Forestry can be an attractive opportunity for investors looking to invest in nature-based solutions (NbS) but is an asset class that requires a carefully tailored investment approach – especially when it comes to performing ESG due diligence.
Factors such as the size and timescales of projects, the diversity of project types, and the role of certification standards and emerging supply chain regulations can make forestry investments complex; understanding these specific characteristics is key to appropriately assessing, contracting and monitoring forestry investments.
Both the commercial success and the impact achieved of forestry investments depend substantially on excellent ESG performance. To achieve this, ESG principles must be placed at the centre of every forestry investment; ESG in forestry must be dynamically integrated over the whole life cycle of an investment, driving decision making and context-specific risk assessments. Mainstreaming ESG will assist investors in both de-risking forestry investments and allocating capital into the right places to generate effective returns for the long term – maximising both financial and impact return on investment.
The complexity of the forestry ESG processes can be daunting to new investors entering the sector. But increasing capital flow into good forestry projects and other NbS solutions is crucial to ensuring that we meet our global climate targets and slow the effects of environmental degradation. For this reason, empowering investors with comprehensive ESG knowledge is more important than ever to catalyze capital deployment into forests and nature.
Building investor confidence for investments in forests is the driver behind Mobilising Finance for Forests’ Learning, Convening and Influencing Platform (MFF LCIP) publishing the‘ESG Guide for Forestry Investments’. The Guide sets out environmental, social and governance considerations in the context of the growing global demand for wood and the acceleration of forest-based carbon credit programmes. It is therefore relevant to all investors seeking to advance climate and biodiversity goals by lending to, or investing in, forest sector projects in low and middle-income countries.
The Guide serves as an operational reference manual to upskill investors in forestry ESG considerations. It focuses on key information that an investor needs to know about forestry projects, and outlines which investigations are necessary in order to make informed investment decisions. A live tool, the Guide will be reviewed and updated over time to ensure that the most accurate and up-to-date information is available to investors. The publication is not a set of investment recommendations but a guide for investors in asking the right questions for robust ESG due diligence processes and to better understand forestry as a sector