To meet global climate targets, we need to scale up investment in sustainable forestry and nature positive businesses.

But forestry investments are often complex, thanks in part to project sizes, long timelines, the wide range of project types, and the intricacies of emerging certification standards and regulations.

Successful forestry investments that deliver both commercial returns and impact rely on strong ESG performance. Including ESG investment criteria is important because it helps investors to manage the risks and opportunities related to environmental, social, and governance issues within specific investment opportunities.

This complexity is proving to be daunting for investors – and ultimately deterring new investors from entering the market.

Building Investor Understanding of Forestry and Nature-Based Solutions

Building investor confidence in protecting and restoring tropical forests is the driver behind Mobilising Finance for Forests’ Learning, Convening and Influencing Platform (MFF LCIP). MFF is a UK-government funded blended finance investment program aimed at combatting deforestation and other environmentally unsustainable land use practices contributing to global climate change.

The LCIP, delivered by Palladium and Systemiq, recently published the ‘The ESG Guide to Forestry Investments.’ The guide’s main goal is to support investors to ask the right questions and build their understanding of forestry projects and what robust ESG looks like in those projects. It also provides key information that an investor needs to know about forestry projects and outlines the necessary steps and information to make informed investment decisions.

While the guide doesn’t make investment recommendations, it’s designed as a reference tool to provide comprehensive information to deal teams at every stage of the investment process to ensure well-informed decision-making aligned with individual investors’ unique strategies, mandates, and risk appetites.

There are different ways to integrate ESG considerations in the investment process, and there is no one-size-fits all approach. It will vary depending on the type of investment, project characteristics, as well as specific local conditions, including the state of the environment and local social dynamics.

“Increasing the flow of capital into good forestry projects and other nature-based solutions is crucial to ensuring that we meet our global climate and biodiversity targets and slow the effects of environmental degradation,” says Martin Belcher, Palladium Director of Monitoring, Evaluation, and Learning and member of the LCIP team. “The challenge of ESG risk perception and robust risk mitigation is what often blocks or delays investment decisions. Ultimately, if we get investors more comfortable and familiar with identifying and managing those risks, then that will help accelerate those capital flows.”

“We hope that the guide will help do that.”

The guide specifically focuses on the forestry sector in emerging markets; including businesses that produce and process wood and wood products as well as carbon credits. As 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.

Navigating ESG Considerations Unique to the Forestry Sector

This guide is the culmination of decades of experience investing in forestry, particularly in tropical forest countries and emerging markets.

The forestry asset class is defined by characteristics that are particular to the sector and give rise to unique ESG considerations. Those considerations include scale and the fact that projects span large areas of land, long time frames, diverse projects across sectors including natural resource management and processing, marketing, carbon credits, ecosystem services, and dependence on certifications, and finally supply chain regulations.

This calls for specialist understanding of the sector to support an integrated approach to ESG together with active monitoring to facilitate adaptive management approaches and ensure high-quality forestry projects that deliver positive impacts for climate, biodiversity, and local communities.

Download the ESG Guide for Forestry Investments or contact info@thepalladiumgroup.com for more.