Investments: an introduction

Investments Goods and services

Payment Sources

Goal:Increment Revenues

Types:Environmental ServicesGoods (timber, NTFP)Tax reduction

Sources:Society, State, consumers, NGO etc.

SFM by forest owner/

Manager(Communities, State,

NGOs, private enterprise)

Financing (distribution) mechanism

StateBankFundProject/Programme

(Bundling)

Payment (revenue) mechanism

MarketNegotiated dealsStateFund(Bundling)

Plantations/Natural Forests/ National Parks /Agroforestry

Enabling environment for financing strategy

Guided by national forest programme (nfp) principles

Financing Sources

Goal:Reduce CostsLiquidity provisionRisk Mitigation

Types:SubsidiesTax reductionCreditsInvestmentsFunds

Sources: State, Donors, Banks, institutional investors, pension funds, stock market

Source of concept: Savenije & van Dijk, persComm. 2007

National Forest Financing Strategy:

a multi stakeholder process

‘Investments’: characteristics

Encourage willingness of others to invest in forests Reduce cost of investment Remove structural barriers

Sometimes direct investment Focus on purchase, establishment or

maintenance of forest Often government or international

agencies involved

Investment financing: What it is not

Financing not directly related to volume of output of products and services,

No buyer and seller of the forest product or service

No market for products and services, but:

Yes, sometimes a market for the capital flows

Investments versus goods/services financing

Seems ‘traditional’ versus ‘innovative’

Innovative not better because it’s new

Selection of proper channel depends on local circumstances

Also depends on politics: role of the government

Investments Sources & Mechanisms

Government fundingDonations, bilateral multilateral aid,

multilateral agencies and agreements Environmental fundsTaxation measuresFavorable creditsSubsidiesCapital market

Government funding

Support to forest owners by forest service Advice Seedlings

Provision of funds to buy forestsGovernment provides funds to

manage the state forests

Bilateral and multilateral aid (1)

ODA: a major source for financing SFM But only 10% of world wide spending on

forest management (which is not necessarily SFM)

Focus on poverty alleviation, MDGs Catalyzing role, leverage function Sometimes debt-for-nature swap as an

instrument

Bilateral and multilateral aid (2)

Multilateral agencies and agreements: Sources of funding with their specific

mechanisms Examples: GEF; ITTA and ITTO; UNCCD;

NFP facility; PROFOR at Worldbank Mostly project based Favored beneficiaries: government and

civil society

National Environmental Funds

In more than 30 countries, since 1990ies

‘Investment’ but not ‘traditional’Examples:

National trust funds; Foundations; Endowment funds; Conservation trust fund (independent from government)

Taxation measures

Costs of forest establishment & management deductible from tax Land rent Personal income tax

Fiscal transfers: polluter pays to sustainable producer

Ecological value-added-tax (VAT): Part of a tax is transferred to a fund for

forests or water management

Favorable credits

Low interest, long period to pay credit back, period of grace

Not always exclusively directed at forest sector: Agricultural sector Enterprises

Subsidies

For forest establishment, MaintenanceProtectionMany examples e.g. in Costa Rica

Capital market (1)

A company acquires immature forests and plants new forest, makes contracts for management and maintenance and

even long term contracts for harvesting and selling the timber.

based on these contracts securitized financial instrument will be issued backed by the net cash flows generated from the harvest and commercialization of the forest products.

Advantages: Fund investors will receive dividends and a return of capital. important environmental impact Small and medium landowners significantly increase their

current income and can monetize and optimize the value of their current landholdings.

Capital market (2)

A pension fund example: Swiss pension fund buys a forest

concession in Brazil Hires expertise to manage the

concession Establishes a saw-mill Looks for international marketing

expertise