Beyond looking at ESG consideration from a risk and opportunity perspective, forestry investors and managers are increasingly seeking to generate positive impact in addition to market returns, particularly regarding issues such as climate change those related to the SDGs.
From a climate perspective, strategies include:
- Renewable energy: biomass, such as wood pellets, are burned instead of fossil fuels to generate electricity. In 2016, 10 percent of the world fs total energy supplies came from biomass. Critics have argued that green claims for biomass are misleading, as carbon and other chemicals are released into the atmosphere when the biomass is burned. However, proponents of biomass argue that the process can be considered carbonneutral as the carbon released is effectively recaptured by the growth of new trees.
- Forestry projects sold as carbon offsets: established emission trading schemes, such as California fs capand- trade scheme, allow for certain types of forestry projects to be sold as carbon offsets to more heavily polluting industries. Other jurisdictions like New Zealand and the EU are well positioned to follow suit, particularly with technological advancements and verification schemes in place to measure the carbon sequestered by trees in the projects. However, the lack of political will to implement carbon markets in many countries and regions, compounded by ongoing debate over how to effectively price carbon within them, remains an obstacle to large-scale investment in forestry for carbon offsetting purposes.
- Other forestry conservation schemes: in the US, the sale of conservation easements has, as previously noted, become an established strategy. Internationally, the UN-backed REDD and REDD+ Programmes were established to encourage governments in developing countries to greduce emissions from forested lands and invest in low-carbon paths to sustainable development10 h. This entails promoting schemes that promise results-based payments in return for actions that promote community development and reduce forest carbon emissions. By mid-2018, an estimated 6.3 gigatons of emission reductions were reported to have been achieved under the REDD+ Programme, although financing has almost entirely come from the government rather than private sources because, at present, the REDD+ projects do not generally generate market returns.
These efforts have been driven largely by developments such as the 2015 Paris Agreement and the Intergovernmental Panel on Climate Change’s 2018 report11 on the steps needed to limit global warming to 1.5C. Government representatives in Paris stated:
We, leaders, today in Paris on November 30th 2015, recognise the essential role forests play in the long-term health of our planet, in contributing to sustainable development, and in meeting our shared goal of avoiding dangerous climate change
Forestry is also included among the EU’s initial 24 economic activities that contribute substantially to climate change mitigation as part of its overall action plan for boosting the role of finance in driving sustainable growth.
An introduction to responsible investment in forestry
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Forestry as a climate investment