Large-scale reforestation to become a $1trn investment opportunity, report finds
Landowners stand to create a $1trn investment opportunity by the end of this century, through action to restore degraded forest ecosystems, according to a new report.
Co-authored by forest-tech startup Terraformation and consultancy Frontier Economics, which is led by former Climate Change Committee lead Matthew Bell, the report plots the ever-improving business case for forest restoration.
It states that several factors have led to a growing restoration economy, including the growth of corporate interest in carbon offsetting and subsequent launch of bodies designed to ensure robust carbon markets for nature-based projects.
The Taskforce on Scaling Voluntary Carbon Markets, headed up by Mark Carney, notably formed its global independent governance body earlier this month. In 2020, the Taskforce estimated that the current market for offsets will need to grow by at least 15-fold by 2030 if the private sector is to align with the Paris Agreement’s 1.5C trajectory. By 2050, it may need to be up to 160 times bigger than in 2020.
Other factors which have made reforestation more popular and easier to invest in include increased research into biodiversity loss and restoration and falling costs of forest restoration technologies. To this latter point, solutions flagged in the report include off-grid solar-powered desalination and forest management apps.
There is also, the report notes, a trend towards governments setting – or preparing to set – stronger nature targets and to strengthen climate adaptation plans.
All of these factors mean that net financial returns resulting from investment into reforestation schemes could surpass $84bn by 2030, according to the report. And, by 2100, the cumulative total is likely to surpass $1trn. These figures cover both tropical and temperate forests and do not include the value of restored ecosystem services, such as improved soil quality and biodiversity.
The report does warn that this potential will not be realised without concerted efforts from landowners, policymakers, businesses and investors.
On the policy piece, the report implores governments to develop policies that incentivise landowners to restore land in the near future, such as a clear, long-term payment scheme that rewards the provision of ecosystem services. This is what the UK is currently hoping to shape through the post-Brexit Agriculture Bill.
Policymakers could also do more to clarify ownership rules and to intervene with local planning decisions where forests are concerned, Terraformation and Frontier Economics recommend.
Moreover, the report calls for global trade agreements to both ensure the protection of existing forests and increase trade in sustainable forest products, helping to reshape how the value of forests is measured and realised. Also on international agreements, governments are called upon to work with carbon offsetting schemes to help create more inclusive carbon markets, so that smaller landowners in developing nations can financially benefit.
As for investors, financial institutions are urged to act faster to create structured products to finance restoration and unlock large flows of capital. The report emphasises that the current value of restoring land can range from $3,000 to $20,000 per hectare, depending on the location and the level of historic degradation.
“The business case for restoration is increasingly clear – landowners and local communities stand to earn hundreds of billions of dollars in the coming decades, alongside the wider social and environmental reasons to restore marginal land,” Frontier Economics’ director Matthew Bell said.
“Acting to reduce climate change is increasingly a business proposition across many sectors of the global economy, as well as a social imperative. This analysis adds forestry to the growing list of areas where, with suitable government action, there are significant future business opportunities.”
The report comes shortly after a group of nine major philanthropic organisations jointly committed $5bn to habitat conservation and restoration, to be allocated over a ten-year period. The commitment is the largest of its kind to date and, in effect, covers the estimated cost of protecting 30% of land and water-based habitats globally by 2030.
This 30% target is the headline of the UN’s proposed post-2020 biodiversity accord. The document will be ratified after in-person negotiations, which have been pushed back to spring 2022 due to Covid-19.
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