PEFC Forest Certification Week 2013: Stakeholder Dialogue

Linking Sustainable Forest Product Supply Chains through Asia

PEFC Stakeholder Dialogue 2013

14-15th November, Kuala Lumpur

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Timber Certification and the Role of ITTO

Emmanuel ZE MEKA, Executive Director

International Tropical Timber Organisation

Bruno Cammaert

FAO Regional Office for Asia and the Pacific

Bangkok

PEFC Week, Kuala Lumpur, November 2013

State of forestry in the Asia-Pacific Region

Structure of the presentation

Forest cover change

Forest products

Forest use and tenure

Drivers of change

Progress towards SFM

Forests of Asia and the Pacific - 2010

OF TOTAL LAND AREA

740,000,000 ha

26%

But only 0.2 ha per person

Forest area by sub-region – 2010(million ha)

255

80214

191

Forest Area Change 1990-2010

0

100

200

300

400

500

600

700

800

East Asia SouthAsia

SoutheastAsia

Oceania Asia andthe Pacific

Are

a (

million h

ecta

res).

1990 2000 2010

Primary forests

19% OF ASIA-PACIFIC FORESTS

30% OF SOUTH EAST ASIA’S FORESTS

34% OF THE WORLD’S FORESTS

Other naturally regenerated forests

63% OF SOUTHEAST ASIA’S FOREST



Planted forests


7% OF SOUTHEAST ASIA’S FORESTS


Wood products – industrial round wood

ASIA

OCEANIA

Wood products – sawn wood, panels, and paper

Wood products – key trends

Significant decline in wood production in some countries Exhaustion of forest resources

Concerns about environmental protection

Regional focus International focus

Round wood exports Value-added exports

Emergence as a major producer/exporter of wooden furniture

Forest Tenure

Forest ownership in Asia-Pacific

Private sector

4%

Owned or administered

by governments

68%

Owned or designated for use by

communities28%

Forest Use

32% primarily for the production of wood and NWFPs

20% multiple-use management

14% Conservation of biodiversity

Key drivers of change

What happens to forests and forestry is determined to a large extent by what

happens outside the forestry sector and by larger societal changes.

Key drivers of change: Demographics

Asia-Pacific – world’s most densely populated region

Population increase 3.6 billion (2005) 4.2 billion (2020)

Greatest increases in densely populated “developing” countries

Urban population 38% people in urban areas (2005)47% people in urban areas (2020)

Key drivers of change: Economics

High growth rates increasing the demand for food, fiber and fuel

Poverty rates will decline, but the number of poor will remain high

Recent reductions, export orientated countries hit hardest (e.g., Cambodia, Malaysia, Thailand)

Swelling middle class

Structural changes: • Declining importance of agriculture in

income and employment• Globalization• Diminishing importance of the role of

governments

Key drivers of change: Agriculture

Agricultural expansion is the primary reason for forest conversion in many countries

A few agricultural crops account for a large proportion of deforestation

Rubber plantations are expanding in forest areas

Oil palm plantations set to spread significantly

Key drivers of change: Infrastructure

Road network expansion Road network expansion greatest in more greatest in more developed countries developed countries

Impacts greatest in less Impacts greatest in less developed countries developed countries

Key drivers of change: Politics and policies

Greater democracy and political accountability

Transparency in functioning and accountability of public institutions and officials – rights to information

Forest governance under increased public scrutiny

Demands for participation in public policy decision making

Shift from timber-focused management to multiple-use management

Greater emphasis on ecosystem services and sustainable development

Potential contributions of forestry to “green economy”

Key drivers of change: Societal and Environmental concerns

Local and national issues and actions

Global and regional environmental

drivers:

International commitments and the outcomes of climate change negotiationsPressure from stakeholders in the “global forest resource”

Progress toward Sustainable Forest Management

Improved stakeholder participation and local forest tenure mainstreamed into National Forest Programmes

Sustained efforts in

REDD+ readiness FLEGT: demand and supply Third party certification of

legality, SFM and

Chain-of-Custody Payments for ecosystem services (PES)

Thank you

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Snapshot of Forest Certification in the Asia region

Ben Gunneberg, Secretary General

PEFC Council

Forest Certification Globally

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• 10% of the world forests are certified (UNECE/FAO 2013)

• 28% of industrial roundwood production is certified• 60% of total certified area is PEFC

Forest Certification in Asia

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• 2% of forests in Asia are certified (UNECE/FAO 2013)

• 8% of forests in Southeast Asia are certified (WB/Profor 2012)

• 11% of production forests in Southeast Asia are certified(WB/Profor 2012)

National progress in Asia

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Source: 2013, Certification system’s published data

Markets – Chain of Custody

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• Total of 7768 CoC certificates in Asia

Source: 2013, Certification system’s published data

Reasons for optimism?

Legality & Governance issues being addresses at the highest levels

FSC actively promoting certification in many countries throughout the region – results are evident

PEFC working to scale up its Asia Promotions Initiative and expand our presence in the region

Number of national certification organizations emerging with the potential to achieve wider uptake in forests & markets

Companies continuing to make commitments to sourcing sustainable products – driving up demand signals

WBCSD Declaration, Consumer Goods Forum, Unilever, etc

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THANK YOU

PEFC International10 Route de l’Aéroport, 1215 Geneva, Switzerland

[email protected]

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The EU FLEGT Action Plan – lnfluencing Forest Industry

Transformation

EFI FLEGT Facil i tyAsia Regional Off ice

Kuala Lumpur, Malaysia14 November 2013

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EU FLEGT Action Plan – 2003

Objective:

Address the driving forces of i l legal logging both on the demand side as well as in the t imber producing

countries.

Course of Action/Main Instruments Public Procurement Policies (demand)Voluntary Partnership Agreements (supply)

EU Timber Regulation (demand and supply)

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FLEGT Global Historical perspective

1999 2000 2001 2002 2003 2009 20102004 2005 2006 2007 2008

G8 Forestry Action

Program-1998-

IL as 1 of 5 areas of action

2011 2012

US Lacey Act amendment

Australian Illegal Logging Prohibition Act

East Asia FLEGBali

Africa FLEG

Yaoundé

Europe & North Asia

FLEGSt Petersburg

Regional FLEG ministerialmeetings

FLEGT EU Action

Plan

FLEGT regulation

FLEGTimplementing

regulation

EU Timberregulation

EU FLEGT AP

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What is a Voluntary Partnership Agreement?

Legally-binding bilateral treaty (not “voluntary” once agreed)

Timber-producing countries agree to licence their timber exports as legal

EU agrees to accept only licensed importsBacked by EU trade legislation (2005 FLEGT Regulation) Legality assured through an agreed Timber Legality Assurance System (TLAS)

Supported where necessary with development cooperation

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EU Timber Regulation

What products are covered?

Most timber products are covered. The products covered may change in future.

Covered (almost all):

Not covered:

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• Solid wood products• Flooring• Plywood• Pulp and paper

• Recycled products• Musical instruments• Printed matter including

magazines, newspapers and books• Some special products, like wooden

toys

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How do businesses comply with the EU Timber

Regulation? Full implementation of VPA : Producing country’s timber accompanied by FLEGT-license which attests to its legality.

Other means of providing information on legality

• Private sector initiatives :Timber certified under the main

forest certification schemes is still subject to due diligence

requirements.

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FLEGT-related discussions at ASEAN level

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Promoting specif ic regional exchange to share lessons and address

challenges

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Thank youEU FLEGT FacilityTomi Tuomasjukka00358 50 433 [email protected]

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EU –China BCM

Bilateral Cooperation Mechanism on FLEG signed 2009, implementation started in 2010

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China-Africa FLEGT VPA Information-sharing Workshop, October 2013.

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Thank-you.




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FOREST CERTIFICATION & ILO CORE LABOUR CONVENTIONS

BWI – BUILDING WOOD WORKER’S INTERNATIONAL

WHO WE ARE

The BWI (www.bwint.org) :

• Global union Federations on Wood, Forestry, Construction and Building Material Sectors;

• 328 Free and Democratic Trade Unions around the world, 89 of them in Asia-Pacific Region;

• Representing more than 12 million members around the world;

• Number of International Framework Agreements (IFA’s):

• Mission: to promote the development of trade unions in our sectors throughout the world and to promote and enforce workers rights in the context of sustainable development.

Japan/China•Gov’t Agreement

Pacific•IP-SFM

•Legal Network•Organising

•Unsustainable Logging

SEA•Unsustainable logging

•Outsourcing•FC/MNC

•Organising

Pacific Rim Forestry Network

•Online

•Capacity Building

•Solidarity Actions

South Asia•Unsustainable logging

•Self-Help Groups•Organising

Mov

emen

t of

Fores

t Pro

ducts

VPA/FLE

GT

Climat

e Cha

nge

Carbo

n Tra

ding

SUPPORT GROUPSILO

Regional Networks

REGIONAL INITIATIVES

WOOD IS GOOD, CERTIFIED WOOD IS THE BEST!

REGIONAL COOPERATION POSSIBILITIES

WOOD IS GOOD, CERTIFIED WOOD IS THE BEST!

» Pan-ASEAN Timber Certification Initiative

» Climate Change

ASEAN

ADB

PILOT PROJECT COOPERATION ON MYANMAR FOREST CERTIFICATION

CERTIFICATION: WHY IS IT IMPORTANT?

Certification: • Ensures legality of the woods and

products;• Secures a higher priced, highly sought

after timber;

• Adds value to the wood products: Myanmar Timber is $500 per ton vs. Malaysian Timber is $20,000 per ton;

• Enables unions to organise and promote decent work.

PROPOSED PROGRAMME COOPERATION FRAMEWORK

• Evolve the national forestry certification scheme through tripartite mechanism process

• Confidence and Capacity Building Measures

• Strengthening of Technical Assistance in cooperation with MTCC and PEFC

• Tripartite workshop on promotion of Decent Work Agenda in wood and forestry industry

• Training progarmme on ILO Core Conventions• Joint training for auditors• Exchange programme

• Trade Union Development

FOREST CERTIFICATION & ILO CORE LABOUR CONVENTIONS

CERTIFICATION: WHY IS IT IMPORTANT?




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Responsible Asia Forestry and Trade A partnership for strengthening capacity and sharing knowledge

Chen Hin Keong, Forest Trade Programme Leader, TRAFFIC Andrew Ingles, Chief Technical Adviser, TNC November 2013

RAFT (2012-2015)

Provide capacity building & knowledge sharing services to promote trade in responsibly harvested & manufactured wood products

•More verified legal products traded

•More forests independently certified sustainably managed. RAFT recognizes the Forest Stewardship Council (FSC) certification scheme as the current premium standard

•Reduced CO2 emissions from land-use change & forestry

Institute for Global Environmental Strategies (IGES)• Analytical inputs on timber legality and sustainable forest management

certification

• Conducted a RAFT study on the potential role of Customs Authorities

• Produced the first draft of the ASEAN chain of custody guidelines for timber

• Undertaking a comprehensive review of timber legality issues in PNG

RAFT Partners

TFT (The Forest Trust)• RAFT work in Indonesia, Vietnam, Lao PDR & China

• Develops industry guidance documents for producers, processors & exporters on how to meet legality requirements

• Provides in-person practical training to:

• improve the level of legality compliance

• make progress towards credible certification standards in the factory & forest

• Tropical Forest Foundation (TFF)• RAFT work in Indonesia & Papua New Guinea

• RIL training for forest concessions & training organisations

• Facilitates legality & chain-of-custody audits & related trainings for forest industries and concessions

• Provides certification support in technical & management matters

RAFT Partners

TRAFFIC, the Wildlife Trade Monitoring Network • RAFT work in China, Indonesia, Lao PDR, Myanmar, and Viet Nam

• Contributes to awareness raising of forest managers & processors about:

• specific steps to ensure compliance with relevant forestry legislation

• where operators can find additional resources & assistance

• Provides support & capacity building for selected companies & industry associations on legality standards & verification systems

WWF Global Forest & Trade Network (GFTN)

• Alongside TRAFFIC, developing practical guidance for establishing legality verification systems including:

• updating GFTN’s “Guide to Legal and Responsible Sourcing and Exporting in a Shifting Legal Landscape”

• raising awareness and understanding of legality issues

• Providing technical assistance to selected tree growers, companies, industry associations & training institutions regarding legal compliance

• Providing support to forest management companies for mainstreaming legal & responsible forest management using GFTN’s existing model, tools and learning

RAFT Partners

The Nature Conservancy (TNC)• Provides strategic coordination for the RAFT Partnership as a whole

• Implements activities at the regional level and in China, Indonesia & PNG

• Supports policy and systems development governing land management & spatial planning

• Provides technical support to national timber legality verification systems in China and Indonesia

• Pioneering logging practices that reduce carbon emissions

• Helping roll out community-based natural resource management in PNG

RAFT Partners

.

RAFT Support:

•Some financial support for selected buyer-supplier dialogues & international knowledge sharing events

•Mostly provides technical assistance to governments, forest managers, wood processors, & buyers of wood products through its implementing partners

www.responsibleasia.org




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RECOFTC’s Regional Experiences with Forest Smallholders

Martin Greijmans

14 November 2013

PEFC Stakeholder Dialogue, Kuala Lumpur

Brief Organizational BackgroundBrief Organizational Background

•Mission: Local communities and indigenous people are actively engaged in sustainable management of forest landscapes

•Vision: Capacity development for optimum social, economic, and environmental benefits

•Engages with various stakeholders, including governments, NGOs, private sector and local communities

•Since its foundation in 1987, has trained over 25,000 people from more than 27 countries

3 Guiding Principles3 Guiding Principles

Good governance

Fair benefits Strong and secure rights

Transforming Forest

Conflicts

People, Forests, and

Climate Change

Securing Community

Forestry

Enhancing Livelihoods

and Markets

RECOFTC Knowledge

Hub

Training and learning

networks

Research, analysis and

synthesis

Strategic communication

Piloting and demonstrating

Capacity Development CycleRECOFTC’s Functional Approach

Forest Smallholders

More than 450 million people depend on forests in Asia and the Pacific, earning an income of 20%

Forest-based community enterprises account for 13-70% of all forestry enterprises

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ForInfo Project Teak Collateral

Background:• Teak harvested prematurely for

immediate cash needs• Lack of economic and silvicultural

consideration

Issuing Teak Management Certificates:• Tree valuation data, Farmer identity,

Plot location• Information for future planning:

thinning plans and thinning products

Outcomes:

• Smallholders secure clearer tenure rights

• Longer rotation of teak cultivation, mature trees more valuable

• Used as collateral for microfinance loans

• Certification provides stand and financial valuation

• Improve negotiating power of smallholders

Securing user rights and creating access to microfinance for smallholder teak plantations

ForInfo Project Teak Collateral

FSC Training of Trainers Asia

Aim:• Develop pool of local

trainers to support and respond to specific needs of smallholders in achieving FSC certification

• More clearly link certification to livelihoods, value chains, business models, and enhanced market linkages

November 22, 2013 87

Different scale of regulatory barriers according to forest type and tenure arrangement

The number of regulations increase along the continuum from plantations to natural forests, while for income per hectare is the opposite (i.e. higher for plantations than for natural forests)

FSC, PEFC, REDD, FLEGT may exacerbate regulations for communities & smallholders

RAFT and Conflict Transformation

• Promote social justice in SFM practices

• In part by reducing incidence and negative impact of natural resource conflict

RAFT and Conflict Transformation

Approach with RECOFTC:Training of Trainers in Conflict Transformation•Build confidence, skills, and connections of practitioners working with timber industry•Promoting collaborative management and conflict resolution helping producers attain certification•Promoting HCVF as a standard

FLEGT & RECOFTC Thailand

• In Thailand FLEGT allows for renewed claim for communities to play a role and become a respected actor in the timber sector

• RECOFTC is raising awareness of the CF Networks and CSOs about VPA process – Enabling them to participate actively future

government-led consultations

What’s Next?

• Beyond the forest:– Broad landscape approach– Link with agriculture and energy policies

• Improve capacity of small entrepreneurs– Business planning & development skills– Links to markets, finance, policy processes

• Ex: Rights and Resources Initiative (RRI) collaboration,• Ongoing efforts to engage communities and improve role in

forest sector– RECOFTC brokering PPP processes: collaboration with private

sector with increased understanding, mutual gain– Ex: Stora Enso

Forest Connect Asia

• Support smallholder enterprises to connect to each other, policies and markets

• FCA to build enterprise capacity, facilitating and broker linkages, pilot and document best practices in their specific context

Asia

For further information, please contact

Martin Greijmans

[email protected]

www.recoftc.org

Thank You




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Investors supporting transformation towards sustainability in the forestry sector

Adam GrantManager, Certification and Environmental Markets

PEFCKuala Lumpur, Malaysia November 2013

Important Note

© New Forests 2013. This publication is the property of New Forests. This material may not be reproduced or used in any form or medium without express written permission.

The information contained in this publication is of a general nature and is intended for discussion purposes only. The information does not constitute financial product advice or provides a recommendation to enter into any investment. This presentation has been prepared without taking account of any person’s objectives, financial situation or needs. This is not an offer to buy or sell, nor a solicitation of an offer to buy or sell any security or other financial instrument. Past performance is not a guide to future performance. Past performance is not a reliable indicator of future performance. You should consider obtaining independent professional advice before making any financial decisions. The terms set forth herein are based on information obtained from sources that New Forests believes to be reliable, but New Forests makes no representations as to, and accepts no responsibility or liability for, the accuracy, reliability or completeness of the information. Except insofar as liability under any statute cannot be excluded, New Forests, including all companies within the New Forests group, and all directors, employees and consultants, do not accept any liability for any loss or damage (whether direct, indirect, consequential or otherwise) arising from the use of this presentation.

The information contained in this publication may include financial and business projections that are based on a large number of assumptions, any of which could prove to be significantly incorrect. New Forests notes that all projections, valuations, and statistical analyses are subjective illustrations based on one or more among many alternative methodologies that may produce different results. Projections, valuations, and statistical analyses included herein should not be viewed as facts, predictions or the only possible outcome. Before considering any investment, potential investors should conduct such enquiries and investigations as the investor deems necessary and consult with its own legal, accounting and tax advisors in order to make an independent determination of the suitability, risk and merits of any investment.

New Forests Advisory Pty Limited (ACN 114 545 274) is the holder of AFSL No 301556. New Forests Asset Management Pty Limited (ACN 114 545 283) is registered with the Australian Securities and Investments Commission and is an Authorised Representative of New Forests Advisory Pty Limited (ACN 114 545 274, AFSL 301556). New Forests Inc. has filed as an exempt reporting adviser with the Securities and Exchange Commission.

Overview of New Forests

Founded in 2005

Managing forestry investment for institutional investment clients

Currently managing nearly US$2 billion in assets in the Asia-Pacific region

Head office in Sydney; 38 employees in Australia, New Zealand, Singapore, and San Francisco

Managing over 420,000 hectares of land and forestry assets across the Asia-Pacific region and United States

New Forests has generated excellent returns to our clients over 8 years, and has aimed to operate as a leading sustainable and responsible investor in the forestry sector

What Differentiates New Forests?

Strategically, New Forests is… 1. Focused on Asia Pacific opportunities

Unique for a TIMO—headquartered in Sydney with an office in Singapore Largest forestland owner in Australia and active in markets throughout

Australia, New Zealand, and Asia Providing investors with exposure to the integrated Asia Pacific regional

timber trade–extensive experience in domestic and export markets1. A leader in sustainable forest management

Investment team experienced in sustainable forest management and environmental markets; company-wide Social and Environmental Management System

Member of Forest Stewardship Council (FSC) International and FSC Australia

Signatory to United Nations Principles for Responsible Investment (PRI)3. Forward Thinking

Engaged with international NGOs, and participating in global initiatives including World Economic Forum Global Council, Aspen Institute, etc.

New Forests’ Business

Back Office, Administration, Risk and Compliance Systems and Governance

Financial and Forest Resource Modeling Services

Sustainability and Responsible Investment

Investor Services

Tropical Asia Forest Fund - TAFFTAFF is a commingled fund investing in tropical timber plantations in South East Asia with US$171 million in commitments. Clients include pension funds and development banks.Forestry in Asia is changing:Originated from logging concessions in natural forestsLow cost of timber from these concessions meant attractive returns were possible without operating efficiently or sustainablyNatural forest timber has been largely depletedGlobal concern over rainforest logging and a demand for certification and sustainable forest management models are on the riseFast-growing, high-quality managed timber plantation estates are emerging as the basis for the future of the industry, which will require significant capital

TAFF will:Invest in existing forestry enterprises or assetsUpgrade and expand those businessesHelp Implement modern forestry systems and practicesObtain certification and where possible, access environmental marketsExit after 10-15 years of investment

1. Shift to plantations and the declining economic frontier of natural forests

2. Global timber demand growing and restructuring to accommodate Asian demand growth

3. Shifts in Pulp & Paper markets and increasing demand for bio-energy, bio-fuels, and other bio-products

4. Rising institutional ownership of high productivity timber plantations

5. Sustainability imperatives and the pricing of ecosystem services

The Changing Forestry Landscape

Three-year old Teak Plantation – Solomon Islands

Natural Forest Harvest in SE Asia in Decline

Steady Decline in Natural Forest Logging in Malaysia and Indonesia

Sources: Malaysia Timber Council and personal communication with Yayasan Sabah; ITTO; Indonesian Forestry Department Annual Report, 2008.

Limited Plantation Investment

Asia has lagged behind other regions in the development of

commercial plantations for higher value end uses. Significant

plantation areas in Indonesia, South China (approximately 6.0

million hectares) and Vietnam are being grown on short rotations

for chip/pulpwood only.

Source: New Forests Asia estimates based upon RISI 2011 Pulp and Chip wood Conference, ITTO 2005 Sustainable Forestry Management Report, and government data sets. Data does not include rubber estates and is based on private/government commercial scale plantations not small holders (except for Thailand where small scale private growers are fundamental to the industry)

Both China and Vietnam currently import plantation hardwoods

from South America, North America, Europe and Africa

primarily to fulfill demand for certified timber. There are

significant cost advantages to regional sourcing.

Opportunities for TAFF

Investing in Southeast Asia with priority for Indonesia, Malaysia, and Vietnam

Attractive growing conditions, low costs, and close access to growing markets

Investment team in financial hub of Singapore

Combination of existing and “greenfield” plantations

Environmental, Social & Governance (ESG) factors and environmental markets offer value-add opportunities

4-year old clonal teak in Java

Sustainability as a “Stay in Business” Issue

Institutional Investors require sustainability policy, labour policy, corruption and bribery standards, use of certification, and monitoring of performance standards

Major consumer groups are increasingly demanding certification or product chain of custody documentation

Governments are under pressure to create business environment that will encourage investment and support competitiveness of local industry

Sustainability at New Forests

Sustainability Reporting

New Forests is a signatory to the UN Principles for Responsible Investment (PRI) and commits to integrating Environment, Society, and Governance (ESG) principles into investment decision making

ESG policies are implemented at the fund level through a Social & Environmental Management System (SEMS) with internal auditing

The SEMS defines third-party certification and responsible management requirements relevant to the asset class and type of investment

Sustainability reporting is integrated into funds reporting structure and New Forests publishes an annual Sustainability Report covering responsible investment activities, targets, and progress

Environmental, social and governance best practice will ensure TAFF contributes to: Reduced greenhouse gas emissions and other forms of pollution Maintenance or enhancement of high conservation value forests and biodiversity Improvements in local livelihoods and safe working conditions Recognition of indigenous rights

Third-party verified sustainable forest management will add significant value: Price premiums and better market access for certain products Lower project and political risk through reduced social conflicts Improved asset liquidity and lower risk-adjusted discount rates on exit Lower cost of debt capital and better debt access, especially from development banks Improved access to licences, operating permits or additional assets from host countries Reputational risk reduction for fund investors Opportunities for increasing operating efficiencies through better management Opportunities for environmental market products from areas set aside from production

TAFF Sustainability Goals

New Forests is committed to sustainable management of TAFF investments

Forests provide not only timber, but a myriad of other benefits related to freshwater, carbon cycling, biodiversity conservation, human health, and well being

These ecosystem services have not been priced and therefore are used wastefully and disregarded in land conversion decisions

Leads to plantation and agribusiness industry using more land rather than increasing productivity per hectare

Policy in conflict with overwhelming economic fundamentals is difficult to enforce on a sustainable basis

Opportunity Costs in the Landscape

Markets set prices for timber products, but how do we value other benefits?

Innovating Markets

New Forests established Malua BioBank in 2008 with seed investment from The Eco

Products Fund.

The project creates an alternative economic value for Borneo’s rainforests and offers sustainability solutions for oil

palm supply chain.Unlocking Demand for Biodiversity-Roundtable on Sustainable Palm Oil (RSPO)

compensation mechanism for past HCV clearance

-Forest Stewardship Council (FSC) compensation mechanism for past “downwards conversion”

Further Investment Potential-Carbon value through proven methodology

-Impact or CSR investment to catalyze biodiversity market growth and establish sustainable brand value

Price signals work SO2 market drove changes in fuel from high to low sulphur coal EU Emissions Trading Scheme (ETS) drove $ billions into carbon funds and carbon

companies Australian water market restructured agriculture to increased efficiency and more

valuable cropping US Mitigation Banking is a $billion+ turnover industry

The finance and investment sector can facilitate change Investment funds sprang up related to the EU ETS, Australian Water market, and

Mitigation banking industry—creates liquidity to meet market needs Markets create transparency in pricing; futures and options create stability; water

rights as collateral for investment in water use efficiency Stability is necessary, but fine-tuning is also necessary

Meddling by Government killed the SO2 markets Excessive allocations and unexpectedly huge offset supply have made the EU ETS

unstable It needs to cost more to remain outside rather than inside a scheme

Lack of price premium has hampered most voluntary certification schemes REDD has struggled to have impact because private sector is disengaged and

continues to operate on a business as usual basis

Environmental Markets Lessons Learned

Projections are that global industrial roundwood demand will begin to plateau around 2.3-2.5 billion m3 per annum in 2030.

100 to 150 million hectares of commercial plantation area (2.5-3.75% of world forest cover) could supply most of this timber, while timber production from frontier regions (Canada, Russia, tropical natural forests) will stabilize or decline. Biomass demand may double this.

Towards the Future

Mechanisms to price ecosystems via REDD, BioBanking, watershed protection, etc. alongside commercial timber plantations could produce the basis for the stabilization of conservation and production functions

Large scale ‘deals’ like NZ, Australia, Indonesia-Norway, Boreal Canada, etc.

Ultimately this must be driven by private capital and investment

Can forestry represent a “natural infrastructure” asset class?

Canopy view of New Forests’ Malua Biobank in Sabah, Malaysia.

World timber demand will continue to rise, markets will evolve to encompass Asian demand growth

Supply increases will primarily come from timber plantations, rather than further expansion of the economic margin in primary forests

Increases in plantation area are more difficult to achieve than increases in productivity of existing plantation base—land competition will also rise among food, energy, and fibre crops

Institutional portfolios have gone from 5% real assets in 2000 to 15% real assets today, and likely will reach 25-30% by 2025—huge inflow of capital for real estate, infrastructure, agriculture, forestry, etc.

Need fopr a financing source for conservation as well as production—this could include REDD+, biobanking, water rights, no net loss supply chains, etc.

Social and community integration via benefit sharing, consultation, and governance models, and respect for traditional and legal rights will be core to sustainable outcomes

Key Points & Conclusions

www.newforests.com.au

Appendices

July 2005 – Company established in Sydney and

receives Australian Financial Service Licence

May 2007 – Establishes US office

August 2008 – Establishes SE Asian office

October 2009 – Begins Funds Management Business

August 2010 – Closes the AU$490 million Australia New

Zealand Forest Fund

New Forests’ History

January 2011 – Closes AU$415 million acquisition of 270,000 hectares of Australian forest land from the Receivers of Great Southern Plantations

2011-2012 – Acquires major softwood plantations and softwood sawmills in Australia

June 2013 – Final close of the New Forests Tropical Asia Forest Fund, now with commitments of US$171 million, and first close of the New Forests Australia New Zealand Forest Fund 2 with AU$570 in commitments

June 2013 Makes first Asian investment, acquiring Hijauan Benkoka plantations in Sabah

Supply from Russia is Declining

Russian softwood exports have hit a wall…

Russian log exports have fallen dramatically over the past six years while lumber exports have been flat to slightly increasing.

Source: FAOstat

Canadian Supply Falling

Policy Constraints and Mountain Pine Beetle impact will lead to near-term decline in timber supply, leveling off in the medium to long term.

Source: Mark Kennedy, CIBC. “Global Perspectives on Forest Products Trade.” Presentation to Future Forestry Finance 2012.

Natural Forest Logging Collapse (repeated from main preso)Regional Collapse in Natural Forest Logging in Malaysia and Indonesia

Sources: Malaysia Timber Council and personal communication with Yayasan Sabah. / Indonesian Forestry Department Annual Report, 2008.

Australian Plantation Harvest RisingAustralian hardwood plantations are steadily replacing

a declining supply from native forests

Source: ABARES, Forest and Wood Product Statistics.

Global industrial roundwood demand is likely to rise from 1.5 billion m3 in 2013 to 2.5 billion m3 by 2050

Somewhat speculative forecasts suggest biomass energy, biofuels and biomaterials demand could dwarf industrial roundwood demand over next 30 years*

Almost all incremental supply will come from timber plantations—both productivity enhancement and plantation area will need to increase

Investment needed could range between $100 and $500 billion to meet these levels of demand

Increasing Importance of Plantations

Source: FAO, 2010. Global Forest Resource Assessment.

*WWF, 2013 Living Planet Report

If industrial wood demand grows at an equivalent rate to global GDP can we meet much of this via productivity enhancement rather than land base expansion

Investor strategies focus on silviculture, nutrition, risk management and genetics to increase productivity by 50-100% over the next 50 years

Example of Productivity Gains – Softwood in AustraliaExample of Productivity Gains – Softwood in Australia

Plantation Productivity Can Increase

*Source: Timberlands Pacific Pty Ltd

Future wood supply growth will largely be delivered by plantations—this will be from existing plantations managed more intensively and expansion of plantation area—expansion is a key policy challenge

As timber plantations take on increasing share of wood supply, innovation is needed in financial mechanisms for forest conservation—REDD, biobanks, supply chain initiatives

Social outcomes need to balance multiple stakeholders and conflicting interests and rights. Innovations around consultation/governance models, sharing in economic benefits, community benefits are needed

What Government Policies are Needed?

A modern forest policy framework needs to address wood supply, forest conservation and sustainability issues

Third-party verified sustainable forest management will add significant value: Price premiums and better market access for certain products Lower project and political risk through reduced social conflicts Improved asset liquidity and lower risk-adjusted discount rates on exit Lower cost of debt capital and better debt access, especially from development banks Improved access to licences, operating permits, or additional assets from host countries Reputational risk reduction for fund investors Opportunities for increasing operating efficiencies through better management Opportunities for environmental market products from areas set aside from production

TAFF Certification Policy: Achieve compliance against IFC Performance Standards within three years of acquisition on all

assets including plantations, natural forests, and processing facilities Achieve FSC certification on all natural forests within three years of acquisition if the asset

meets all FSC eligibility criteria Where plantation assets do not meet all FSC eligibility criteria, engage an FSC-accredited

certification body to undertake third-party verification of compliance with all applicable FSC requirements and, depending on market requirements, pursue additional third-party certification against an alternative certification system depending on market demands such as PEFC, LEI, FSC controlled wood, VLO, and/or VLC or other future standard that may be developed

TAFF Certification & Sustainability

New Forests is committed to sustainable management of TAFF investments

External Motivations

New Forests designed its Social and Environmental Management System (“SEMS”) in 2010 and began full implementation in 2011.

The SEMS is designed to systematically identify, manage, and report on social and environmental issues and potential impacts.

The SEMS helps us win clients: English pension fund manager said, “You’re the only manager we’ve seen

who can show how they manage assets sustainably.” Dutch pension fund manager said, “FSC certification is absolutely required

for us as a target and your SEMS shows us how you pursue that.” Provides a reference point and tool for due diligence

The SEMS helps us provide client services and meet requests: Current clients ask to see audit reports Streamlines responses to client inquiries

Risk management and continual improvement.




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PEFC Forest Certification Week 2013: Stakeholder Dialogue

News & Politics

Transcript of PEFC Forest Certification Week 2013: Stakeholder Dialogue