ETF r n I s s u e N o . 54, December 2012 n E w s 5 4 Good Business: Making Private Investments Work for Tropical Forests EuropEan Tropical ForEsT ResEarch Network European Tropical ForEsT ResEarch Network eTFrN News Good Business: Making Private Investments Work for Tropical Forests IssuE no. 54, DEcember 2012 This publication has been produced with the financial assistance of the Program on Forests (ProFor), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) Gmbh on behalf of the German Ministry for Economic cooperation and Development (BMZ), the Ministry of agriculture and Forestry of Finland, the Federal Ministry of agriculture, Forestry, Environment and Water Management of austria and the Government of the netherlands. The views expressed herein are the sole responsibility of the authors and can in no way be taken to reflect the views of ETFrn, Tropenbos International, or the other participating organizations. Published by: Tropenbos International, Wageningen, the netherlands copyright: © 2012 ETFrn and Tropenbos International, Wageningen, the netherlands Texts may be reproduced for non-commercial purposes, citing the source. citation: asen, alexander, herman savenije and Fabian schmidt. (eds.). (2012). Good Business: Making Private Investments Work for Tropical Forests. Tropenbos International, Wageningen, the netherlands. xx + 196 pp. Editors: alexander asen, herman savenije and Fabian schmidt Final editing and layout: Patricia halladay Graphic Design IsBn: 978-90-5113-111-6 Issn: 1876-5866 cover photo: Heliconia, Malaysia. herman savenije Printed by: Digigrafi, Veenendaal, the netherlands available from: ETFrn c/o Tropenbos International P.o. Box 232, 6700 aE Wageningen, the netherlands tel. +31 317 48 14 16 e-mail [email protected] www.etfrn.org This publication is printed on Fsc®-certified paper. contents Preface v Making private investments work for tropical forests – a synthesis vii Alexander Asen, Marco Boscolo, Tuukka Castrén, Herman Savenije, Fabian Schmidt and Kees van Dijk section 1: Large-scale investments 1 1.1 Can timberland investments in emerging markets secure forest sustainability? 3 Reinhold Glauner, James A. Rinehart and Peter D’Anieri 1.2 Responsible investment in emerging timberland markets 10 Darius Sarshar, MaryKate Hanlon, David Brand and Radha Kuppalli 1.3 Plantation forests: an economic driver for upland communities in the Philippines 18 David King 1.4 Private equity investments in forestry: overcoming barriers 27 Markus Grulke, Timm Tennigkeit, Christian Held, Frédéric Brodach and Clemens Hüttner 1.5 Ecosystem restoration in Indonesia’s production forests: towards financial feasibility 35 Thomas A. Walsh, Yoppy Hidayanto, Asmui and Agus Budi Utomo 1.6 Increasing the competitiveness of the Brazilian forest sector 42 Ivan Tomaselli, Sofia R. Hirakuri and Gabriel Penno Saraiva section 2: small-scale forestry 51 2.1 The emergence of investing in locally controlled forestry 53 Duncan Macqueen 2.2 Rethinking investment in locally controlled forestry 60 Dominic Elson 2.3 EcoEnterprises Fund’s experience in sustainable forestry 67 Nathalie Prado 2.4 Linking a wild medicinal plant cooperative to socially responsible companies 73 Josef Brinckmann and Bryony Morgan 2.5 Business as unusual: a pioneering forest enterprise 81 Jhony Zapata and Alexander Asen section 3: catalyzing investments 87 3.1 Facilitating private forestry investments: a practical approach to risk assessment 89 Stefan Haas, Alexander Watson and Fabian Schmidt 3.2 Triggering private- sector investment in sustainable forest management 100 Siv Øystese, Patrick Matakala, Mwape Sichilongo, Jaime Echeverría and Mia Rowan 3.3 Financing sustainable forest management in the amazon 109 Petra Hamers, Noemi Perez and Lucas Simons 3.4 Credit schemes in the Peruvian amazon 117 Ramón Carrillo Arellano section 4: coalitions and partnerships 123 4.1 Supporting sFM through benefit-sharing arrangements 125 Diji Chandrasekharan Behr and Kenneth Rosenbaum 4.2 Working with the private sector: insights from German development cooperation 134 Fabian Schmidt, Christine Wolf, Anna Karolina Lamik, Charlotte Sluka, Corinna Brunschön and Juliette Vouriot 4.3 Shared investment in small-scale woodlots in the Bolivian amazon 144 Dennis Berger and Anko Stilma 4.4 Principles for private investment in community forestry partnerships in Panama 152 Andrew Parrucci and Chris Meyer section 5: Tools and approaches 159 5.1 Regaining investor trust through enhanced transparency 161 Justin Whalen, Martijn Snoep, Maarten den Uijl and Remco van Wijk 5.2 Boosting investor confidence: the role of corporate social responsibility 166 Mogens Pedersen and Matthias Baldus 5.3 How integrated investment approaches can help safeguard forests 172 Michael Sahm 5.4 Industry-level frameworks to improve access to rEDD+ financing 178 Gabriel Thoumi and John Waugh contact list 188 preface Private finance is currently the most significant source of investment for forestry. Estimated to total around US$ 15 billion per year in developing countries and countries in transition, private-sector investment in the forestry sector far outstrips the combined investments of governments and development agencies. although broad sectoral investment parameters are generally well understood, the exact shape and weight of domestic and international flows remain to a large extent unclear. The united nations Forum on Forests, among others, has called for better mapping of the forest finance landscape to create a clearer understanding of the types and potential impacts of complementary public and private investment on future forests. With growing needs for forest products, there is increasing agreement that there is a Photo: Ivan Karnadi significant gap between the levels of financing which are available from both public and private sources and the funding required to meet expected future demands. The private sector is well positioned to help fill this gap, and private flows are expected to continue to grow as investors explore new investment frontiers. The challenge for entrepreneurs will be to manage both the impact and long-term viability of their supply chains as competition over forest land for food, fibre and fuel production becomes increasingly critical. While the availability of private money is good news, particularly when official development assistance is coming under increasing pressure, there is also cause for concern. Private-sector interests are often misaligned with local and global public interests, and social and environmental concerns are sometimes far less important to investors than their primary interest in profitability. a crucial challenge for policy- makers will be to somehow reorient, increase and incentivize private finance to make it flow in adequate amounts towards sustainable, environmentally sound, and competitive forest management practices that can support responsible and profitable forest entrepreneurship. Partnerships between public and private actors, various types of investors, communities and intermediaries can make a big difference by creating synergies that build on shared interests. This issue of ETFRN News brings together 23 articles that present and analyze concrete examples of various private actors along the tropical forest-finance chain (small, medium and large forest entrepreneurs and intermediary and advisory organizations). The experience of these frontrunners — from medicinal plant cooperatives in china to good-practice credit schemes in the Peruvian amazon — presents a compelling case for Photo: Herman Savenije v revisiting business as usual. as policy-makers and private actors refine their strategy for seizing opportunities and managing the risks associated with emerging forest-related markets, these articles demonstrate that overall economic, social and environmental benefits can be reaped if investments are targeted correctly. We thank all the authors for their contributions and the editors for reviewing, compiling and producing this issue of ETFRN News. René Boot Juha Ojala Director Tropenbos International Director Department of Forests, Chair ETFRN Ministry of Agriculture and Forestry of Finland Peter A. Dewees Heiko Warnken Forests Adviser and PROFOR Program Manager Head of Division Environment and Sustainable Use of Agriculture and Environmental Services Department Natural Resources, Federal Ministry for Economic World Bank Cooperation and Development (BMZ), Germany Rob van Brouwershaven Ingwald Gschwandtl Director, Nature and Biodiversity Department Director, Head of Forest Policy and Forest Information Ministry of Economic Affairs of the Netherlands Federal Ministry of Agriculture, Forestry, Environment and Water Management of Austria Making private investments work for tropical forests – a synthesis ALExANDER ASEN, MARCO BOSCOLO, TUUKKA CASTRéN, HERMAN Savenije, FABIAN SCHMIDT and KEES van DIJK Tropenbos International Vietnam Tropenbos context Tropical forests are at the heart of a green economy and fundamental to human well-being. When managed responsibly, they generate ecosystem goods and services that are essential to securing stable environments for people’s welfare and for their economies to flourish. on a global scale, the renewability, recyclability and versatility of forest products make them a natural choice for a low-carbon future (un/EcE 2012).1 Yet the future of tropical forests is under threat. Deforestation, forest degradation and unsustainable practices – both within and outside the forest sector – continue to put immense pressure