hedging against turbulence on other investment segments. Political mandates to sequester and stock more carbon in forests and substitute fossil fuels for bio-energy have attracted a keen interest in the forest sector. Forest industry, on the other hand, has been a low return business for most developed countries, while fast-emerging economies have established a highly competitive industry. Restructuring needs have led e.g. to the re-invention of the bio-refinery concept, which seems a promising solution for integrating multiple-product flows (solid wood products, pulp and paper, green chemicals and materials, solid and liquid bio-fuels) into the existing forestry and industry system.

Large institutional investors may become the game changers for low-carbon ­economy through forest sector. Foresters must convince them on the multiple ­environmental benefits, and on forest industry’s sustainable products and materials opening up important pathways to low-carbon production and consumption.